In a case which once again raises concerns over investigators’ failures to meet their duty of candour when applying to the courts for invasive orders (search warrants or productions orders), the City of London Police was the subject of trenchant criticism by the high court for serial non-disclosure in respect of a production order and abusing its statutory powers under the Proceeds of Crime Act 2002 (POCA).
The underlying subject matter was a series of transactions conducted by Merida Oil Traders Limited, Bunnvale Limited and Ticom Management LLC on the London-based Intercontinental Exchange (ICE). In May 2016, ICE made a suspicious transaction report (STR) to the Financial Conduct Authority (FCA) concerning a number of trades made by the claimant companies through the brokerage company ADM. While it appears that the FCA took no action, in February 2016, City of London Police opened an investigation into possible money laundering offences. No individuals have been charged.
As part of its investigation, in May 2016 the police applied ex parte (purportedly to avoid prejudicing the investigation) for a production order under s345 POCA requiring ADM to hand over business material held for the claimant companies and – crucially - four of cheques, made out to the sum of USD21 million, representing funds held in its accounts by the claimant companies. The application for the production order was granted and ADM – who had at this stage been cooperating with the investigation for some time - provided the cheques to the police later the same day. Thereafter, the police applied to the Magistrates’ Court for an order under s295 POCA for continued detention of the cheques.
The claimant companies sought judicial review of the process by which the production order and subsequent detention orders were obtained. The Administrative Court (Gross LJ and Leggatt J) held that the application for the production order was deficient in a number of significant respects, collectively amounting to a serious breach of City of London Police’s duty of disclosure and a misleading of the Crown Court.
Perhaps the most egregious failure was the non-disclosure that the cheques had been produced by ADM at the express request of the police, a request made several weeks before the application itself was made. The claimant companies argued that they had not chosen to convert their property (funds in ADM’s accounts) into cash and so the police’s chosen course of action was “a contrivance which sought to circumvent the greater protections” provided by the restraint and freezing order schemes, which target bank accounts rather than cash. Gross LJ held that the statutory scheme for the seizure of cash had not been intended by parliament to permit the police to "engineer" a situation in which cash could be seized. The police's conduct was a "clear abuse" of their power and their failure to be candid with the court hearing the original application rendered the production order unlawful.
In their application for the production order, City of London Police contended that the material they sought – including the cheques - was likely to be of substantial value to their investigation (a condition required by s346(4) of POCA). How could material that existed only at the police’s behest be of any investigative value, let alone substantial value? While the court agreed with the police that “material of substantial value” was not limited to material likely to be relevant evidence, it was held that the seizure of cash under POCA (the reason the cheques were created) is not an investigative purpose – which was defined by the court as “to find out information with a view to taking some action or decision” - and so the production order fell outside the scope of s345 POCA.
The production order application was deficient in another respect by failing to include a copy of the original STR made by ICE to the FCA, and instead providing a partial oral summary. The Crown Court was therefore unaware that there were potentially innocent explanations for the relevant transactions, and that the STR had been made many months earlier and the FCA had chosen to do nothing.
The propriety of the police decision not to notify the claimant companies of the production order application - in order to avoid any prejudice to the investigation –failed to withstand scrutiny. Contrary to the impression given by the police to the judge at the Crown Court, the claimant companies had by the time of the production order application been aware for a number that they were under investigation and also that their accounts at ADM were frozen. The remaining subject matter of the production order – material held by ADM – was equally out the claimant companies’ reach. Any justification for not notifying the claimant companies was further undermined by the notice given by the police of the subsequent applications (to the Magistrates’ Court) for further detention of the cheques.
While it is gratifying to see the high court firmly reject and deprecate the approach taken by the police, it remains troubling both that the police deem it appropriate to behave in the way they did and that the lower courts (in this case both the Magistrates’ and Crown Courts) can be so easily misled; appearing ready to grant applications without sufficiently rigorous inquiry. When private individuals and companies are faced with such a draconian regime as that established by POCA, the very least that can be expected of law enforcement and the courts is to ensure that the regime is applied as intended by parliament.