JSC BTA Bank v Ablyazov & Ors

The issue in the 4^th Defendant’s appeal is whether s.13 of the Fraud Act 2006 has removed the privilege against self-incrimination in respect of an offence under s.328 of the Proceeds of Crime Act 2002 (“POCA 2002”). The 4^th Defendant, Drey Associates Limited, contends that were it to comply with the order of Teare J, the information sought could be used to found a charge against it under s.328. The result was stated at the end of the hearing and these are the reasons.

Flaux J, in his judgment of 11 September 2009, concluded that Drey Associates Limited was not entitled to rely upon the privilege against self-incrimination because an offence under s.328 was a “related offence” within the meaning of s.13(4) of the Fraud Act 2006.

S.13 of the Fraud Act 2006 removes the privilege against self-incrimination in respect not only of offences under the Fraud Act 2006 but in respect of “related offences” defined by s.13(4). S.13(4) provides:-

“‘related offence’ means –

a)

conspiracy to defraud;

b)

any other offence involving any form of fraudulent conduct or purpose.”

POCA 2002 S.328(1) provides:-

“A person commits an offence if he enters into or becomes concerned in an arrangement which he knows or suspects facilitates (by whatever means) the acquisition, retention, use or control of criminal property, by or on behalf of another person.”

The 4^th Defendant contends that the scope of that section is so broad that it embraces conduct which does not necessarily involve either fraudulent conduct or purpose. Accordingly, s.328 does not fall within the definition of “related offence”.

Before embarking upon any analysis of this submission, I should identify issues with which this appeal is not concerned.

Any person claiming privilege on the grounds of self-incrimination must satisfy the court that there are real and not fanciful grounds justifying his fear that the information sought would tend to incriminate him (see, e.g., Moore-Bick LJ, Kensington International Limited v Republic of Congo [2007] EWCA Civ 1128 [2008] 1 ALL ER (Comm 934, § 33) and Sociedade Nacional v Lundquist [1991] 2 QB 310 at 324F (per Staughton LJ)). The statements, placed before Flaux J, on which the claim to privilege were based were so lacking in substance and raised such questions as to who lay behind the claim for privilege that the 4^th Defendant sought an adjournment so as to flesh out what appeared to be so skeletal. Flaux J refused an adjournment; in the light of his ruling it was unnecessary. It does not seem to me, therefore, that it is open to the Bank, in this appeal, to rely upon any inadequacies in the way the claim to privilege was raised.

Flaux J noted that the claim against the 4^th Defendant was that it was used as a vehicle by which “its ultimate beneficial owners diverted monies away from the bank dishonestly and by deception, not disclosing their connection with the 4^th Defendant” [21]. The Bank contends that it is obvious that the 4^th and 5^th Defendants were aware of the Compensation Agreements at the heart of the alleged fraud and must have assisted, in England, in enabling the Bank’s funds to be transferred. Moreover, on 13 August 2009, the date of Blair J’s first order, Clyde & Co LLP, then acting on behalf of the 4^th Defendant, asserted that it was a shareholder in the Bank and that it had a claim, valued in the region of US $ 1.5 billion. These factual allegations suggested a conspiracy to defraud in which the 4^th Defendant had participated.

There was no agreement as to whether that was argued before Flaux J. The suggestion that the 4^th Defendant was likely to incriminate itself in respect of an offence of conspiracy to defraud in relation to s.328 gave rise to two potential disputes: firstly, as to the territorial reach of conspiracy to defraud and secondly, whether the fact that the 4^th Defendant was as likely to incriminate itself in respect of conspiracy to defraud, expressly within the ambit of s.13(4), renders pointless a contention that s.328 was outwith its scope. These points could not be properly argued in the time available and should not, I suggest, divert the attention of this court from the question whether an offence under s.328 is a “related offence”.

The foundation for the 4^th Defendant’s contention that an offence under s.328 falls outwith the definition of “related offence” is the proposition that the court is limited to consideration of the essential character or ingredients of the offence, rather than the particular manner in which it might have been committed. This contention derives from dicta of Moore-Bick LJ in Kensington. In that case Moore-Bick LJ, with whose judgment May LJ agreed, concluded that bribery was a related offence because offering or giving a bribe “necessarily involves a form of fraudulent conduct or purpose within the meaning of s.13(4)(b)”. [63].

Counsel for the party asserting privilege sought to argue that fraud was not a necessary or inevitable characteristic of corruption offences because a bribe might be offered in circumstances where there was no fraudulent conduct or purpose of any kind. Moore-Bick LJ appears to have accepted that if there were circumstances in which a corruption offence might be committed without fraudulent conduct or in the absence of a fraudulent purpose it could not be a related offence within the meaning of s.13(4)(b):-

“If he (counsel for the party claiming privilege) were right, corruption offences would not in my view be ‘related offences’ within the meaning of s.13(4)(b) since I agree that the matter has to be judged by reference to the essential character of the offence rather than one particular manner of committing it.” [62]

Moore-Bick LJ concluded, however, that offering or giving a bribe necessarily involves a form of fraudulent conduct or purpose [63].

But I must express some anxiety in applying Moore-Bick LJ’s approach to an offence under s.328. S.328 is one of a series of offences (ss.327-329) which concern criminal property as defined by s.340 of the Proceeds of Crime Act 2002. S.340 provides:-

“(2)

Criminal conduct is conduct which –

a)

constitutes an offence in any part of the United Kingdom or

b)

would constitute an offence in any part of the United Kingdom if it occurred there.

(3)

Property is criminal property if –

a)

it constitutes a person’s benefit from criminal conduct or it represents such a benefit in whole or in part and whether directly or indirectly, and

b)

the alleged offender knows or suspects that it constitutes or represents such a benefit.”

This offence has been described as “extraordinarily broad” (see Smith & Hogan (12^th Edition, page 954). In Bowman v Fells [2005] 1 WLR 3083, this court held that the provisions were not intended to cover or affect the ordinary conduct of litigation by legal professionals. But the very fact that the issue merited serious consideration demonstrates the wide scope of this part of the Act.

There is considerable difficulty in identifying the essential characteristics of an offence under s.328, particularly since it covers any criminal property, may be committed without any fraudulent intention, and embraces the broad and informal concept of an “arrangement”.

Moreover, it seems to me difficult to eschew any reference to the factual context in which the claim to privilege is asserted. After all, a person making such a claim may well need to establish that there are real grounds for fearing incrimination, for which purpose he may have to refer to the factual accusation he fears. Kensington itself refers to the factual context of the bribery charge to demonstrate that the fear of incrimination in respect of s.328 was fanciful [67].

In those circumstances, it is difficult to see why it should not be open to the Bank to contend that, if its allegations are true, the 4^th Defendant’s conduct, if charged under s. 328, was clearly fraudulent and undertaken for a fraudulent purpose. The series of offences (ss.327-329), of which s.328 is one, is essentially parasitic. When the property is said to be derived from fraud, it is, as Mr Smith QC submitted, absurd that those who are thought to have defrauded the Bank of its property may be deprived of their privilege against self-incrimination but not those who assisted in its retention and concealment.

In the context of an urgent appeal, it is faintly ridiculous that this court should be required to give a binding ruling whether Moore-Bick LJ’s approach in Kensington requires this court to identify the essential characteristics of s.328, applicable in every case, particularly when the participation of the 4^th and 5^th Defendants, if proved, is so obviously fraudulent, and the identity of who it is who is said to fear prosecution remains, as yet, so nebulous.

But this appeal has been heard as a matter of urgency, and a speedy resolution is required before a further inter partes hearing. For that reason I am prepared to accept the application of Moore-Bick LJ’s approach to s.328 and that the court should confine its attention to what may be discerned as the essential characteristics of that offence.

For the purpose of this appeal I am, accordingly, prepared to accept that Flaux J erred in looking beyond what he described as “the technical ingredients of the offence” and basing his conclusion, at least in part, on the facts of the potential offence. He said:-

“The court is entitled and indeed should look, not just at the technical ingredients of the offence but the facts of the potential offence to see whether it involves fraud as defined by Moore-Bick LJ.” [20]

He went on to consider the circumstances of the claim against the 4th Defendant which I have already described.

I shall confine my resolution of this appeal to the question whether s.328 does necessarily involve a form of fraudulent conduct, to adopt the wording of Moore-Bick LJ [63]. In Kensington he defined the essence of fraud as:-

“Deception of one kind or another, coupled with injury or an intention to expose another to a risk of injury by means of that deception…both misrepresentation and the wrongful withholding of information, when knowing and deliberate, amount to calculated deception and even abuse of position of the kind falling within s.4 can be described as deception of a kind since the wrongdoer deliberately deceives the person whose interests he is bound to safeguard by allowing him to believe in his trustworthiness while actively falsifying that belief. Although I find it difficult to see how fraud of any kind properly so called can be committed without dishonesty, dishonesty is not the critical distinguishing mark of fraud. These considerations lead me to the conclusion that in order for an offence to involve some form of fraudulent conduct or purpose it must involve an element of deception in the sense mentioned earlier.” [59]

Kensington did not, however, decide the question whether s.328 was a related offence. That is of no significance, contrary to Mr Cohen’s submission. It was not necessary for the court to do so, since there was no realistic basis for fearing incrimination in respect of that offence.

Mr Cohen drew attention to three features of s.328 which suggest that conduct within the scope of s.328 is not fraudulent. Firstly, criminal property might be property obtained as a result of a crime far removed from any fraud. Secondly, Squirrel Ltd v National Westminster bank plc [2006] 1 WLR 637, [2005] EWHC 665 (Ch) is authority for the proposition that an offence under s.328 may be committed even if the property in respect of which the suspicion is entertained is not, in fact, criminal property as defined by s.340(2). Thus unfounded suspicions may lead to the commission of a s.328 offence. The decision of the House of Lords in Montila [2005] 1 WLR 3141 was not referred to in Squirrel or in the case in which a similar conclusion was reached, Kay Limited v National Westminster Bank PLC [2007] 1 WLR 311. Montila decided that a conviction for an offence under a predecessor of s.328 (s.93C(2)) Criminal Justice Act 1988) required proof that the property was in fact the proceeds of criminal conduct (see the discussion in Blackstone’s Criminal Practice 2009 B 21.11, page 1011). It is neither necessary nor desirable to resolve that issue in this appeal.

Thirdly, Mr Cohen points out that the offence might be committed without any knowledge or dishonest intention but merely in circumstances where the defendant thinks there is a possibility, which is more than fanciful, that the property is criminal property (see R v Da Silva [2007] 1 WLR 303).

The important feature of the definition under s.13(4)(b) is that it defines related offence by reference to the quality of the conduct brought within the scope of the charge and not merely by reference to the intention of the alleged offender. The conduct falling within s.328(1) is entry into or becoming concerned in an arrangement which facilitates (by whatever means) the acquisition, retention, use or control of criminal property by or on behalf of another person. Such an arrangement enables one who has obtained the proceeds of crime to retain the benefit of those proceeds whilst concealing their true source. Whether the alleged offender knows or suspects that the arrangement will facilitate that consequence is not to the point. He has deliberately chosen to enter into or become concerned with such an arrangement despite his knowledge or suspicion.

S.13(4)(b) is wide enough to include an offence which charges conduct which has a fraudulent quality, notwithstanding that it has no fraudulent purpose. The effect of the arrangement is necessarily to conceal from public officials and the public at large the criminal source of the property. That, in my view, involves deception in the way described by Moore-Bick LJ in Kensington at [61] and [63].

Nor does it seem to me to be relevant that the criminal property might itself not be derived from fraud. Even if the property is, for example, obtained as a result of dealing in drugs, the effect or potential effect of the arrangement into which the offender enters despite his knowledge or suspicion is to conceal the fact that the property is derived from drug-dealing. That element of concealment is, in my view, deceptive and fraudulent, even if the offender was only suspicious when he entered into or became concerned with what I consider to be a deceptive arrangement.

For those reasons, I conclude that Flaux J was correct in concluding that s.328 is a related offence for the purposes of s.13. I would dismiss the 4^th Defendant’s appeal on this ground.

I agree.

I also agree.