Squirrell Ltd v National Westminster Bank Plc

The applicant on this application is Squirrell Limited (“Squirrell”). It was formed in 2002 and changed to its current name in January 2003. Since May 2003 it has been involved in the business of buying and selling, among other things, mobile telephones. Its level of business grew very substantially in October of last year. It has a bank account at National Westminster Bank plc (“Natwest”), the respondent on this application. On 15 March of this year, Natwest froze Squirrell’s account. It did not tell its customer why it had done so. There is very nearly £200,000 in the account. Squirrell tried to discuss this with its relationship manager at the bank but to no effect. On 18 March, Natwest wrote a short letter to the Managing Director of Squirrell, Mr Ike Khan. It declined to unblock the account and provided him with no explanation for its decision.

As a consequence, Squirrell launched the current application on 24 March for relief in the following terms:

“We Squirrell Ltd intend to apply for an order that the accounts in relation to Squirrell Ltd held at the National Westminster Bank Plc Sussex Business Centre be unfrozen because

1.

no notice was given to the Claimant of the Defendants action

2.

The claimant has been denied access to the account by the defendant

3.

To request an order of disclosure from the Defendants for their actions.”

This notice was drafted by Mr Khan. He has appeared on behalf of Squirrell both on the initial hearing of this application on 30 March and on the full hearing before me on 1 April 2005. Mr Khan says that the reason for this is that Natwest’s actions have deprived Squirrell of access to all readily available resources. The result is that it has not been able to pay lawyers to appear on its behalf. During his submissions to me, Mr Khan disclosed that Squirrell does have a foreign bank account but, for reasons which were not explained, he says it would be difficult to meet the company’s trading needs, including its need to instruct lawyers, from this account.

Natwest says that it wishes to comply with Squirrell’s instructions in relation to its account but that it was forced to block it because of the provisions of s. 328(1) of the Proceeds of Crime Act 2002 (“POCA”). Furthermore, because of the anti-tip off provisions of that legislation, it was also prevented from explaining to Squirrell the reasons for so acting. However, at the beginning of the application on 30 March, HM Customs and Excise (“HMCE”) applied to intervene in the proceedings. That application was not resisted. Since that time Squirrell has been aware that Natwest acted in pursuance of its alleged duties under POCA and that those duties arise out of or in relation to certain investigations which HMCE says it is conducting into possible VAT offences. It follows that this application is now mainly concerned with the scope and effect of s 328(1). Mr Khan’s primary concern is to have the account unblocked so that the company can continue to make payments from it in the course of and for the purpose of maintaining its business.

Mr Peter de Verneuil Smith, who appears on behalf of Natwest, explains that his client’s position on this application is neutral. It continues to believe that it would be committing a criminal offence under POCA were it to unblock Squirrell’s account. It has no desire to do that. On the other hand, were I to order it to lift the block, it says it will comply.

Mr Sam Grodzinski, who appears for HMCE, takes an altogether more robust line. He says that I cannot lawfully grant Squirrell’s application. To do so would be a direct contravention of the statutory scheme under Part 7 of POCA. He says that Natwest was correct in its assessment that the legislation required it to block the account.

Before analysing the relevant statutory provisions, I should say that I have some sympathy for parties in Squirrell’s position. It is not proved or indeed alleged that it or any of its associates has committed any offence. It, like me, has been shown no evidence raising even a prima facie case that it or any of its associates has done anything wrong. For all I know it may be entirely innocent of any wrongdoing. Yet, if POCA has the effect contended for by Natwest and HMCE, the former was obliged to close down the account, with possible severe economic damage to Squirrell. Furthermore it cannot be suggested that either Natwest of HMCE are required to give a cross undertaking in damages. In the result, if Squirrell is entirely innocent it may suffer severe damage for which it will not be compensated. Further, the blocking of its account is said to have deprived it of the resources with which to pay lawyers to fight on its behalf. Whether or not that is so in this case, it could well be so in other, similar cases. Whatever one might feel were Squirrell guilty of wrongdoing, if, as it says, it is innocent of any wrongdoing, this can be viewed as a grave injustice. I do not understand Mr Grodzinski to dispute this analysis. He says that POCA must be regarded as the legislature’s determination of what provisions are necessary to curtail criminals’ ability to profit from crimes. Furthermore the legislation contains some, albeit restricted, provisions intended to limit harm that these provisions can inflict on innocent parties. It is not for the courts to substitute their judgment for that of the legislature as to where the balance should be drawn. If, as he says is the case here, the legislation is clear, the courts cannot require a party to contravene it.

S 328(1) of POCA provides that:

“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.”

It will be seen that this provision is directed at persons who become involved in other person’s handling of criminal property. It is therefore of particular concern to banks. Natwest only commits an offence it if has the necessary knowledge or suspicion in relation to “criminal property”. No question of knowledge arises here. Two preliminary questions need to be considered. First, what is the meaning of “criminal property”? Second, what amounts to relevant suspicion?

“Criminal property” is defined in s 340(3) as follows:

“Property is criminal property if –

(a)

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

(b)

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

This section therefore requires that there should have been criminal conduct and that the asset or property under consideration should be a person’s “benefit” from such conduct. Criminal conduct is defined in s 340(2) as covering any activity which constitutes an offence in the United Kingdom or would constitute an offence if it occurred here. The meaning of “benefit” is covered by s 340(5) and (6):

“(5)

A person benefits from conduct if he obtains property as a result of or in connection with the conduct.

(6)

If a person obtains a pecuniary advantage as a result of or in connection with conduct, he is to be taken to obtain as a result of or in connection with the conduct a sum of money equal to the value of the pecuniary advantage.”

On the material before the court at the moment, there is nothing which would justify concluding at this stage that the credit balance in Squirrell’s account with Natwest is criminal property. As far as Squirrell is concerned, it is not said that it has the necessary knowledge or suspicion as required by s 340(3). As far as both Squirrell and Natwest are concerned there is no evidence that a criminal offence has been committed, let alone by whom, or that the credit balance was obtained as a result of or in connection with any such offence. As far as Natwest is concerned, it does not claim to be in a position to determine whether an offence has been committed and, as far as is known from the material now relied upon in these proceedings, HMCE has not come to a conclusion that any offence has been committed, let alone that it is appropriate to charge anyone. Furthermore, even if it had come to any such determination, it says that one of the purposes of POCA, as illustrated by the anti-tip off provisions, is to relieve it and others of the necessity of disclosing the state of any inquiries into possible criminal activities.

This does not mean that Natwest is free to operate Squirrell’s account. Even if it does not contain funds which are, in fact, criminal property and no offence has been committed, s 328(1) bites if Natwest has a relevant suspicion. Mr Grodzinski tells me that there is very little authority on the scope of POCA. There is no direct authority on the meaning of “suspect” in this section. However he draws my attention to Hussien v Chong Fook Kam [1970] AC 942 in which the Privy Council had to consider the scope and effect of s 23(i)(a) of the Malaysian Criminal Procedure Code. This provided that police had the power to arrest someone if a reasonable suspicion existed that the individual had been concerned in an offence of reckless and dangerous driving causing death. Lord Devlin stated:

“Suspicion in its ordinary meaning is a state of conjecture or surmise where proof is lacking: ‘I suspect but I cannot prove.’ Suspicion arises at or near the starting-point of an investigation of which the obtaining of prima facie proof is the end.” (p 948B)

Later passages in Hussien serve to emphasise the breadth of s 328(1) of POCA. Under the Malaysian Code the arresting police officer’s suspicion must be reasonable. The Privy Council placed particular weight on this:

“The test of reasonable suspicion described by the Code is one that has existed in the common law for many years. The law is thus stated in Bullen and Leake, 3^rd ed. (1868), the ‘golden’ edition of (1868):

‘A constable is justified in arresting a person without a warrant, upon a reasonable suspicion of a felony having been committed and of the person being guilty of it.’

Their Lordships have not found any English authority in which reasonable suspicion has been equated with prima facie proof. In Bumbell v Robert [1944] 1 All E R, Scott LJ said, at p 329:

‘The protection of the public is safeguarded by the requirement, alike of the common law and, so far as I know, of all statutes, that the constable shall before arresting satisfy himself that there do in fact exist reasonable grounds for suspicion of guilt. That requirement is very limited. The police are not called upon before acting to have anything like a prima facie case for conviction …’

There is another distinction between reasonable suspicion and prima facie proof. Prima facie proof consists of admissible evidence. Suspicion can take into account matters that could not be put in evidence at all.” (p 948G – 949B)

No doubt it makes sense in relation to the actions of police officers that they should be required to satisfy themselves that reasonable grounds exist for suspecting guilt before they can arrest someone. They have the power and duty to investigate criminal activity. However s 328(1) covers parties like Natwest which have neither the obligation nor the expertise to do so. In this case it is not suggested that Natwest did not have a relevant suspicion nor was it suggested that its suspicion was other than reasonable. For that reason I do not need to consider the impact, if any, of the absence of the word “reasonably” from s 328(1).

Needless to say the purpose of s 328(1) is not to turn innocent third parties like Natwest into criminals. It is to put them under pressure to provide information to the relevant authorities to enable the latter to obtain information about possible criminal activity and to increase their prospects of being able to freeze the proceeds of crime. To this end, a party caught by s 328(1) can avoid liability if he brings himself within the statutory defence created by s. 328(2) which, insofar as material, provides:

“But a person does not commit such an offence if –

(a)

he makes an authorised disclosure under section 338 and (if the disclosure is made before he does the act mentioned in subsection (1)) he has the appropriate consent. …”

An “authorised disclosure” under s. 338 includes disclosure to a constable or a customs officer. “Appropriate consent” is dealt with in s 335. Two possibilities are covered. First, the constable or customs officer may simply consent to the transactions (s 335(1)). Second, consent will be treated as having been given if the party has made an authorised disclosure and has not received, within 7 working days, notice from the relevant constable or customs officer that consent to the transaction is refused. If such notice of refusal is given then a further 31 calendar days (the moratorium) must pass before the transaction can be actioned.

The combined effect of these provisions is to force a party in Natwest’s position to report its suspicions to the relevant authorities and not to move suspect funds or property either for 7 working days or, if a notice of refusal is sent by the relevant authority, for a maximum of 7 working plus 31 calendar days. Furthermore the anti-tip off provisions of s 338 of POCA prohibit the party from making any disclosure which is likely to prejudice any investigation which might be conducted following an authorised disclosure under s 338.

The way these provisions work can be illustrated by the facts of this case. Once Natwest suspected that Squirrell’s account contained the proceeds of crime it was obliged to report that to the relevant authority, in this case HMCE. It was also obliged not to carry out any transaction in relation to that account. That remains the position unless and until consent to the transactions is given by HMCE or, if it is not, the relevant time limits under s 335 have expired. In the meantime it is not allowed to make any disclosure to Squirrell which could affect any inquiries HMCE might make. Obviously, telling Squirrell why it had blocked its account would constitute a prohibited disclosure.

These provisions could work hardship, as indicated above. But I accept Mr Grodzinski’s submission that it must be assumed that the legislature intended s 328(1) to be of wide scope and for the 7 and 31 day time limits to be sufficient protection of parties in the position of Squirrell.

In my view the course adopted by Natwest was unimpeachable. It did precisely what this legislation intended it to do. In the circumstances there can be no question of me ordering it to operate the account in accordance with Squirrell’s instructions. To do so would be to require it to commit a criminal offence. Even if I had power to do that, which I doubt, it could not be a proper exercise of my discretion. Sympathy for the position in which Squirrell finds itself do not override those considerations. In addition I cannot accede to Squirrell’s application for an order that Natwest disclose the reasons for blocking its account. As a result of HMCE’s intervention in this case, Squirrell now knows why its account was blocked. For that reason this relief is no longer necessary. It is not necessary to express any views on the question whether I could have ordered disclosure had Squirrell been kept in the dark.

Finally I should mention that after the hearing Mr Khan wrote me a letter expressing the view that HMCE had only given notice of its refusal to consent to the transactions after the 7 day notice period had elapsed. His calculations are wrong. Natwest made the authorised disclosure on Friday 18 March. The seven working day period starts with the first working day after the authorised disclosure (s 335(5)). Friday 25 March was Good Friday and Monday 28 March was a bank holiday. Neither is a working day for the purpose of this legislation (s 335(7)). Therefore the seventh working day in this case was Thursday 31 March. HMCE refused consent on 30 March 2005. It refused consent within the 7 day period.