The territorial scope of money laundering powers

March 2013 | LEGAL & REGULATORY | FRAUD & CORRUPTION

Financier Worldwide Magazine

Last year, the Supreme Court handed down its judgment in Perry and others v Serious Organised Crime Agency. The judgment provides valuable guidance on the extra-territorial effect of the powers under the Proceeds of Crime Act 2002 (POCA).

The Court ruled that the jurisdiction to make a civil recovery order (or a freezing order in support of it) was limited to property located in the UK and that the Serious Organised Crime Agency (SOCA) was not permitted to serve notices under POCA disclosure orders on persons outside the jurisdiction. The Court also made comments that suggest SOCA will be required to draft applications more narrowly in future when describing the property to be frozen or disclosed.

Background

The case related to Mr Perry, an Israeli international, convicted of fraud offences in Israel. Subsequently, SOCA became aware of accounts held in the UK by Mr Perry and his family. SOCA obtained a disclosure order (requiring disclosure of information regarding matters under investigation by SOCA) and served disclosure notices requesting information from Mr Perry’s family as to his assets. The disclosure notices contained a penal notice indicating there were criminal sanctions for non-compliance. Mrs Perry and her daughters lived in Israel. The disclosure notices were served on Mr Perry’s UK residence in Mayfair.

SOCA then obtained a worldwide freezing order (in support of an anticipated application for civil recovery) over the assets of various respondents thought to hold assets on Mr Perry’s behalf. The order also required disclosure of all the defendants’ worldwide assets.

Mr Perry and the other appellants challenged both the disclosure orders and the freezing order.

The judgment

Nine Supreme Court judges decided the appeal, with the leading judgment given by Lord Phillips. Due to the ambiguous nature of the territorial scope of the relevant parts of POCA, the central discussion concerned the interpretation of the individual provisions relating to confiscation and civil recovery powers.

Parts 2 to 4 of POCA are primarily concerned with confiscation orders against a person convicted in criminal proceedings, for the payment of a sum equivalent to the value of property or pecuniary advantage obtained from his criminal conduct.

Part 5 of POCA empowers the civil court to make a civil recovery order in respect of property (regardless who holds it), which is, or represents, property obtained through unlawful conduct. A successful criminal prosecution is not required as a precondition to obtaining a civil recovery order. ‘Property’ is defined as “all property wherever situated”, but the legislation does not specify whether a civil recovery order can cover property outside the UK.

The Court noted that under principles of international law, legislation will not have extra-territorial effect unless it clearly states otherwise. States have departed from this principle in relation to confiscation of proceeds of crime by signing up to international conventions. Lord Phillips considered that POCA must be interpreted in light of the Strasbourg Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime.

Lord Phillips noted that Parts 2 to 4 of POCA impose a personal obligation in respect of the defendant’s property worldwide and enables a UK prosecuting authority to request other states to take measures in respect of criminal property located in their jurisdiction. This is consistent with the obligations placed on the UK under the Strasbourg Convention. Part 5, on the other hand, focuses on recovering criminal property generally, rather than punishing a particular defendant and, unlike Parts 2 to 4, it does not contain provisions relating to foreign enforcement.

Lord Phillips concluded that this meant Parliament envisaged Part 5 would only apply to property within the jurisdiction; UK courts did not have jurisdiction to order recovery of property outside the UK in civil recovery proceedings.

In light of this, he ruled that the freezing order (made in support of anticipated civil recovery proceedings) should be amended to cover only property based in England and Wales. He also noted that he considered other elements of the freezing order to be improper. Section 245A of POCA requires the freezing order to specify or describe the property to which it applies. The freezing order in this case sought to freeze generally described categories of assets; Lord Phillips questioned whether this met the requirements of POCA, but no ruling on this point was required.

In respect of the appeal of the disclosure orders, the Supreme Court ruled that it was generally contrary to international law for one state to purport to criminalise conduct occurring in another state, when the defendant is not a citizen of the state imposing the criminal penalty. It was therefore implicit that SOCA could not impose a positive obligation on the Perry family (with the threat of a criminal sanction) to provide information when they were outside the UK and so the disclosure orders were not effective.

Observations

The Supreme Court has given much needed guidance on the very wide language of POCA and the extent to which it allows or requires the UK courts to impose sanctions in respect of criminal property located outside the UK. The judgment may also limit the availability of those powers to circumstances where the property to be confiscated or recovered is known to exist and can be described in reasonably specific detail – general descriptions of types of property by category may not be sufficient and so there may be far more limited civil recovery and disclosure orders in the future.

While the judgment does not go so far as to define the extra-territorial jurisdiction of the primary money laundering offences under POCA, it gives a strong indication of the approach that the courts will take in interpreting the apparently wide ambit of the legislation in the future.

Omar Qureshi is a partner and Amy Smart is an associate at CMS Cameron McKenna. Mr Qureshi can be contacted on +44 (0)20 7367 2573 or by email: omar.qureshi@cms-cmck.com.

Omar Qureshi and Amy Smart

CMS Cameron McKenna