Administrative Court orders SFO to withdraw section 2 notices

The Administrative Court recently ordered the withdrawal of section 2 notices issued by the Serious Fraud Office (SFO) to several major banks. The SFO issued the notices following a Letter of Request (LOR) sent to the Secretary of State for the Home Department by the Public Prosecutor of Milan (the Prosecutor). The decision halted attempts by the Prosecutor to obtain documents located in the United Kingdom in support of Italian criminal proceedings.

R on the application of JPMorgan Chase NA and others v. Serious Fraud Office and Secretary of State for the Home Department¹

In 2005 Depfa Bank, Deutsche Bank, JPMorgan Chase and UBS (the Banks) acted as arrangers on a bond for almost €1.7 billion issued by the City of Milan (the City). At the same time, the Banks and the City entered into related swap transactions. The Banks, and several current and former employees, were subsequently prosecuted for their roles in these transactions. The criminal trial is continuing and the Banks deny any wrongdoing.

At a late stage of the Italian criminal trial, the Prosecutor sent an LOR to the Secretary of State under the European Convention on Mutual Assistance in Criminal Matters. The Prosecutor sought to obtain documents located in London. The Secretary of State passed the LOR to the SFO, under the Crime (International Co-operation) Act 2003 (CICA 2003), for execution. The SFO subsequently issued notices under section 2(3) of the Criminal Justice Act 1987 requiring the Banks to produce documents.

Judicial review

Having taken Italian advice, the Banks learnt that the Prosecutor had no power to issue an LOR at that stage of proceedings. Their advice was that during the main trial phase the Prosecutor only retains certain residual powers of investigation, which do not include the right to issue an LOR.

The Banks raised this issue with the Secretary of State and the SFO (together the Authorities) in correspondence. The Banks subsequently brought judicial review of the decisions not to reverse: (i) the decision of the Secretary of State to refer the LOR; and (ii) the decision of the SFO to issue the notices.

The Divisional Court, comprising Gross LJ and Gloster J, heard the claim on an expedited basis. The Banks’ primary arguments were that, in the circumstances: (i) the Secretary of State did not have jurisdiction to pass the LOR to the SFO; and (ii) even if the Secretary of State did have jurisdiction she should not have exercised her discretion to do so. It was common ground that the SFO’s decision, and the notices, would stand or fall with the Secretary of State’s decision.

Jurisdiction of the Secretary of State to refer the LOR

Under the CICA 2003², a “prosecuting authority” (among other bodies) can make a request for assistance. The Banks argued the Secretary of State can only entertain an LOR if it comes from a prosecuting authority acting lawfully. The court did not require counsel for the Authorities to respond orally to this and emphatically rejected the argument.

Discretion of the Secretary of State to refer the LOR

Once jurisdiction is established, the Secretary of State has discretion as to whether she actions an LOR. The Banks argued that, in the circumstances, she should not have passed the LOR to the SFO. The Authorities argued that, as a matter of practicality and comity, the Secretary of State should not be asked to second guess matters of Italian law.

The Banks argued that various issues – including the inefficacy of the Prosecutor’s undertaking on confidentiality, delay and proportionality – should have altered the way that the Secretary of State exercised her discretion. The court held that none of these factors, alone or cumulatively, affected the lawfulness of the Secretary of State’s decision. However, the effect of the underlying unlawfulness was different.

In correspondence that followed the section 2 notices, the Banks had supplied the Secretary of State and the SFO with several expert opinions on the correct meaning of Italian criminal law. In turn, the Prosecutor had obtained, and shared with the Authorities, an opinion of Professor Giarda.

The relevant Italian legislation³ provides that, during the trial phase, the Prosecutor may “undertake supplementary investigation activities, except for acts for which the participation of the accused or his counsel is required”. The court considered that Professor Giarda’s opinion made it clear that the effect of this was that, during the trial phase, the Prosecutor was not at liberty to take unilateral “coercive action” against the Banks. The court did not think it was possible to characterise the LOR as a request for the voluntary production of documents. Therefore, applying the logic of Professor Giarda, the Prosecutor had acted unlawfully by issuing the LOR.

Counsel for the Authorities had tacitly accepted that the Secretary of State should not have referred the LOR if it was “obvious” that it was made unlawfully. As the unlawfulness was apparent from the opinion obtained by the Prosecutor himself, the court found that it was, indeed, obvious.

On this basis, the court had no difficulty in deciding the Secretary of State’s decision was Wednesbury unreasonable. While she was not required to form a view of rival opinions on Italian law, it was not too much to ask her to ensure that “the LOR should be on the right side of the line of the Prosecution expert’s own analysis”. Accordingly, the court quashed her decision, together with the related decision of the SFO.

This is a rare example of a successful challenge to section 2 notices by the SFO. There are a number of statements in the judgment that make it clear that the court found for the Banks primarily because of the contents of the Prosecutor’s own expert opinion. On that basis, cases when the Secretary of State refuses to accede to LORs will continue to be exceptional. Gross LJ himself stated that he would not want “anything said in this judgment to lend encouragement to efforts to inundate the [Secretary of State] with opinions of foreign law”.