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||Neutral Citation Number:  EWCA Civ 406
||Case No: C1/2007/0500
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM ADMINISTRATIVE COURT
MR JUSTICE LLOYD JONES
||Royal Courts of Justice
Strand, London, WC2A 2LL
||2nd May 2007
B e f o r e :
THE RT HON. LORD JUSTICE WARD
THE RT HON. LORD JUSTICE SEDLEY
THE RT HON. LORD JUSTICE HOOPER
Mr Paul Downes, Mr Peter de Verneuil-Smith and Miss Helen Wolstenholme (instructed by Malletts) for the appellant
Mr Jonathan Hall (instructed by Legal Team, SOCA) for the respondent; (and instructed by Solicitor's Office, HMRC) for the Interested Party
Hearing dates: 15th and 21st March 2007
HTML VERSION OF JUDGMENT
Crown Copyright ©
Lord Justice Ward:
- This case came to us as an urgent application by UMBS Online Ltd ("UMBS") for permission to appeal against the order made by Lloyd Jones J on 5th March 2007 dismissing its application for judicial review of two decisions dated 21st February and 27th February 2007 made by the respondent, the Serious Organised Crime Agency ("SOCA"), refusing to grant consent to Laiki Bank ("the Bank") to carry out the banking mandate of its customer Currency Solutions Ltd ("CS") dealing with funds held on trust for UMBS. Lloyd Jones J refused permission to apply for judicial review because no arguable case had been established to his satisfaction. Because of the urgency, I directed the appeal to follow if permission were granted.
- In the events which have happened, the matter has taken an unusual course, the upshot of which has been that on 15th March we decided under CPR 52.15 that instead of giving permission to appeal that part of the order relating to the second decision of 27th February, we would give permission to apply for judicial review and would decide it ourselves. We concluded that the refusal of consent in that letter was unlawful and we ordered SOCA urgently to reconsider the request contained in UMBS' letter of 26th February in the light of any further material including that provided by the claimant. This judgment sets out our reasons for that order.
- We also adjourned the remainder of this application with liberty to restore it. UMBS duly gave notice seeking a further hearing on 21st March. On 19th March SOCA again refused consent and UMBS now seek also judicial review of that decision. On 21st March we heard further argument and decided pursuant to CPR 52.15 that we should give permission to apply for judicial review of the first decision of 21st February and direct that matter to proceed in the Administrative Court together with the review of the third decision of 19th March if that met with the High Court's approval. We gave short reasons for taking that course and repeat them here.
The legislative background
- At the heart of the controversy is the application of the Proceeds of Crime Act 2002 ("POCA"). Part 7 deals with money laundering. Hoping not to over-simplify a complex set of provisions, I can summarise the operation of this part shortly. Ss. 327, 328 and 329 make it an offence to engage in a range of activities such as concealing, or being concerned in arrangements dealing with, or acquiring, using or possessing criminal property, which, as defined by s.340, is property which constitutes a person's benefit from criminal conduct and the offender knows or suspects it. S. 328 is probably the most material provision in this case because it makes it an offence to enter into or become concerned in an arrangement known or suspected to facilitate (by whatever means) the acquisition, retention, use or control of criminal property by or on behalf of another person. Thus a bank would commit an offence if it allowed ordinary banking business to be conducted in respect of funds suspected to be criminal property unless the bank had made an authorised disclosure under s. 338 and received the appropriate consent under ss. 335. Ss. 330, 331and 332 make it an offence for a person not to disclose to SOCA that he knows or suspects that another is engaged in money laundering. S. 333 is the tipping off provision whereby it is an offence for a person who knows or suspects that a protected or authorised disclosures under s 337 or 338 has been made to disclose anything which would prejudice any investigation into the suspected criminal conduct.
- S. 335 is central to this case. It deals with the appropriate consent which the bank must have lawfully to allow the operation of the customer's account. It provides as follows:
"(1) The appropriate consent is –
(a) the consent of a nominated officer to do a prohibited act if an authorised disclosure is made to the nominated officer;
(b) the consent of a constable to do a prohibited act if an authorised disclosure is made to a constable;
(c) the consent of an officer of Revenue and Customs to do a prohibited act if an authorised disclosure is made to an officer of Revenue and Customs.
(2) A person may be treated as having the appropriate consent if –
(a) he makes an authorised disclosure to a constable or an officer of Revenue and Customs, and
(b) the condition in subsection (3) or the condition in subsection (4) is satisfied.
(3) The condition is that before the end of the notice period he does not receive notice from a constable or officer of Revenue and Customs that consent to the doing of the act is refused.
(4) The condition is that –
(a) before the end of the notice period he receives notice from a constable or officer of Revenue and Customs that consent to the doing of the act is refused, and
(b) the moratorium period has expired.
(5) The notice period is the period of 7 working days starting with the first working day after the person makes the disclosure.
(6) The moratorium period is the period of 31 days starting with the day on which the person receives notice that consent to the doing of the act is refused.
(7) A working day is a day other than a Saturday, Sunday, Christmas Day, Good Friday or a day which is a bank holiday …
(9) A nominated officer is a person nominated to received disclosures under s. 338."
In essence, therefore, SOCA have an initial 7 working days to consider the material before them and to decide what action to take. If they do not refuse the Bank consent to the operation of the account before the end of that initial notice period, then consent is deemed to have been given. If, however, they do refuse consent, then they have a further period of 31 days to continue their investigation. No one may deal with the suspect account and, although Mr Hall for SOCA does not like the word, the reality is that the account is frozen and there is precious little the customer, and his customers, can do about it.
- If during this moratorium period it appears necessary to start a criminal investigation with regard to an offence and there is reasonable cause to believe that the alleged offender has benefited from his criminal conduct, then application may be made to the Crown Court for a restraint order under s. 41 to prohibit any dealing with any realisable property of the alleged offender (including, of course, funds in his bank account).
- POCA is the culmination of legislation aimed at preventing money laundering which began with the Drug Trafficking Offences Act 1986. En route the National Criminal Intelligence Service (NCIS) was created in 1992. It has been replaced by the respondent, SOCA, established by the Serious Organised Crime and Police Act 2005. SOCA's functions are among other things to prevent and detect serious organised crime and to mitigate its consequences. If conduct under its investigation indicates revenue fraud, then the Commissioners for Her Majesty's Revenue and Customs must be involved. The Commissioners have taken over the investigations in this case. In the exercise of its functions, SOCA must have regard inter alia to its current annual plan. This sets among its generic priorities the need "to increase the amount of criminal assets recovered and increase the proportion of cases in which the proceeds of crime are pursued."
- In the appellant's view this is a raft of legislation of which Dracon, the Athenian legislator, would have been proud. Mr Downes, for UMBS, endorses Longmore L.J.'s comment in K Limited v National Westminster Bank & ors  EWCA Civ 1039 at paragraph 23 that the terms of the Act have, "not surprisingly, given rise to concern". The operation of the Act certainly has given us a great deal of concern. UMBS complain, and there is force in the complaints, that, for example:
(1) the blocking of an account is triggered by no more than suspicion, not even reasonable suspicion;
(2) the cardinal freedom of the individual to be presumed innocent until proved guilty is blown away;
(3) incalculable harm may be done to the person under investigation as the account can be frozen for 40 days in all (non-working days being excluded from the initial period);
(4) there is consequently prejudice to clients and customers of the person under suspicion: they too can face ruin;
(5) SOCA may be amenable to judicial review but the difficulties of proving an abuse of its power are huge and more often than not the theoretical remedy is in reality worthless. To add to the difficulties, recovery of damages for any loss suffered may not be straightforward in a case like this.
- In the respondent's view, on the other hand, POCA is a sharp but essential modern weapon in the fight against organised crime which gives SOCA and other law enforcement bodies the ability to counter-attack, and then pursue and recover the proceeds of the criminal activity. Mr Hall also relies on the judgment of Longmore L.J. in K Limited where in paragraph 22 he said, albeit in a case where the customer was seeking a mandatory injunction against its bankers to honour their mandate and operate his frozen account:
"The truth is that Parliament has struck a precise and workable balance of conflicting interests in the 2002 Act. It is, of course, true that to intervene between a banker and his customer in the performance of the contract of mandate is a serious interference with the free flow of trade. But Parliament has considered that a limited interference is to be tolerated in preference to allowing the undoubted evil of money-laundering to run rife in the commercial community. The fact that the interference lasts only for 7 working days in what we were told were the majority of cases and a further 31 days only, unless the relevant authority go to the length of applying to the court for a restraint order when all cards will have to be on the table in any event, shows that the interference with freedom of trade is limited. Many people would think a reasonable balance has been struck."
The factual background
- Overseas Capital Ltd is a New Zealand Company whose main activity is to help clients worldwide to establish offshore finance companies (an "OFC") which, according to its website:
"can offer its services to both private individuals and corporate customers worldwide. The OFC can engage in activities which in most jurisdictions would require a full bank licence, yet the OFC can remain virtually unregulated. We offer a complete compliant service to ensure that your OFC is always up to date with local laws and reporting requirements."
- As I understand it, UMBS began its operations on 24th February 2006 as a credit union registered under the laws of Sweden in the name of Universal Mercantile Building Society Ekonomisk Forening ("UMBS EF"). It carried on its business subject to some control by the Swedish financial services authority but as an OFC it operated without the need for regulation, yet it had authority to take deposits and make loans. By November 2006 its members began to approach the permitted maximum of one thousand in number and it was thus necessary to cease operations from Sweden. Its activities are currently under investigation by the Swedish revenue and VAT authorities but Mr Michael McGrath, a director of UMBS, protests that that has nothing to do with his company.
- The business of UMBS has since continued through the incorporation of the appellant company in New Zealand on 27th November 2006. It conducts its international business entirely over the internet, but it has a physical presence in the United Kingdom with two directors and eight members of staff operating from offices in Wembley in north London.
- As a New Zealand OFC it can engage in a whole raft of financial services to both private individuals and corporate customers worldwide including such activities as deposit taking and lending, debit and credit card services, issuing of financial guarantees and instruments, cash management services, current accounts, checking accounts, wire transfer services, payment processing solutions, fund management and marketing and investments. It claims to comply with UK money laundering obligations, has a money laundering compliance certificate and is authorised by Her Majesty's Revenue and Customs as a money transmitter.
- UMBS offers a 24 hours a day, 365 days a year service. Their bespoke computer package enables its customers to make inbound deposits, "intra-account transfers", that is to say transfers from one existing OFC customer to another OFC customer, and outbound external payments, i.e. transfers from the customer's account with an OFC to an external bank account. There are apparently a number of distinct advantages to traders making payments online via UMBS as opposed to dealing direct with a high street bank. Mr McGrath explained the benefit by way of this example:
"Customer A is in Hong Kong and customer B is in the United Kingdom. Both are existing customers of UMBS and have online accounts with us. Customer A has stock which customer B wishes to purchase and which is held in a warehouse or at a freight forwarder. Customer A and customer B agree a price and strike a deal. Customer B will send customer A a purchase order in exchange for which customer A will then send a sales invoice. Customer B then has to pay for the goods. To do this, he can simply log onto his UMBS account and pay company A for the stock. Company A will receive the payment in approximately 5 seconds and therefore has immediate, clear funds. If customer B were to have attempted to pay customer A via a high street or other external bank, the payment would have taken between 3-7 working days, in which time the chances are that the deal would have fallen through or the market price would have changed. By using UMBS' online account, that risk is eliminated and there is no room for stock depreciation or other factors coming into play. In addition, our customers have cleared funds to trade with again straight away. This type of intra-account payment service is a huge advantage to traders that are operating in fast-moving markets or who are simply looking to make urgent payments to conclude or secure deals in a short time frame."
- For external bank transfers, that is to say transfers from a UMBS customer account to an outside bank, CS is used to process the payments. In essence UMBS has trust accounts in various currencies with CS and gives instructions to CS as to what external transfers to make from the trust accounts or what foreign exchange is required.
- Mr Hakan (Harry) Enver of CS, being of Cypriot descent, has close connections with the Laiki Bank of Cyprus and so he undertook to arrange for the establishment of separate secure GBP sterling, Euro and US dollar trust accounts for UMBS customers' moneys at the bank's London branch.
- In January 2007 UMBS instructed its former bankers, the BPN Bank of Portugal, to transfer the sum of just over €7m. to the Laiki Bank and £2m. from its sterling account to its Euro account and to transfer that to the new Euro client trust account with the Laiki Bank. The Laiki Bank currently hold about £5.2 million of UMBS' money.
- By early February UMBS were experiencing a number of delays with payment requests and on 6th February 2007 transfers stopped being processed altogether. Not surprisingly, this caused consternation at UMBS. Moreover CS informed UMBS on 8th February that it could not process an external payment of Pakistani rupees due to the fact that UMBS monies were "currently in a suspense account with our Bank, awaiting further instructions.".
- Alerted to a major problem, UMBS confronted CS on 15th February and to its surprise was handed a letter from CS dated 15th February which reads as follows:
"On 6th February 2007 upon receiving information from our Bank, Laiki Bank, that they were going to close the UMBS client account down, I contacted SOCA with a disclosure report on UMBS Online Ltd. The disclosure report was a verbal report given to [a named SOCA officer], SOCA.
I received a reply from SOCA on 14th February 2006, a copy of this correspondence is hereby attached giving a consent to Currency Solutions to release the UMBS client funds."
That letter from SOCA dated 14th February 2007 reads as follows:
"I acknowledge receipt of your Disclosure Report on 6/2/07 concerning UMBS Online Ltd.
I confirm that on this occasion SOCA consents to you proceeding with the matter specified in that disclosure report.
This is an "appropriate consent" within s. 335 of the Proceeds of Crime Act 2002, with the result that if you do proceed with that matter you will not be committing an offence under s. 327, 328 or 329 of that Act.
However, SOCA cannot override the private law rights of those entitled to the property.
Should the circumstances detailed in your Disclosure Report change in such a way as to give rise to further knowledge or suspicion of money laundering (not already disclosed by you) you may wish to give consideration to a further authorised disclosure under Part 7 Proceeds of Crime Act 2002."
- That was not the only surprise for UMBS. On the following day, 16th February they attended at the Bank with Mr Enver and were "horrified" to learn that their client trust accounts had been closed, the balance transferred into other trading accounts in the name of CS, and that only about £178,000 remained on the sterling account with the Euro account in debit to the tune of nearly £500,000. Nonetheless they were assured that their money was safe and that a letter would be sent by the Bank and CS to confirm that was so. The meeting broke up. Later that day Mr Enver said he could not provide the letter of comfort because "It did not say what it was supposed to say". What in fact had been happening was soon after SOCA had consented to CS' dealing with UMBS' monies, the Bank disclosed its concerns to SOCA and on 21st February SOCA informed the Bank that it did not give consent under s. 335. We have not had sight of the refusal letter. It is the first decision under challenge in the judicial review application.
- While this was happening without UMBS' knowledge, the company was consulting solicitors who were in correspondence with CS' solicitors. IBB, solicitors for CS, wrote on 23rd February to Malletts, UMBS' solicitors, to say:
"As a consequence of the authorised and reasonable disclosure the Laiki Bank have suspended my client's accounts, and will not action any of the requests made to return UMBS funds to them."
They refused to disclose any further information.
- Malletts therefore wrote to SOCA on 26th February and after giving some account of the history stated:
"We and our client are at a loss to understand what is happening between SOCA and the Bank. As a matter of law, we can see no legal impediment in the context of SOCA's letter to Currency Solutions of 14th February to the Bank agreeing to process our outstanding and future payment requests.
As you will appreciate, the Bank's continuing refusal and/or failure to do so has had a profoundly damaging effect on our client's business and reputation, which as we have alluded to above, exists on the basis of its ability to make same day/speed payment transfers. That damage remains ongoing and if left unchecked, will inevitably kill our client's business completely. This really is a very urgent matter indeed.
In those circumstances, we would be grateful if SOCA would kindly provide its unreserved consent to Currency Solutions and the Laiki Bank by no later than 4 pm on Tuesday 27th February 2007 for the processing of all of our clients' pending transactions. We believe that it would be manifestly unreasonable and irrational for SOCA to refuse to provide such consent in the context of its prior letter of consent and given the massive harm that the currently banking delays are causing to our client's business.
In view of that, you will appreciate that if consent is not forthcoming, our client will have no option but to consider an application to the High Court for judicial review and interim relief."
- SOCA responded on the following day, 27th February saying:
"We note that you have been informed by I.B.B. Law that Laiki Bank made a disclosure report on or around 16th February 2007 and that all accounts of Currency Solutions with the Laiki Bank had been frozen as a result.
We can confirm that a disclosure was made to the Serious Organised Crime Agency by Laiki Bank and that Laiki Bank made a request for consent under s. 335 of the Proceeds of Crime Act 2002. Such consent was refused by the Serious Organised Crime Agency on 21st February 2007.
The Serious Organised Crime Agency will not discuss either the contents of the disclosure and request for consent made by Laiki Bank or the reaction by Laiki Bank to the refusal of consent.
That refusal of consent is effective until the expiry of the moratorium period of 31 days (s. 335(6)) of the Proceeds of Crime Act 2002). In the absence of a further request for consent from Laiki Bank and a change in circumstances, the refusal of consent will not be revisited by the Serious Organised Crime Agency.
It is not accepted that it would be manifestly unreasonable and irrational for the Serious Organised Crime Agency to refuse to provide unreserved consent to Currency Solutions and the Laiki Bank by 4 pm today as your letter of 26th February suggests."
This is the second decision under challenge.
- By virtue of s. 335, the moratorium period of 31 days starts with the day on which the Bank would have received the refusal dated 21st February. It is agreed that the moratorium expires on Saturday, 24th March 2007.
- The application for judicial review was issued on 1st March. The stated grounds were:
"The decision of 21 February 2007 was irrational/unreasonable because:
1. SOCA granted consent pursuant to s. 335 of POCA 2002 to Currency Solutions on 14 February 2007 in respect of the global disclosure Currency Solutions Ltd made as to suspicions concerning the Claimant.
2. There is no rational basis for SOCA to grant consent to Currency Solutions Ltd to deal with the funds which it held on trust for the Claimant but 7 days later refuse consent to Laiki Bank to deal with the funds which Currency Solutions Ltd held on trust for the Claimants. Although the refusal of consent may have been rational/unreasonable in respect of other funds which Currency Solutions Ltd has deposited with Laiki Bank the refusal of consent was perverse and irrational in failing to grant permission in respect of funds held on trust for the Claimant.
Alternatively, the decision of 27th February 2007 was irrational/unreasonable because:
1. SOCA granted consent pursuant to s. 335 of POCA 2002 to Currency Solutions Ltd on 14th February 2007 in respect of the global disclosure Currency Solutions Ltd made as to suspicions concerning the Claimant.
2. The Claimant's solicitors wrote to SOCA on 26th February 2007 and specifically requested that consent be granted to Laiki Bank to deal with funds which were held in the name of Currency Solutions Ltd on trust for the Claimants. The refusal to provide that consent was irrational given the earlier granting of consent by SOCA on 14th February 2007."
- The details of the remedy (including any interim remedy being sought) were:
"1. A declaration that the decision of 21 February and/or 27 February was irrational/unreasonable.
2. A declaration that SOCA should immediately grant consent pursuant to s. 335 of POCA 2002 to Laiki Bank so that it may deal with funds which were deposited by Currency Solutions on trust for the Claimant.
3. An injunction requiring SOCA immediately to grant consent pursuant to s. 335 of POCA 2002 to Laiki Bank so that it may deal with funds which were deposited by Currency Solutions Ltd on trust for the Claimant."
- In support of its application UMBS complains that:
"The company has been literally inundated with complaints from dissatisfied and angry customers. Our business depends on and exists because of good will and word of mouth. The directors are most concerned that the company will die completely unless the court is prepared to intervene on its behalf."
A number of angry emails are exhibited to Mr McGrath's witness statement. The point is well made that SOCA's failure to consent has not only caused irreparable harm to UMBS but has also caused significant harm to its customers. We have also been told that one of UMBS' customers has reacted so angrily and threateningly that members of the staff have been put in fear. Further damage is apparently being caused by a report of the applicant's plight published on the internet. We were told that twenty five to thirty customers were particularly badly affected.
The judgment under appeal
- The judge accepted that in this case there is good reason why SOCA may decide not to produce public evidence to explain its decision. He said:
"In this regard, I have in mind the obligation of confidentiality owed to banks and the need to protect the individuals concerned who notify such matters to SOCA."
He rejected the applicant's first contention that the decision of 21st February was irrational because no reasonable officer should have refused consent on 21st February given that consent had been granted the week previously. He held:
"However, it seems to me that the submission rests on a series of assumptions that the subject matter of each decision was the same and to my mind there is no basis for such an assumption. On the contrary, it seems to me that it does not follow at all that these decisions relate to the same subject matter. Therefore, it is not necessarily the case that there is an inherent inconsistency between the two decisions. What is established on behalf of the defendant is that there is a continuing investigation on the part of Her Majesty's Revenue and Customs. I would not expect that to remain static. As that investigation has been pursued, no doubt there have been developments and in those circumstances it seems unlikely that the decisions were taken on the same factual basis."
- UMBS' second argument was that the effect of the current moratorium was so severe that the continuing withholding of consent was wholly disproportionate. The judge accepted that there was little doubt that the claimant was suffering very considerably as a result of the moratorium but he was reminded of the observations of this Court in K Limited which I set out in paragraph 9 above. That seemed to dispose of the proportionality argument.
- The judge noted that the claimant, not then represented by Mr Downes, had expressly disclaimed any reliance on Article 1 of the First Protocol to the European Convention on Human Rights and had advanced the argument on proportionality as a sub-argument within the argument on reasonableness.
- As for the decision letter of 27th February the judge observed that absent a further request for consent from the Bank, it was questionable whether the letter from Messrs Malletts was a valid application for consent under s. 335 because UMBS had no authority to ask for such consent on behalf of the Bank and SOCA was not entitled to treat that as such a request. The judge accepted from submissions made to him by Mr Hall that the investigations were continuing. There was no evidence before the judge to support the contention that SOCA was "sitting on its hands". He said:
"On the contrary, I am told on behalf of the defendant, and this will be substantiated in a witness statement, that there is an ongoing investigation by HM Revenue and Customs."
- Thus he concluded that no arguable case for judicial review had been made out. He added that he had not heard argument on the subject of interim relief but he said:
"All the argument has been confined to the question of permission to apply for judicial review. However, I should state that, had I been satisfied that there was an arguable case, then it would have been necessary before I could grant interim relief that I be satisfied that there was a considerably higher prospect of the claimant succeeding on its claim than the relatively low threshold which is the threshold for permission to apply for judicial review. Indeed, the circumstances of this case are such that the court was being asked to grant mandatory relief and, given the particular circumstances of the case, I should not have been prepared to grant such relief in the absence of a high degree of assurance that the claimant would be able to establish at the full hearing that the only reasonable decision open to SOCA was to grant the consent. For the reasons which I have already given, I am not satisfied to such a high standard."
The extent of SOCA's powers
- Mr Downes for UMBS submits this is the first occasion that the Court has had the opportunity to express a view about the approach SOCA should adopt. He points out that under s. 4 of the Serious Organised Crime and Police Act 2005 SOCA should, when carrying out its functions, have regard to its annual plan, any current strategic priorities determined by the Secretary of State under s. 9, any current performance targets established by it and the Code of Practice made pursuant to s. 10. In fact no Code of Practice has yet been issued and little can be gleaned from the annual plan of strategic priorities other than the requirement to increase the amount of criminal assets recovered and increase the proportion of cases in which the proceeds of crime are pursued.
- As matters stood at the time of the first hearing before us there were no published criteria for checking whether or not SOCA were acting lawfully. Their inner workings were totally lacking transparency. Mr Hall was in some obvious embarrassment as he wrestled with the conflict between his duty to assist the court and his duty to comply with his client's instructions. All he could vouchsafe at the time of the first hearing was that SOCA do pay regard to the need to ensure that the innocent do not suffer as is demonstrated by the speedy decisions taken in the vast majority of cases. SOCA always keep the giving of consent under review throughout the whole period of the moratorium. But that said, he was not in a position to inform the Court how decisions are taken.
- Mr Downes submitted that "there should be a general presumption that consent will be given unless there is good reason not to do so." That is a purposive construction of the Act. Some idea of that purpose can be discovered from the way in which the Bill was introduced to Parliament and our attention has been drawn to the debate in the House of Lords on the legality of the role of NCIS (now replaced by SOCA). Lord Rooker said:
"Some noble Lords may want to draw my attention to the fact that there is nothing to prevent the National Criminal Intelligence Service from consistently or automatically withholding consent on the final day of the notice period as a matter of course, whether or not it thought that it would be able to obtain a restraint order before the end of the moratorium period. Our answer is that, like any other public body, the National Criminal Intelligence Service must act reasonably and must comply with the European Convention on Human Rights. It would be acting unlawfully if it withheld consent without good reason. The idea of an unspoken policy within the Agency of waiting until the last day before taking action to stop it would not be held as reasonable. It would not be reasonable behaviour from any public body, let alone in these circumstances."
- Whilst I am not at all persuaded that Pepper v Hart would entitle us to look at the parliamentary debate, I am prepared to accept that SOCA should not withhold consent without good reason. This is no more than good administration. Mr Hall does not really dissent from that proposition. SOCA is an immensely powerful statutory body whose decisions have the consequence of imperilling private and business banking activity based, initially at least, on no more than a reported suspicion of money laundering. If the proper balance is to be struck between undue interference with personal liberties and the need constantly to fight crime, then the least that can be demanded of SOCA is that they do not withhold consent without good reason. The much more difficult question which arises in a case like this is to establish whether there has been any breach of that obligation.
The lack of transparency
- A feature of the way SOCA operates is that it does not condescend to detail either in the reasoning for its decision or in disclosing the facts upon which it relies in coming to that decision. This is not a very satisfactory position. As this Court pointed out in K Limited, the Court cannot require a banker who makes a disclosure falling within s. 338 to give further disclosure of information if that further disclosure is likely to prejudice any investigation which might be conducted by SOCA or the revenue authorities. It is a criminal offence to do so: see s. 338. Consistently with that policy and consistently with the obvious purpose of the Act to allow a moratorium for investigation, I cannot see how the Court can require of SOCA itself that it disclose the facts which have given rise to the suspicion or the nature of the investigations it is conducting. The judge put this in terms of honouring the confidentiality of the disclosure by the Bank. That is a specific way of putting the same general point. I am reluctantly driven to conclude, as I did in K Limited, that however unsatisfactory it may be, the Court is constrained to act in the dark.
- Mr Downes relies upon a dictum of Kennedy LJ in Reg (Energy Financing Team Ltd) v Bow Street Magistrates  1 WLR 1316 at paragraph 24 (10):
"Often it may not be appropriate, even after the warrant has been executed, to disclose to the person affected or his legal representatives all of the material laid before the district judge because to do so might alert others or frustrate the purposes of the overall enquiry, but the person affected has a right to be satisfied as to the legality of the procedure which led to the execution of the warrant, and if he or his representatives do ask to see what was laid before the district judge and to be told about what happened at the hearing, that should, so far as possible, be an accommodating response to that request. It is not sufficient to say that the applicant has been adequately protected because discretion has been exercised first by Director and then by the district judge. In order to respond to the request of an applicant it may be that permission for disclosure has to be sought from an investigating authority abroad and/or that what was produced or said to the district judge can only be disclosed in an edited form, but judicial control by way of judicial review cannot operate effectively unless the person or persons affected are put in a position to take meaningful advice and if so advised to seek relief from the court. Furthermore it is no answer to say that there is no general duty of disclosure in proceedings for judicial review."
- That was a completely different case where the director of the Serious Fraud Office sought a warrant pursuant to a request from abroad to search for and seize documents. Although I am sympathetic to the general tenor of Kennedy L.J.'s views, it seems to me that a case like the one before us falls within the first sentence quoted because it does seem to me to be inappropriate to disclose information which might frustrate the purpose of the overall enquiry. Although no evidence was filed about its modus operandi, Mr Hall did explain the difficulties faced by the agency. When first suspicion is reported to them, SOCA may have very little information and in the early stages may not even know, as he put it, "who the enemy is". If the suspicion appears well-founded, then a great deal has to be done to investigate the offence and to identify the alleged offender. This frequently entails obtaining evidence from abroad, the formalities for which are complicated. There may be a need for search warrants, production orders on bank accounts and so forth and one transaction leads to another. The pressure to complete this investigation within 31 days is considerable. He makes the plaintive plea to be left free from unnecessary judicial review as the time taken to meet the case in court is time taken out of the tight timetable for investigation.
- Mr Downes points to the absence of evidence from SOCA as to the nature of the information upon which they acted and the reasons for arriving at the decision. SOCA did put in some evidence, to which I shall refer shortly, and he submits that not having stayed silent, they should be prepared to disclose the whole picture. Mr Hall sought to reserve his position and to put in evidence if and when permission to apply for judicial review were granted and when the nature of the case against him is fully formulated. Mr Downes invited us to draw the conclusion that this reticence justifies the inference that the decision was arbitrary.
- There was some discussion about the duty on SOCA to give disclosure of information and as to whether SOCA could claim any public interest immunity. We did not find it necessary to rule on those submissions at the conclusion of the first day. Nor did we entertain full argument about whether or not UMBS could run any argument under Article 1 of the First Protocol to the European Human Rights Convention in the light of their expressly not pursuing that matter before the judge. That, too, was stood over for further consideration by this Court.
The rationality of the first decision on 21st February refusing to give the Bank consent under s. 335
- The case advanced by UMBS was that there could be no rational explanation for the complete volte face in the space of seven days. Complaint is made about the judge's holding that it had been established that there was a continuing investigation on the part of HM Revenue and Customs and that he would not expect that to remain static. In so finding, he was acting on information given to him from the Bar by Mr Hall who stated:
"… it simply does not follow that because SOCA granted consent to CSL on 14th February 2007 based upon CSL's suspicions and the state of any investigation at that time, that it was unreasonable to withhold consent to the Bank, based on the Bank's suspicions and state of any investigation 7 days later. The fact is that investigations are dynamic. Information comes in. It may come in from sources. It may come in from the fruits of investigations carried out irrespective of the information provided by the source. It simply does not follow, does it, that the state of mind of the officer granting consent on 14th was the same as the state of mind of the officer refusing consent on 21st? I do not think I can really improve upon that without going into the information ---
Mr Justice Lloyd Jones: Your hands are tied as well …
Mr Hall: My hands are tied to some extent, yes."
Mr Downes submitted that that statement has been contradicted by the evidence in the second witness statement of Mr Bamford, an officer of HM Revenue and Customs that:
"I can confirm that since the refusal to grant consent by the Serious Organised Crime Agency on 21st February 2007, HMRC have kept and will continue to keep the matter under constant review in the light of the ongoing investigation."
- That, submitted Mr Downes, establishes that no review was being conducted between 14th and 21st February in breach of an acknowledged obligation to keep the matter constantly under review. Furthermore, that is to say that the investigation commenced after the refusal on 21st February was inconsistent with what the Court had been told, namely that an investigation was already in progress which explained the change of decision.
- Mr Bamford then put in a third witness statement giving the court this further explanation:
"2. It may assist if I explain the internal division between HMRC between criminal intelligence and criminal investigation teams. I am a criminal investigator currently seconded to the criminal intelligence branch of HMRC. Matters are dealt with by the criminal intelligence branch prior to the assignment of a case to the criminal investigation team. A criminal investigation is undertaken with a view to the bringing of criminal proceedings.
3. In my first statement dated 6th March 2007 I stated in paragraph 2 that as a direct result of the refusal to grant consent by the Serious Organised Crime Agency on 21 February 2007, HMRC commenced a criminal investigation which is ongoing.
4. In practice this meant that the matter was passed to the criminal investigation team.
5. Prior to this the matter was being investigated with the criminal intelligence branch, which liaised with SOCA in relation to the refusal of consent.
6. It is therefore not correct to state that the judge was given an inaccurate explanation during the proceedings at which in any event I was personally present."
- Given the evidential uncertainties, the call for production of documents, the possible availability of a public immunity defence, and the potential argument under Article 1 of the First Protocol, we decided on 15th March to stand the question of the legality of the first decision of 21st February over for further consideration and to deal only with the second decision of 27th February.
The legality of the second decision of 27th February 2007
- It may be useful to repeat the terms of that refusal:
"In the absence of a further request for consent from Laiki Bank and a change in circumstances, the refusal of consent will not be revisited by the Serious Organised Crime Agency," (emphasis added by me).
- As that letter reads SOCA would only consider revisiting a refusal of consent if two conditions were satisfied, first there had to be a further request from the Laiki Bank and, secondly, there had to be a change in the circumstances. Requiring both to be satisfied is inconsistent with the duty acknowledged by Mr Hall to keep matters under "dynamic" review and to grant permission if SOCA are satisfied that conditions have changed.
- Mr Hall valiantly attempts to argue that "and" means "or". It is true that in his submissions to the judge he stated:
"SOCA is not inclined to make that change in the absence of a request by Laiki Bank or a change of circumstances," (again emphasis added by me).
- He also told the judge:
"The letter writer is behind me, but I am instructed that this is a reference to SOCA keeping under review their investigations. So even if there was no request for consent from Laiki Bank, if there was a change of circumstances – for example, if an investigation became untenable, then SOCA would revisit the grant of consent, even if Laiki Bank did not make a further request."
The writer of the letter has now filed evidence in which she says:
"The words "change in circumstances" were intended to refer to any change in circumstances which might have arisen from further enquiries conducted by H.M. Revenue and Customs, any further information which might have been contained in a further disclosure and a request for consent and/or any further information from any other source and/or any other change in circumstances which might have come to the attention of the Serious Organised Crime Agency."
- Whatever the author of the letter subjectively intended to write, the fact is that by using "and" and not using "or" the objective meaning of the decision letter is that both requirements needed to be satisfied before SOCA would revisit a decision and that ran counter to their avowed policy and is therefore unlawful.
- Even if the letter has to be construed in the disjunctive way as Mr Hall contends, then in my view SOCA were still in error in refusing to revisit the question of consent absent a request from the Bank. The judge held that it was "questionable whether [the letter of 26th February] was a valid application for consent under s. 335. He seemed to be accepting the submissions made to him by Mr Hall who stated in the course of argument:
"… UMBS had no authority or standing whatsoever to seek or obtain consent on behalf of the Laiki Bank.
… SOCA were entirely entitled not to treat this letter of 26th as a [request] for consent. A request for consent by the Bank had to come from the Bank, and that is obvious from the wording of the statute.
The point I am making is that the only person who is seeking consent, who needs the consent can really seek the consent, because the Bank itself needs to be assured that if it conducts itself in a particular way, it will not be prosecuted. So when SOCA were faced with a letter from UMBS, it was quite entitled not to treat it as a request on behalf of the Bank."
- I am satisfied, however, that nothing in s. 335 requires the request to look at the matter again to be made by the Bank. Indeed Mr Hall seemed to concede that before us having not conceded it before Lloyd Jones J. The Bank's position is clear: having their suspicions aroused, they duly and properly made a disclosure to SOCA. SOCA refused consent within the 7 day period. The Bank would commit an offence under s. 328 if it facilitated any operation of the Bank account without the appropriate consent under s. 335. Ss. (1) of s. 335 prescribes who may give that consent and ss. (2) sets out when a person may be treated as having the appropriate consent. He has it if he does not receive notice before the end of the 7 day notice period that the doing of the act is refused and if it is refused then he is deemed to have consent when the moratorium period of 31 days expires. Since it is accepted by SOCA that they must keep the matter under review, they must give the Bank consent when there is no longer any good reason for withholding it. They can and must act independently of a request from anybody. Nothing in the Act requires the potential offender under s. 328 to be responsible, and the only one responsible, for seeking a review of the refusal of consent. A request from the person directly affected by the freezing of the account must trigger the duty to look at the matter again. It is absurd for SOCA to suggest that they can only act on a request from the Bank. The Bank may no longer be interested in the matter. The Bank has done its duty by reporting its suspicion and now it may simply sit on its hands and take care not to operate the account until the expiry of the moratorium. It is not directly affected but its customer is and the customers of the customer are. They are entitled to ask SOCA to review the matter and SOCA are obliged to do so. In my judgment the second reason given by SOCA for refusing to revisit the matter was erroneous in point of law. It followed that the decision of 27th February was unlawful and had to be quashed and we duly did so as already set out. SOCA was to reconsider its position and the matter be restored if UMBS considered it necessary to have a further hearing. UMBS exercised that liberty to restore and the matter came back before us on 21st March 2007.
The hearing of 21st March 2007
- There had been a number of developments in the intervening days. UMBS gave considerable information about the ten most pressing transactions which had been frozen and again requested consent or at least a limited consent in respect of those customers. SOCA set out the criteria which they would apply in reconsidering the matter. Clarification was sought of that. On 19th March SOCA again refused to grant consent. UMBS restored the matter and made an application for further information and for disclosure of documents. On 20th March the Revenue and Customs Prosecutions Office obtained a restraint order against UMBS, CS and the two directors of UMBS and served that order immediately before the restored hearing.
- Although on one view of the matter judicial review was now academic as the restraint order now governed the position, Mr Downes was anxious for a decision about the legality of the refusal on 21st February because if it was unlawful, then it would follow, he submitted, that the initial 7 day notice period had expired without lawful refusal to operate the account and that would have founded a claim for damages or at least given added reason for seeking redress in Strasbourg. He maintained his argument on Article 1 of the First Protocol.
- As the submissions developed and as Mr Hall came under pressure to put in evidence, it became apparent to us that the urgency had evaporated and that the arguments raised at least an arguable case with regard to this first decision not least on the new Article 1 of the First Protocol ground. There is now some evidence of the criteria but it is important that time be given to all parties to reflect upon their position and marshal their arguments properly. It was apparent to us that it was no longer appropriate for the Court of Appeal to hear the matter and that the proper course was to grant permission to apply for judicial review but send the matter back to the Administrative Court. The parties will then have a less frenzied opportunity to consider their positions, put in their evidence, and call for production of documents and consider any public interest immunity. Important issues may arise and it is better that they are described properly rather than hastily. It is preferable that the Administrative Court decide these questions in the usual way, so that the short-cut offered to the Court of Appeal by CPR 52.15 is no longer the appropriate route for taking these decisions.
- For those reasons we decided pursuant to CPR 52.25(3) that instead of giving permission to appeal against Lloyd Jones J's order, we should instead give permission to apply for judicial review and direct that the case proceed in the High Court.
Lord Justice Sedley
- I agree.
- In setting up the Serious Organised Crime Agency, the state has set out to create an Alsatia – a region of executive action free of judicial oversight. Although the statutory powers can intrude heavily, and sometimes ruinously, into civil rights and obligations, the supervisory role which the court would otherwise have is limited by its primary obligation to give effect to Parliament's clearly expressed intentions. But, except where the statute prevents it, the scheme must also accommodate what Byles J in Cooper v Wandsworth Board of Works (1863) 14 C.B.N.S. 180 called the justice of the common law. That is the duality we have sought to recognise in deciding this case.
Lord Justice Hooper:
- I also agree.
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