The Serious Organised Crime Agency v Namli & Ors

This is a claim by the Serious Organised Crime Agency (“SOCA”) under sections 243 and 266 of the Proceeds of Crime Act 2002 (“POCA”) for a civil recovery order in respect of monies totalling about US $7 million in a bank account at Coutts & Co in London. The money in the Coutts account is held in the name of the second defendant (“Topinvest”), a British Virgin Islands company owned and controlled by the first defendant, Hakki Yaman Namli, an individual ordinarily resident in Turkey.

SOCA contends that the money in the Topinvest account at Coutts is or represents property obtained through unlawful conduct within the meaning of sections 304 to 307 of POCA and that it is therefore entitled to a recovery order in respect of that money. Its case is that:

The six credits into the Topinvest account at Coutts, amounting in total to US $5,857,000, were as follows:

It is not disputed that these credits were made as indicated above and that the entities referred to were indeed owned and controlled by Mr Namli.

SOCA also claims the profits and interest earned on these funds.

The criminal activity on which SOCA principally relies is said to have taken place between 1996 and 2002, although it also points to what it says was an earlier instance of fraudulent conduct by Mr Namli in 1987. It has identified what it says amount to at least six sets of criminal activities in which Mr Namli was involved. SOCA’s case, adopting the labels which it applies to the various activities, is as follows:

With the exception of the German fraud where the dishonest conduct alleged is different, the fraudulent activity in which Mr Namli and FMB are alleged to have been engaged is a form of advance fee fraud. Typically, a victim would be led to believe that he could obtain access to an investment programme, usually a programme which was highly confidential and open only to a select few, promising extraordinarily high returns. The victim would be told that in order to participate in this investment he would need to demonstrate that he had access to a certain level of funding. It is said that FMB’s role in these frauds was to produce false and misleading banking instruments confirming the availability of funds, in return for substantial advance payments. These instruments were generally signed by Mr Namli personally. However, SOCA’s case is that although they were designed to convey the impression that the victim had access to these funds, in fact the banking instruments produced by FMB were subject to conditions which either could not be fulfilled in practice or were so vague that FMB would always be in a position to say that they had not been fulfilled. Examples of such banking instruments examined in the course of the evidence in this case included credit reference letters, revolving underwriting facilities (a form of credit facility agreement) and a standby letter of credit.

SOCA does not suggest that any of the money in the Topinvest account at Coutts represents the proceeds of the German fraud or the Laconia fraud. Indeed there never were any proceeds of the Laconia fraud, which was simply an FBI sting operation. However, SOCA relies on these frauds as demonstrating Mr Namli’s propensity to engage in fraudulent activity and as supporting the inference which it invites me to draw that Mr Namli’s and FMB’s criminal conduct was not limited to the specific transactions referred to above, but extended much more widely. Indeed it does not shrink from the submission that the evidence of extensive fraudulent activity justifies the conclusion that the entirety of FMB’s business was dishonest over many years.

Mr Namli denies that either he or FMB have been knowingly involved in the criminal conduct alleged by SOCA, or in any criminal activity. He says that he is a man of good character who has never been convicted of a criminal offence in any jurisdiction, and that in Turkey he was actually acquitted of money laundering charges founded on the same matters as are relied on by SOCA; that FMB, which ceased operations in 2006 following the withdrawal of its banking licence by the TRNC authorities, was while it operated a legitimate and profitable bank; that the banking instruments which it provided to customers were genuine documents of a standard nature; that it is nothing to do with him if (as was the case) customers to whom such instruments were provided were unable to meet the conditions required in order to draw on the funds made available to them by FMB; and that to the extent that the services of FMB were made use of by fraudsters such as the solicitors and others who perpetrated the English frauds, that happened without his knowledge of or participation in any wrongdoing.

It is true that, with the exception of the Turkish money laundering charges on which he was initially convicted but eventually acquitted after an appeal and a fresh trial, Mr Namli has not been convicted of any criminal offence. However, he was indicted together with Mr Jarson in the United States criminal proceedings relating to the Lepkanich and Laconia frauds, and still faces extradition to the United States to face those charges in the event that he is found in a jurisdiction where he would be susceptible to such extradition. For that reason, he did not attend the trial of this action, but gave his evidence by video link from Turkey.

It will be necessary to examine the transactions referred to above in order to see whether or to what extent Mr Namli was a knowing participant in criminal conduct. However, it is important to bear in mind that although proceedings for a civil recovery order are taken against a person who is thought to hold recoverable property, the statutory remedy focuses on the property itself, here the money in the Topinvest account at Coutts, the issue being whether the property or any part of it falls within the definition of “recoverable property”. Accordingly it would not avail SOCA in these proceedings to prove that Mr Namli acted fraudulently or engaged in money laundering unless it can also demonstrate to the necessary standard that the money in the Topinvest account is or represents the proceeds of such activity.

Although an alternative case had previously been kept open, by the conclusion of the trial SOCA accepted that its case depended on proof of unlawful conduct by Mr Namli.

The court’s duty to make a recovery order is contained in section 266(1) of POCA, which provides:

“If in proceedings under this Chapter the court is satisfied that any property is recoverable, the court must make a recovery order.”

The making of a recovery order is therefore mandatory, unless one of the exceptions in the succeeding sub-sections of section 266, which include safeguards to protect the innocent recipient of recoverable property, applies. Since SOCA’s case depends on proof of unlawful conduct by Mr Namli, those exceptions need not be considered here.

Section 304 defines “recoverable property” as “property obtained through unlawful conduct”. The constituent parts of this phrase are further defined in sections 241 and 242:

“241.

‘Unlawful conduct’

(1)

Conduct occurring in any part of the United Kingdom is unlawful conduct if it is unlawful under the criminal law of that part.

(2)

Conduct which—

(a)

occurs in a country or territory outside the United Kingdom and is unlawful under the criminal law applying in that country or territory, and

(b)

if it occurred in a part of the United Kingdom, would be unlawful under the criminal law of that part,

is also unlawful conduct.

(3)

The court … must decide on a balance of probabilities whether it is proved—

(a)

that any matters alleged to constitute unlawful conduct have occurred …

…

242.

‘Property obtained through unlawful conduct’

(1)

A person obtains property through unlawful conduct (whether his own conduct or another’s) if he obtains property by or in return for the conduct.

(2)

In deciding whether any property was obtained through unlawful conduct—

(a)

it is immaterial whether or not any money, goods or services were provided in order to put the person in question in a position to carry out the conduct,

(b)

it is not necessary to show that the conduct was of a particular kind if it is shown that the property was obtained through conduct of one of a number of kinds, each of which would have been unlawful conduct.”

Therefore a court must be satisfied that (1) “unlawful conduct” within the meaning of section 241 has taken place and (2) property has been obtained by a person by or in return for such unlawful conduct, whether his own or another’s, as required by section 242. In the present case the unlawful conduct relied on by SOCA is the conduct of Mr Namli and FMB as a result of which Mr Namli is said to have obtained the monies which were paid in to the Topinvest account.

The standard of proof of these matters is the balance of probabilities. However, in view of the serious nature of an allegation of unlawful conduct, and the serious consequences which follow from such a finding, the courts have repeatedly emphasised that careful and critical consideration must be given to the evidence relied on, and that cogent evidence will be required in order for such an allegation to be established: see for example Serious Organised Crime Agency v. Gale [2009] EWHC 1015 (QB) at [9] and Serious Organised Crime Agency v. Pelekanos [2009] EWHC 2307 (QB) at [19] to [21], applying in this context what was said by Lord Carswell in In re D [2008] UKHL 33, [2008] 1 WLR 1499 at [27] and [28].

Section 242(2)(b) provides that the unlawful conduct which must be proved need not be “of a particular kind”, but that it is sufficient if the property was “obtained through conduct of one of a number of kinds, each of which would have been unlawful conduct”. It is therefore unnecessary for SOCA to demonstrate that the property was obtained through a specific criminal act. As Moore-Bick LJ explained in Szepietowski v. Director of Assets Recovery Agency [2007] EWCA Civ 766 at [107]:

“it is sufficient, in my view, for the Director to prove that a criminal offence was committed, even if it is impossible to identify precisely when or by whom or in what circumstances, and that the property was obtained by or in return for it … in order to succeed the Director need not prove the commission of any specific criminal offence, in the sense of proving that a particular person committed a particular offence on a particular occasion. Nonetheless, I think it is necessary for her to prove that specific property was obtained by or in return for a criminal offence of an identifiable kind (robbery, theft, fraud or whatever) or, if she relies on section 242(2), by or in return for one or other of a number of offences of an identifiable kind.”

In general terms, the identifiable kinds of criminal offence upon which SOCA relies in these proceedings are fraud (by the issue of fraudulent banking instruments) and money laundering of the proceeds of such frauds. Although it was suggested that SOCA’s case on this is not pleaded with sufficient specificity, I do not accept that submission.

In order to be “unlawful” for present purposes, conduct must either be conduct which was criminal in the part of the United Kingdom where it occurred (section 241(1)) or, where it occurred outside the United Kingdom, conduct which (1) was unlawful under the criminal law of the country (or territory) where it occurred and (2) would have been unlawful had it occurred in the United Kingdom (section 241(2)). Thus, in the case of conduct outside the United Kingdom, POCA imposes a test of “dual criminality”: Director of Assets Recovery Agency v. Virtosu [2008] EWHC 149, [2009] 1 WLR 2008 at [7]. In the present case SOCA contends that the English frauds comprise conduct which occurred in the United Kingdom, but that the other conduct relied on occurred either in the United States or in Turkey or the TRNC. The parties adduced expert evidence of United States law, but not of Turkish (or TRNC) law.

Section 240(2) of POCA makes clear that a recovery order may be made “whether or not any proceedings have been brought for an offence in connection with the property”. It follows that the conviction of any person of an offence is not a precondition of the making of such an order. However, there is an issue, considered below, as to the effect of an acquittal in criminal proceedings abroad. That issue arises in relation to the Turkish loan-backs, where Mr Namli was ultimately acquitted in the Turkish criminal proceedings, and potentially the Lepkanich fraud where, although Mr Namli did not participate in the United States criminal proceedings, his alleged co-conspirator Mr Jarson was acquitted by the jury.

As already indicated, sections 304(1) defines “recoverable property”. The remainder of sections 304 to 307 contain further rules applicable in civil recovery proceedings for the identification of recoverable property where such property has been disposed of, is represented by other property, has become mixed with other property, or has been used to generate further property:

“304

Property obtained through unlawful conduct

(2)

… if property obtained through unlawful conduct has been disposed of (since it was so obtained), it is recoverable property only if it is held by a person into whose hands it may be followed.

(3)

Recoverable property obtained through unlawful conduct may be followed into the hands of a person obtaining it on a disposal by—

(a)

the person who through the conduct obtained the property, or

(b)

a person into whose hands it may (by virtue of this subsection) be followed.

305

Tracing property, etc.

(1)

Where property obtained through unlawful conduct (“the original property”) is or has been recoverable, property which represents the original property is also recoverable property.

(2)

If a person enters into a transaction by which—

(a)

he disposes of recoverable property, whether the original property or property which (by virtue of this Chapter) represents the original property, and

(b)

he obtains other property in place of it,

the other property represents the original property.

(3)

If a person disposes of recoverable property which represents the original property, the property may be followed into the hands of the person who obtains it (and it continues to represent the original property).

306

Mixing property

(1)

Subsection (2) applies if a person’s recoverable property is mixed with other property (whether his property or another’s).

(2)

The portion of the mixed property which is attributable to the recoverable property represents the property obtained through unlawful conduct.

(3)

Recoverable property is mixed with other property if (for example) it is used—

to increase funds held in a bank account ...

307

Recoverable property: accruing profits

(1)

This section applies where a person who has recoverable property obtains further property consisting of profits accruing in respect of the recoverable property.

(2)

The further property is to be treated as representing the property obtained through unlawful conduct.”

These statutory rules cast a wide net around property that is recoverable. Property (including the profits accruing thereon: section 307) remains recoverable whether or not it has changed in form (section 305) or has been passed from one person to another (section 304), or mixed together with other property (section 306). These rules give effect to the legislative purpose described by Lord Phillips in Serious Organised Crime Agency v. Gale [2011] UKSC 49, [2011] 1 WLR 2760 at [2], namely “tracking down and recovering the fruits of criminal activity”. There is, however, an issue in the present case concerning the extent, if any, to which these statutory rules leave scope for the application of common law or equitable principles, for example in determining the extent to which a recovery order may be made in respect of a mixed fund when it is not possible to prove how much of the fund represents the proceeds of unlawful conduct.

Thus section 306 addresses the situation where recoverable property is mixed with other property, providing in effect that the portion attributable to the recoverable property remains recoverable. SOCA contends that the common law and equitable principles applicable to ordinary civil proprietary claims, for example when a trustee mixes the beneficiary's money with his own, apply to that situation in order to determine how much of a mixed fund is “attributable” to recoverable property. The defendants say that there is no room for such principles in applying what is in effect an exhaustive statutory code, so that a recovery order can only be made in respect of that part of a mixed fund which is proved on the balance of probabilities to have been obtained, or to represent property which has been obtained, by unlawful conduct and that, if the evidence falls short of such proof, no recovery order can be made. In the end, however, it will not be necessary to resolve this issue.

The defendants rely on the fact that Mr Namli was acquitted of money laundering in the Turkish criminal proceedings where the allegations against him were the same or substantially the same as the money laundering allegations against him in this case relating to the Turkish loan-backs. They rely on his acquittal to make three submissions. First, it is said that to find that Mr Namli had committed money laundering would necessarily contradict his acquittal in Turkey, which is not permitted as a matter of law. In effect, therefore, his acquittal should be regarded as conclusive proof of his innocence of the money laundering charges. Second, and in the alternative, it is said that his acquittal is evidence which creates a strong but rebuttable presumption as a matter of fact that he was innocent. Third, it is said that his acquittal demonstrates that the conduct alleged against him does not amount to an offence under Turkish law.

There is of course an important distinction between the first and second submission. If the acquittal is conclusive as a matter of law, evidence tending to suggest that he did (or for that matter did not) commit money laundering offences under Turkish law would be irrelevant. The acquittal would be conclusive proof of his innocence, and further factual enquiry would be unnecessary. However, if the acquittal merely represents evidence, or even if it gives rise to an evidential presumption, it is necessary to consider the evidence as a whole, including the weight to be given to the acquittal, in order to see whether at the end of the day SOCA has succeeded in proving unlawful conduct on the balance of probabilities. If the acquittal has the status of a rebuttable presumption, this will also include considering whether that presumption has been rebutted.

The effect of an acquittal in criminal proceedings, including foreign criminal proceedings, has been considered in several recent cases. In Serious Organised Crime Agency v. Gale [2009] EWHC 1015 (QB) the defendant had been acquitted of drug trafficking in Portugal, but in civil recovery proceedings in this country Griffith Williams J nevertheless found that property held by him was derived from such criminal drug trafficking. He did so applying the civil standard of the balance of probabilities, but recognising at [9] the need in such case for cogent evidence. He expressed his ultimate conclusion in strong terms, stating at [140] that he was "in no doubt” that the defendant had engaged in unlawful conduct, including drug trafficking.

There was then an appeal to the Supreme Court, the issue being whether it was contrary to the presumption of innocence contained in Article 6.2 of the European Convention on Human Rights for civil recovery proceedings to be determined on the balance of probabilities. The defendant’s case was that section 241(3) of POCA which provides for this standard should either be "read down" so as to require proof to the criminal standard or should be declared incompatible with Article 6.2. It would appear, therefore, that the defendant in Gale was not contending, at any rate as his primary case, that it was impermissible for the court dealing with the civil recovery proceedings to reach a conclusion which contradicted the defendant's acquittal in criminal proceedings, but rather that it could only do so if satisfied to the criminal standard of proof.

The Supreme Court held that the requirement for proof to the civil standard was not incompatible with Article 6.2 and that no "reading down" was necessary: [2011] UKSC 49, [2011] 1 WLR 2760. After an extensive review of the Strasbourg cases, Lord Phillips held at [44] that:

“If confiscation proceedings do not involve a criminal charge, but are subject to the civil standard of proof, I see no reason in principle why confiscation should not be based on evidence that satisfies the civil standard, notwithstanding that it has proved insufficiently compelling to found a conviction on application of the criminal standard. At all events, in so far as other Strasbourg jurisprudence supports the first proposition [i.e. that where a defendant has been tried and acquitted of an offence no claim can be based upon an assertion that he committed that offence], it is only in circumstances where there is a procedural link between the criminal prosecution and the subsequent confiscation proceedings. There was no such link in the present case. The acquittal was in Portugal and the confiscation proceedings here in England. Furthermore, the evidence in the latter ranged much wider than the evidence that was relied on in the Portuguese prosecution.”

There are two strands to this reasoning. The first is that civil recovery proceedings with their lower civil standard of proof do not involve a criminal charge, so that a finding that there has been unlawful conduct does not contradict an acquittal in criminal proceedings: see also [19] where Lord Phillips emphasised that failure to satisfy the criminal standard of proof "does not demonstrate that the defendant did not commit the criminal act”, but only that "the evidence against him was insufficient to discharge the enhanced burden of proof”. The second is that there was no "procedural link" between the foreign criminal proceedings and the English civil recovery proceedings. That conclusion was also stated at [35]:

“On no view does this jurisprudence support Mr Mitchell's submission that the appellant's acquittal in Portugal precludes the English court in proceedings under POCA from considering the evidence that formed the basis of the charges in Portugal. The link between the Portuguese criminal proceedings and the English civil proceedings, which Strasbourg would appear to consider so critical, is not there.”

As I read Lord Phillips’ judgment, although both strands of reasoning are present, the absence of such a "procedural link" was itself sufficient for his decision that there was no impediment in the civil recovery proceedings to a finding that unlawful conduct had been committed, notwithstanding the acquittal in Portugal. His reference to the court not being precluded from “considering the evidence that formed the basis of the charges in Portugal” shows that this is so even if the evidence in the two proceedings is the same, and that it is open to the English court to reach a different conclusion from the foreign court. However, his final comment in [44] to the effect that the evidence in the English proceedings had ranged more widely than the evidence in the Portuguese prosecution makes it even clearer that it is both permissible and necessary for the English court to consider the evidence before it as a whole and reach its own conclusion. There may be evidence tending to prove the defendant's guilt, which is available in the civil recovery proceedings, but was not before the foreign court.

All of the other judges expressed their agreement with Lord Phillips, but three of them (in a seven judge court) made additional observations on which the defendants rely. Lord Clarke said at [60]:

“… I note that in the recent case of R (Adams) v. Secretary of State for Justice (JUSTICE intervening) [2011] 2 WLR 1180, where some of these issues were touched on, Lord Hope of Craighead DPSC, said at para 111, that the principle that is applied in Strasbourg is that it is not open to a state to undermine the effect of an acquittal. It appears to me that that is indeed the underlying principle and that if, as here and indeed in Adams, the effect of the acquittal is not undermined there should be no question of holding that there is any conflict with the presumption of innocence enshrined in article 6.2 of the European Convention on Human Rights.”

Lord Brown said at [115] that:

“Obviously, in all proceedings following an acquittal the court should be astute to ensure that nothing that it says or decides is calculated to cast the least doubt upon the correctness of the acquittal. But the point to be emphasised, is that the acquittal is correct because, and only because, the prosecution failed in the criminal proceedings to establish beyond reasonable doubt that the defendant was guilty. Not having been proved guilty to the criminal standard, the defendant is not thereafter to be branded a criminal and no criminal penalty can properly be exacted from him. But, contrary to widespread popular misconception, acquittal does not prove the defendant innocent.”

Finally, Lord Dyson referred to Strasbourg cases suggesting that even if the nature of the civil proceedings was not itself such as to give rise to the necessary "procedural link", that link “can be created by the language in which the decision in the civil proceedings is expressed": see [135]. In view of that concern, he continued as follows at [138]:

“It seems, therefore, that the necessary link can be created by this route only if the court in the civil proceedings bases its decision adverse to the defendant using language which casts doubt on the correctness of an acquittal. The rationale must be that in such a case, the court has chosen to reach its decision by explicitly finding that a criminal charge has been committed. If it chooses to reach its decision in that way, then the protections afforded by article 6.2 should be available as if the civil proceedings were criminal proceedings. But if the decision in the civil proceedings is based on reasoning and language which goes no further than is necessary for the purpose of determining the issue before that court and without making implications of criminal liability, then the necessary link will not have been created. … The fact that the findings of fact in the compensation proceedings may implicitly cast doubt on the acquittal is not enough to import article 6.2. What is required is that the decision in the compensation proceedings contains a ‘statement imputing criminal liability’ (emphasis added) (Y v. Norway, para 42) for article 6.2 to be imported.”

Evidently there are some fine, but nevertheless real, distinctions to be borne in mind here. To the extent that the Supreme Court's reasoning depends on the distinction between the criminal and the civil standard of proof, it may be said that in practice there will often be little difference between a conclusion that criminal conduct is proved to the criminal standard (so that the tribunal of fact is, "sure" or is satisfied "beyond reasonable doubt") and a conclusion reached on the balance of probabilities but only after careful and critical consideration and requiring "cogent" evidence. Gale itself illustrates the narrowness of the distinction in view of Griffith Williams J’s conclusion that he was “in no doubt” about the defendant's drug trafficking. Nevertheless, the conceptual distinction exists.

The other members of the Supreme Court did not in terms adopt Lord Dyson’s reservation as to the way in which judgments in civil recovery proceedings should be expressed. Indeed Lord Phillips observed at [55], without criticism, that "the judge rightly applied the civil standard of proof, but on my reading of his judgment he would have been satisfied to the criminal standard of the appellants' wrongdoing”. It must follow that despite Lord Dyson’s understandable caution, it is permissible for a judge in the civil recovery proceedings to express a conclusion in strong terms, provided that he applies the civil standard of proof, namely the balance of probabilities. If that were not so, the result of the appeal would have had to be different. This is not, in my respectful view, surprising. It would be strange if as a matter of law a judge dealing with civil recovery proceedings were prohibited from expressing a factual conclusion in strong terms even in a case where the evidence justified that conclusion.

The importance of not undermining the effect of an acquittal has been referred to in other cases. In Serious Organised Crime Agency v. Hymans [2011] EWHC 3332 (QB), after referring to the observation by Lords Clarke, Brown and Dyson cited above, Kenneth Parker J said at [18]:

“… a court should not decide a civil case using language which casts doubt on the correctness of an acquittal. This will not happen if the court's language and reasoning goes no further than is necessary for the purpose of determining the issue before the court and without making implications of criminal liability. The fact that the findings may implicitly cast doubt on the acquittal is not sufficient to bring Article 6(2) into play. It is clear that a finding to the civil standard that unlawful conduct has been committed by a respondent who was acquitted of the very same conduct in criminal proceedings, will not undermine the effect of that acquittal.”

Serious Organised Crime Agency v. Coghlan [2012] EWHC 429 (QB) at [14(3)] is to the same effect.

However, in neither of these cases did the defendant actually have the benefit of an acquittal. Rather criminal proceedings charging drug offences had been stayed as an abuse of process: see Hymans at [24], [25] and [60] and Coghlan at [25] and [93]. Accordingly, although the defendant could say that he had never been convicted, he had not actually been acquitted either. Therefore the question of what was the effect in law of any acquittal did not arise. It is, however, notable that although Kenneth Parker J was careful to state at [60] that he reached his conclusion on the balance of probabilities, he also said that on the evidence before him he had "no hesitation" in finding that the defendant had been "a professional, large-scale and sophisticated drug dealer".

In the present case the defendants rely also on the decision of Tugendhat J in Director of Assets Recovery Agency v. Virtosu [2008] EWHC 149 (QB), [2009] 1 WLR 2808. That was a case in which the defendant had been convicted of people trafficking in France. Tugendhat J held that the conviction, at any rate when (as in that case) the judgment contained a statement of the facts found to be proved, was evidence of the truth of those facts, and of the fact that such conduct was unlawful under French law. The judgment was not conclusive, but depending on the circumstances it might not be easy for the person convicted abroad to persuade the English court that SOCA (or in that case the predecessor of SOCA) had failed to discharge its burden of proving on the balance of probabilities that unlawful conduct had occurred. The defendants seek to apply this same reasoning to an acquittal abroad. In my judgment, such an acquittal is capable of constituting evidence in civil recovery proceedings, but since the burden of proof is on SOCA throughout I doubt whether it is necessary or helpful to say that it gives rise to any rebuttable presumption, or to rely on Virtosu for that point. I note that Virtosu was not cited in Gale, or in the later cases which followed Gale referred to above.

In the light of this review of the authorities I would summarise the position as follows:

In the present case the evidence on which Mr Namli was acquitted of money laundering in Turkey consisted essentially of the opinions of a panel of experts appointed after his original conviction was quashed, which opinions were reached by the experts (and were then adopted by the court) as a result of their review of a file of documents. They did not have the benefit of oral evidence from Mr Namli. In the proceedings before me, the evidence has ranged much more widely, as it has been necessary to consider not only the money laundering charges but also extensive further allegations of participation in fraudulent activities including some (e.g. the Laconia frauds) which only arose after the Turkish proceedings had concluded. In addition Mr Namli has provided a lengthy written witness statement and has been cross-examined upon it. Naturally, the evidence of a witness who gives a good account of himself in cross-examination will be strengthened, while a witness who fails to withstand such cross-examination may be discredited. In such circumstances, while I take account of Mr Namli’s acquittal in the Turkish criminal proceedings, I attach much more weight to the evidence which he gave in these proceedings on which I shall shortly state my conclusions.

I would add, however, that this is not a case where the Turkish acquittal demonstrates that the conduct alleged against Mr Namli was not unlawful under Turkish law. The case against him did not fail on the ground that what was alleged against him was not criminal, but rather that it was not proved. On the contrary, there is nothing in the course of the Turkish proceedings to indicate that Turkish money laundering law is materially different from English law or that a less demanding standard of proof applies in Turkey than would apply in criminal proceedings here.

Finally, in relation to the effect of a foreign acquittal, what is said above applies principally to the Turkish loan-backs, these being the only transactions which have resulted in an acquittal for Mr Namli. However, the submission was also made that Mr Namli can in effect take the benefit of Mr Jarson’s acquittal in the United States in relation to the Lepkanich fraud. The defendants' argument was that in a case where Mr Jarson and Mr Namli were alleged to be co-conspirators, it would have been perverse for the jury to convict Mr Namli, while acquitting (as they did) Mr Jarson, and therefore (in effect) that it can be supposed that Mr Namli would have been acquitted if he had faced trial. In view of the conclusions already stated as to the effect of a foreign acquittal it is unnecessary to explore this submission in any detail, but I reject it. The fact is that Mr Namli chose not to participate in the criminal proceedings in the United States and therefore does not have the benefit of any acquittal in those proceedings. The argument that a finding of unlawful conduct by Mr Namli in relation to the Lepkanich fraud would somehow be impermissible as being inconsistent with the jury's verdict therefore does not get off the ground.

One aspect of SOCA’s case, particularly in relation to the Turkish loan-backs, is that inferences should be drawn against Mr Namli because (it is said) he has failed to explain the source of the funds in question. The defendants rely on the decision of Sullivan J in Director of Asset Recovery v. Green [2005] EWHC 3168 (Admin) at [47] that "a claim for civil recovery cannot be sustained solely on the basis that a respondent has no identifiable lawful income to warrant his lifestyle” and insist that there is no obligation on them to provide such information.

I accept that there is no burden on the defendants, and that the burden of proving that the property in question is or represents the proceeds of unlawful conduct is on SOCA. However, subsequent cases have shown that Sullivan J’s decision must be understood as giving proper emphasis to the word "solely". These are set out by Griffith Williams J at first instance in Serious Organised Crime Agency v. Gale ([2009] EWHC 1015 (QB) at [14] to [16]), where the points are made that it is for the court to decide on the balance of probabilities whether the matters alleged to constitute unlawful conduct have been proved; that the court must consider the totality of the evidence; and that it may take a common sense approach to the inferences which may be drawn from a failure to provide an explanation, the giving of an untruthful explanation, or a failure by a defendant to keep the usual records which an honest man would be expected to keep.

The drawing of inferences may be particularly relevant when the unlawful conduct relied on consists of money laundering. The position was summarised by Hamblen J in Serious Organised Crime Agency v. Pelekanos [2009] EWHC 2307 (QB) at [34] to [37] in terms with which I respectfully agree as follows:

“34.

In order to demonstrate that property derives from crime for the purposes of proving money laundering it is legitimate to rely upon inferences drawn from the way in which the money was handled.

35.

In ARA v Olupitan [2007] EWHC 162 (QB) Langley J summarized the position as follows [at paragraphs 65- 66]:

‘65 A substantive offence of money laundering can be proved by inference from the way in which cash is dealt with and it is not necessary to prove the underlying offence which generated the cash: R v El Kurd [2001] Crim. L.R. 234 ; and R v L,G,Q and M [2004] EWCA Crim 1579 . As Mr Eadie submitted, if money is handled in a manner consistent only with money laundering, "the inference is that it must be criminal property because no one launders clean money". Mr Krolick submitted that it was a condition precedent to any allegation of money laundering that the property should be the proceeds of a criminal offence. He referred to the decision of the House of Lords in Rv Montila [2005] 1 Cr. App. R 26. But what is required in law to establish money laundering and how that may be proved raise different issues. El Kurd was cited in Montila and referred to in the Opinion of the Committee with apparent approval and certainly without adverse comment on the question material to this case.

66 In this case, the evidence is, as the Director alleges, that around £195,000 cash (and £24,000 in unidentified credits) were credited to the accounts of Olupitan and Makinde in a period of some five and a half years. They remain unexplained and without any supporting documentation. Such explanations as have been offered have been rejected as untruthful. I accept Mr Eadie's submission that in the circumstances of this case as I find them to be it is a proper inference that money laundering has occurred.’

36.

The judgment of King J in Jackson is to similar effect [at paragraphs 118-119]:

‘118 I also consider that the court is entitled to take a commonsense approach to the inferences to be drawn from the manner in which the Respondent chose to store his accumulated cash and from the failure of the respondent to keep any business records in the context of the evidence as a whole.

119 Equally, as the Receiver said in evidence, one would expect any successful law abiding businessman to keep some sort of record no matter how simple, of what he was buying, what he was selling and the amounts of his overheads – if only to work out the sort of profit he was making and which were his most profitable items. The criminal dealer in, for example, illicit drugs will of course eschew any record by which his activities might be detectable.

37.

This approach was endorsed by Griffith Williams J in Gale [at paragraph 17]:

‘17 I respectfully agree with and adopt the above cited observations of Sullivan J, Langley J and King J and if support is needed it is to be found in the decision of the Court of Appeal, Criminal Division in R–v- Anwoir & Others [2008] 2 Cr App R 36 at para 21 at page 539 that there are two ways in which the Crown can prove in money laundering offences that property was derived from crime - either by proving it derived from unlawful conduct of a specific kind or kinds or by evidence of the circumstances in which the property was handled, such as to give rise to the irresistible inference that it could only have been derived from crime (although in criminal proceedings the higher standard of proof is required).’”

Whether an adverse inference is appropriate will inevitably depend on the detailed circumstances of each individual case. But, in an appropriate case, it is clear that such an inference can properly be drawn from a failure to provide an explanation of apparently suspicious dealings and that doing so does not involve an inadvertent reversal of the burden of proof, which remains on SOCA throughout: see also Olupitan v. Director of the Assets Recovery Agency in the Court of Appeal [2008] EWCA Civ 104 at [30] and [31].

Putting this in crude terms, and not forgetting SOCA’s burden of proof, if a transaction looks like money laundering and has not been satisfactorily explained by a defendant who ought to be in a position to explain it if there is an innocent explanation, that is probably what it is.

The evidence relied on by SOCA falls broadly speaking into eight categories.

First are documents obtained by SOCA in the course of its investigations and the investigations carried out by other prosecution or regulatory bodies here and abroad into the alleged frauds referred to above and, to a lesser extent, disclosed by Mr Namli in the course of these proceedings. As in most cases, contemporary documents generally provide the surest test against which to assess the parties’ evidence. These documents include the banking instruments produced by FMB which SOCA says were intended to be instruments of fraud.

Second are transcripts of tape recordings made by Agent Keeley, posing as "Michael Shannon”, of his telephone conversations with Mr Jarson and Mr Namli in connection with the Laconia fraud. Although care is needed in assessing statements by Mr Jarson in conversations to which Mr Namli was not a party, the transcripts as a whole make it very clear that Mr Namli was a knowing participant in the fraud which "Michael Shannon" was proposing to commit. As already explained, the Laconia fraud did not result in any payment being made and was not the source of any of the funds in the Topinvest account. Nevertheless, the fact that Mr Namli is in effect condemned out of his own mouth by the transcripts of his conversations relating to this particular fraud is highly relevant in dispelling any innocent explanation in relation to other transactions where such transcripts are not available.

Third are witness statements provided for the purpose of other proceedings by alleged victims of the alleged frauds. These include investors who claimed to be victims of the English frauds, and who gave witness statements for the purpose of the proposed prosecution of the solicitors before that prosecution collapsed. These statements provide some evidence as to the nature of the transactions concerned, but none of the witnesses who gave the statements was called to give live evidence. In the course of his opening, Mr Michael Beloff QC for SOCA indicated that SOCA proposed to adduce evidence as to what efforts had been made to call these witnesses, but in response to Mr Andrew Trollope QC’s objection I ruled that if such evidence was to be given as part of SOCA’s case, it ought to have been provided at the same time as any other witness evidence relied on by SOCA, so that any appropriate checks could be made in due time, that it was too late for such additional evidence to be given after the trial had begun, and that if SOCA wished to adduce such evidence it should first write to the defendants’ solicitors, setting out what that evidence would be. In the event SOCA did write, identifying seven potential witnesses (including four alleged victims) with whom it had sought to make contact. Some of these had responded, while others had ignored (or possibly had not even received) SOCA’s approach, but none of them was prepared to give evidence.

The position, therefore, is that these witness statements represent hearsay evidence before me, with no explanation or evidence as to why the witnesses were not willing to give evidence in these proceedings, and the defendants have had no opportunity to test the evidence by cross examination. Indeed, the absence of any witness for SOCA who could be sensibly cross-examined has been a feature of the case. Mr Trollope relied on the passage from Phipson on Evidence, (17^th edition), para 29-15, cited by Sharp J in Miller v. Associated Newspapers Ltd [2012] EWHC 3721 at [36], emphasising that hearsay evidence should be the exception and not the rule, and that caution should be exercised before tendering important evidence through hearsay statements. I accept this, although its principal concern is to discourage reliance on hearsay evidence when first hand evidence is available. In any event Sharp J went on at [37] to add that "there may be cases where hearsay evidence and/or the contemporaneous documents in combination provide persuasive evidence".

In this case I treat the witness statements of the alleged victims of fraud with considerable caution, not least because I am sceptical as to whether they have fully and frankly described their own roles in the transactions in question. Although they were intended to be called by the prosecution in the criminal proceedings against the English solicitors, and presumably were relied on as witnesses of truth, they were by their own accounts both greedy and gullible, and they were involved at least to some extent in the production of documents of (to say the least) a highly questionable nature. There would have been, as Mr Trollope put it, "a rich seam" of cross examination material in the case of such witnesses. Despite all this, however, as will be seen there is no real dispute in the present proceedings as to the fact of at least some fraudulent activity, at least in the case of the English frauds. The issue is whether Mr Namli was (as SOCA contends) a knowing and willing participant in the fraud or (as he says) innocently caught up in it.

Fourth were transcripts of evidence given in the United States criminal proceedings against Mr Jarson, for example by Mr Lepkanich. As with the witness statements of the victims of the English frauds, Mr Lepkanich was not called to give live evidence, and there was no response to SOCA’s approaches to him. The result is that his evidence too must be treated with caution, and in his case an additional reason for such caution is that the jury acquitted Mr Jarson on the count concerned with the Lepkanich fraud. Why they did so is not known. It may be that they regarded him as an unsatisfactory and untruthful witness. It may be that they regarded him with distaste, as he had apparently engaged a convicted fraudster to threaten Mr Namli in an attempt to recover money. On the other hand, some of the transcript evidence from the United States proceedings, such as the evidence given by an officer of Wells Fargo Bank (whose role I explain below) which was tested by cross examination on behalf of Mr Jarson, appears to be reliable. Mr Jarson himself chose not to give evidence.

Fifth was what was described as the MASAK report, a lengthy report dated 4 November 1998 by the Directorate of the Financial Crime Investigation Board of the Turkish Ministry of Finance (a body with functions broadly equivalent to those of SOCA). This was the basis of the prosecution case in the Turkish criminal proceedings against Mr Namli. For present purposes, the content of this report falls into three categories. The first consists of a summary of the result of factual enquiries conducted by MASAK into the financial affairs of Mr Namli and his family and of FMB. Although it would be preferable to have the underlying primary material, much of this appears to be reliable. Mr Trollope did not challenge its reliability and indeed relied on parts of it. The second consists of written answers provided by Mr Namli in response to a series of questions posed by MASAK. I see no reason to doubt that the MASAK report records accurately the answers which Mr Namli gave to the questions which he was asked. In some important respects those answers can be contrasted with his evidence in the present proceedings. The report is therefore a valuable tool for assessing his evidence. The third consists of the conclusions and opinions of the investigators as to whether Mr Namli was guilty of money laundering. This is hearsay opinion evidence which I disregard. Although it formed the basis of Mr Namli’s initial conviction in Turkey, as already indicated that conviction was set aside on appeal and Mr Namli was subsequently acquitted of money laundering.

Sixth was a witness statement in this action by Daniel Byrne, a SOCA investigator with responsibility for the conduct of the investigation into Mr Namli. This statement set out SOCA’s case as to the various fraudulent activities alleged to have been engaged in by Mr Namli and the six credits into the Topinvest account at Coutts, and was a useful way of telling the story of what SOCA is seeking to prove, with references to some of the underlying documents. However, Mr Byrne did not profess to have first-hand knowledge of the matters of which he spoke, and it was therefore impractical for Mr Trollope to attempt to challenge his interpretation of the documents by cross examination. Much of his witness statement was essentially something which could equally have been deployed by way of submission and has no greater weight by virtue of the fact that Mr Byrne says it, nor did Mr Beloff suggest otherwise.

Seventh was a witness statement by Special Agent Jan Trigg of the FBI, who was responsible for the FBI investigation into the Lepkanich and Laconia frauds. For the most part her evidence has much the same status as that of Mr Byrne. Agent Keeley ("Michael Shannon") was not called. I was told that he is now retired and was unwilling to provide a witness statement, which seems a little surprising. However, while there were no doubt other contacts between him and Mr Jarson about which he could have been asked, the transcripts of his tape recorded telephone conversations referred to above and his correspondence speak for themselves. Agent Trigg was able to produce some contemporary FBI records of conversations between Mr Jarson and Agent Keeley which in my view can be regarded as an accurate record of what Mr Jarson was telling Agent Keeley about Mr Namli. That does not necessarily mean that Mr Jarson was telling the truth, a matter which I consider below. Mr Jarson himself is now dead.

Eighth and finally, witness statements by Richard Mills of the Serious Fraud Office and Fiona Hone of the Solicitors Regulatory Authority dealt with a suggestion by Mr Namli that he had reported the English frauds to those two bodies, saying in each case that there was no record of any such report, and that the investigations in question were certainly not promptedby any report from Mr Namli. Mr Mills’ statement was agreed and Ms Hone did give evidence. Although it is impossible to be certain that there was no such report by Mr Namli, because it is theoretically possible that a report was made but did not find its way to the relevant department or file, I am satisfied on the balance of probabilities that no such report was made and that Mr Namli’s evidence in this respect is untrue. In particular Ms Hone’s evidence was that the file on Michael Wilson Smith, one of the dishonest solicitors, was still intact in both paper and electronic forms, but contained no indication of any such report from Mr Namli.

The defendants’ factual witness evidence consisted of a lengthy statement from Mr Namli on which he was cross-examined for two and a half days. Although I refer to him as Mr Namli his full name is Hakki Yaman Namli, and he is sometimes known as Mr (or Dr) Yaman, or by other variations on his name. That was, for example, how he was known to Coutts. He was born in Germany but is ordinarily resident in Istanbul and holds both German and TRNC passports. His passports (and other documents) give conflicting dates of birth, one such date being 2 June 1965 and another being 29 May 1959. He operates his personal and business affairs through a bewildering web of corporate entities in numerous countries and territories, including the offshore jurisdictions of the TRNC, the Bahamas and the British Virgin Islands. In part no doubt this is to avoid liability to taxation, but it also has the consequence, which I am sure was intended, of complicating any attempt to disentangle his affairs and of facilitating their concealment from regulatory investigation -- as some of his answers to MASAK demonstrate.

Because he is wanted in the United States on criminal charges and fears extradition there, Mr Namli chose not to attend the trial, but to give his evidence by video link. A party is entitled to make such a choice, and video link evidence can sometimes work very well, as well as permitting valuable cost savings, particularly in the case of peripheral witnesses. That said, and despite the experience of others to the contrary (see e.g. Polanski v. Condé Nast Publications Ltd [2005] UKHL 10, [2005] 1 WLR 637 at [14]) evidence given in this way is often less satisfactory than evidence given with the witness present in court. That is particularly so if (as here) the witness’s evidence is of central importance, and cross examination is likely to extend over several days and require reference to extensive documentation. In such circumstances a witness, indeed a party, such as Mr Namli who chooses not to attend takes the risk that he will not give such a good account of himself as if he were present. Despite the best efforts of the court staff, the inevitable difficulties were exacerbated in the present case by the very unsatisfactory quality of the link, involving from time to time loss of connection, freezing of the picture, loss of sound (necessitating the use of a telephone speaker with limited audibility) and background noise. This was frustrating for all concerned, including no doubt Mr Namli, and the interruptions prolonged his cross-examination.

In the event it is unnecessary to consider whether or to what extent allowances should be made for such technical difficulties in assessing Mr Namli’s evidence. That is because, despite those difficulties, I was able to form a very clear view of the reliability and truthfulness of his evidence. His cross-examination by Mr Beloff exposed numerous respects in which he was either not telling the truth now or had made untruthful statements in the past. I will give some examples:

This is a long list of lies on which Mr Namli was caught out. Some of them are of little importance in themselves (e.g. the doctorate), but others are of central relevance to the issues in this case. In the light of them and of Mr Namli’s evidence as a whole I have reached the firm conclusion that his unsupported evidence is not to be relied on and that he is prepared to say what he regards as being in his interest irrespective of its truth or falsity. This does not mean that SOCA has necessarily proved its case, but it does indicate that Mr Namli is a man who would be willing to engage in fraudulent or misleading transactions, and that his explanations to the contrary must be scrutinised critically.

SOCA relied on the evidence of Mr Roger Jones, who retired from Lloyds TSB Bank Plc in 2006 after 45 years with Lloyds TSB and its predecessor bank. During the greater part of that period his responsibilities included ensuring that the bank did not become involved in fraudulent transactions, including cases of fraudulent documents and money laundering. During 2002 to 2006 he represented the United Kingdom banking industry in international meetings held under the auspices of the Financial Action Task Force ("FATF”), an intergovernmental body with the objectives of setting standards and promoting the effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other threats to the integrity of the international financial system. Since his retirement, as well as acting as an expert witness, he has been a member of the International Chamber of Commerce Anti Money Laundering Task Force and of other similar bodies.

The defendants’ banking expert was Mr Collin Cumberland, whose career was with Barclays Bank from 1972 until 1998, when he joined the United Kingdom subsidiary of the Israeli bank, Bank Leumi, as head of commercial and corporate banking. In these capacities he has had extensive experience of international trade and trade finance documentation.

Both experts were highly experienced and were doing their best to assist me, but their experience was very different. Mr Jones, as already indicated, has specialised in the investigation and avoidance of fraud for many years, while Mr Cumberland’s background is in commercial banking, with no direct experience of fraudulent transactions or money laundering.

Mr Jones was (but Mr Cumberland was not) very familiar with what are described in the industry as “Red Flags”, that is to say, indications that a document is being used for some fraudulent purpose. He identified numerous such “Red Flags” in the banking instruments produced by FMB. Most conspicuously, these included the use of phrases such as “good, clean funds of non-criminal origin” which, it seems, and somewhat ironically, was a phrase habitually used by fraudsters (but not by legitimate banks) in an attempt to give additional authenticity to the false instruments by means of which they sought to perpetrate their frauds. The fact that fraudsters were attracted to the use of such embellishments is well documented, including by valuable reports published during the 1990s by the International Chamber of Commerce Commercial Crime Bureau, a well known industry body at the forefront of the fight against commercial fraud. Another documentary "Red Flag" was a stated insistence that any communications regarding the issued banking instruments should only be on a "bank to bank basis".

Why those producing fraudulent banking documentation should consistently choose to use such telltale phrases is something of a mystery, but the fact is, as both Mr Jones’ own experience and the ICC CCB (and other) publications confirm, that they do (or at any rate did at the material time). Obviously the utility of such phrases from the fraudsters’ point of view depends on the existence of victims who would not recognise them as “Red Flags” and therefore would or might be taken in, but it appears that investors, traders and even bankers not familiar with fraudulent activities are indeed taken in from time to time. It is therefore not surprising that a banker such as Mr Jones who has specialised in the investigation and detection of such frauds for many years would be familiar with the various “Red Flags” used by fraudsters, while a banker such as Mr Cumberland, whose career had not taken him down such murky byways, would not.

Broadly speaking I accept Mr Jones’ evidence that the documents produced by FMB contain numerous “Red Flags” and are typical of the documents commonly produced for fraudulent purposes. That is not to say that I accept every criticism made by Mr Jones of FMB’s documentation. Some of his points, at least considered in isolation, appeared overstated. Nevertheless, taking the various FMB documents examined by Mr Jones as a whole, they contain numerous instances of such "Red Flags”, such as to give rise to at least a strong suspicion that the documents were produced for a fraudulent purpose. While it is possible that there may be an innocent explanation for this, for example that phrases and features typically used by fraudsters were innocently copied from other documents which had come to FMB’s attention in the course of a legitimate business, this seems unlikely and in any event was not an explanation seriously offered by Mr Namli.

In the end there was little dispute between the banking experts about this. Mr Cumberland’s experience was such that he was not in a position to disagree with Mr Jones' evidence, and ultimately he accepted that a number of the FMB documents in issue in this case were either misleading, meaningless or both.

The experts also agreed that the fees charged by FMB for the banking instruments which it produced were extremely high. Although Mr Cumberland said, and of course he is right, that this would be a matter of negotiation between the bank and its customer, I cannot but regard this as highly suspicious. There is no apparent reason why FMB, a relatively unknown bank located in the unrecognised territory of the TRNC, should be able to charge customers exorbitant fees for doing nothing more than producing (as Mr Namli claimed) standard banking documents for honest and legitimate purposes.

In view of the requirement of dual criminality in section 242(2) of POCA, the parties called expert evidence of United States law. Not surprisingly there was no dispute between the respective experts as to the elements of the criminal offences alleged to have been committed by Mr Namli under the law of the United States. At one stage it appeared that there would be a dispute as to whether, if the facts alleged by SOCA could be proved, such conduct would be found by a United States court to involve a violation of United States criminal law, and a further dispute might have had to be resolved as to the extent to which it is open to an expert witness on foreign law to express an opinion about this. Ultimately, however, it became clear that the issue between the experts was not about whether a court would be likely to convict if the facts alleged by SOCA could be proved, but only whether SOCA’s pleadings in this action sufficiently allege knowledge and intention to defraud on the part of Mr Namli. Since this is not a matter of United States law, the parties sensibly agreed that it was unnecessary for the experts to attend for cross-examination. I add that I am satisfied that SOCA has clearly pleaded that Mr Namli participated in the various frauds alleged and that he did so with the requisite knowledge and intention.

That being so, it is unnecessary to set out the detail of the United States law evidence. It is sufficient to record that it is common ground that, if established, the conduct alleged by SOCA constitutes one or more criminal offences under United States law, in particular, interstate wire fraud or conspiracy to commit such wire fraud. It would of course be very surprising if deliberate participation in fraudulent conduct having an effect in the United States were not criminal under United States law.

There is no evidence as to the law of any other relevant country, in particular the law of Turkey or of whatever law may be regarded by an English court as applicable in the territory occupied by the unrecognised TRNC (a point on which the parties addressed no submissions, although the defendants indicated that they would be content for me to proceed on the assumption that the law applicable in the TRNC is, or is the same as, Turkish law). Usually, when an English court has to apply a foreign law but there is no evidence as to the content of that law (or if it is not proved that the foreign law is materially different from English law), the English court will apply English law. This is Dicey’s Rule 25.2: Dicey, Morris & Collins, The Conflict of Laws, 15^th edition, para 9R-001.

Mr Kennedy Talbot, junior counsel for the defendants who argued this aspect of the case on their behalf, accepted that this rule could be applied so far as the allegations of fraudulent conduct by Mr Namli are concerned, there being no reason to doubt that such conduct is unlawful in Turkey, but submitted that it should not apply to the allegations of money laundering. That was because money laundering laws tend to be modern and statutory and such laws of foreign countries which are not common law jurisdictions cannot be notorious facts and cannot be assumed to be the same as English law. He referred to the discussion in Dicey at paras 9-025 to 9-030.

At the risk of oversimplifying, it appears to me that there are three elements in the reasoning of these paragraphs. The first is a recognition that it may be unrealistic in the case of a foreign statute enacted in a country with a very different legal tradition and culture to assume that the foreign law is the same as English law. It is therefore “better to abandon the terminology of presumption, and simply to say that where foreign law is not proved, the court applies English law”. So far this is a change of terminology and of the underlying theoretical principle, but not one which will make any practical difference. The result is the same, namely that English law will be applied. The second is that some English statutes are explicitly territorial in scope or are limited in their application (for example, to English registered companies). Such statutes are, by their nature, not easily susceptible to being applied to events, territories or persons beyond their proper scope. The third and final element in Dicey’s reasoning, however, goes further, suggesting that there is a category of cases where the application of English law "will be just too strained or artificial to be appropriate", but that no clear guidance exists to define the scope of that category. In such a case Dicey concludes at para 9-030 by suggesting that:

“it may be … that in cases where it would be wholly artificial to apply the rules of English law to a claim by a foreign law, a court may simply regard a party who has pleaded but failed to prove foreign law as having failed to establish his case without regard to the corresponding principle of English domestic law.”

Mr Talbot invited me to apply this principle. He acknowledged that Turkey has laws which make money laundering a criminal offence, but submitted that there is no evidence as to the content of such laws or of their precise parameters and that as Turkey is not a common law jurisdiction it would be wholly artificial to proceed on the basis of English law. Accordingly, as there is no evidence of Turkish law, he submitted that to the extent that SOCA’s case is based on allegations of money laundering in Turkey, as it is in relation to the Turkish loan-backs, that case must fail for want of the proof required by section 241(2)(a) that the conduct relied on was unlawful under the law of Turkey or the TRNC.

I am prepared to assume that the position is as suggested by Dicey, but it must be recognised that the principle suggested is a principle of last resort, as is confirmed by the terms in which it is expressed. It is not enough that there is strong reason to doubt whether the foreign law on the relevant topic is the same as English law, a concern which is dealt with by the first step in Dicey’s reasoning and which still results in the application of English law. Rather, dismissal of a claim on the ground that foreign law has not been proved and that English law cannot be applied is reserved for a residual category of case where the application of English law would be "wholly artificial".

I do not accept that the application of English law in the present case would be "wholly artificial" or even that it is unrealistic to assume that Turkish law on money laundering is in material respects the same or substantially the same as English law. On the contrary, although the procedure was very different, the nature of the inquiries and the facts which it was sought (in the end unsuccessfully) to prove in the Turkish criminal proceedings against Mr Namli were much the same as would be expected in English criminal proceedings for money laundering. While that is not expert evidence of Turkish law, it goes a long way to dispel any concern which might otherwise have existed that Turkish law is materially different from English law.

Indeed although Mr Jones indicated that FATF had expressed some criticisms of Turkish anti-money laundering legislation in October 2012, he was cross examined on the basis that Turkey (but not of course the TRNC) had been a founder member of FATF which was established in 1989, that in contrast with some other countries Turkey has never been treated by FATF as failing to cooperate in the international fight against money laundering, and that this was good evidence of Turkey's commitment to the principles espoused by FATF. In these circumstances, whatever deficiencies if any FATF may have had in mind in any recent criticism of Turkey, a matter which was not explored in Mr Jones’ evidence, and even though I accept that the precise content and parameters of Turkish law against money laundering are unknown, this is not in my judgment one of those residual cases where it would be wholly artificial to apply English law. Nor is this a case where the conduct alleged to constitute money laundering is in any way esoteric or such as to push up against the boundaries of any anti-money laundering law. On the contrary, it is a standard form of such conduct, which would be unlawful under any such law.

It follows that, if SOCA can establish its factual case as to Mr Namli’s participation in fraud and money laundering, the requirement of dual criminality in section 241 of POCA is satisfied.

FMB was incorporated in the TRNC and was licensed by the TRNC in 1993 as a privately-owned commercial bank, specialising in the provision of commercial and investment banking services to individual and corporate offshore customers. Prior to its closure, its literature and advertising material repeatedly advertised the “private” and “discreet” nature of its services, promising customers the "utmost discretion", “highest confidentiality” and even “ultimate confidentiality”. While any bank will and must treat its customers’ affairs confidentially, the flavour of this material strongly suggests that FMB was a bank prepared to turn a blind eye to its customers’ sources of funds, and to protect them from the prying eyes of others, promoting itself to customers to whom this would be attractive. Its operations were terminated by order of the TRNC Ministry of Finance on 4 December 2006. Subsequently its banking licence was revoked and the TRNC Money Laundering Board ordered its website to be taken down and its offices closed.

Prior to its closure, FMB operated out of offices in Nicosia (also known as Lefkosa), with between 12 and 21 employees. Its accounts have not been produced in full, but there are in evidence single page balance sheets and profit and loss statements for the financial years (which corresponded to the calendar years) 1995 to 1999. These show annual net profits ranging between US $2.1 million and US $4.5 million, assets of between US $736 million and US $3.0 billion, and depositors’ funds of between US $582 million and US $2.7 billion. Equivalent pages for 2002 to 2003 show reduced profits (US $1.1 million and US $0.5 million respectively), assets of US $2.5 billion and US $2.2 billion, and deposits of US $1.6 billion and US $1.5 billion.

The defendants relied heavily on these documents as demonstrating that FMB was a very substantial and successful bank, and that the transactions in issue in this action comprised only a tiny proportion of its overall business and assets. However, I am unable to accept them at face value for six reasons.

The defendants provided almost no disclosure in relation to FMB, explaining that the bank had been closed down since 2006, that documents had not been retained and that there had been various mishaps with Mr Namli’s computers. Such documents as were produced were documents perceived by Mr Namli as assisting his case. I do not accept this explanation for the lack of disclosure. If, as is claimed, FMB was a legitimately operated international bank in a substantial way of business for some 13 years, I have no doubt that a much greater volume of records of such business would have survived. Indeed, because Mr Namli knew well before its closure, at the very least, that the bank had been (according to him) innocently caught up in various fraudulent activities and that he personally was wanted on criminal charges in the United States, it would have been essential for him to ensure the survival of documents which would demonstrate, if it could be demonstrated, the legitimate nature of FMB’s business. His failure to do so speaks volumes.

That failure is all the greater given the suspicions of involvement in money laundering which some banks operating from the TRNC (including FMB) have faced for many years. That is not necessarily to say that all banks operating from the TRNC at the relevant time should be tarred with this brush, but it does mean that banks operating legitimately would have a strong incentive to preserve proper records. As it is, and putting aside what I regard as the discredited account documents, so far as I am aware not a single document has been produced in this action which demonstrates unequivocally any involvement by FMB in an unimpeachably legitimate transaction.

On the contrary, although he insisted that so far as FMB was concerned they were legitimate transactions, Mr Namli’s evidence in his answers to MASAK, which he confirmed in cross-examination, was that FMB’s main source of income (resulting in profits of the order set out above if the accounts are reliable) consisted of fees and commissions earned for producing the kind of documentation with which these proceedings are concerned, that is to say, credit reference letters and other similar documents evidencing a customer's access to funds, of which it produced a great many. I accept this evidence. Mr Trollope submitted that it could not be right because interest alone on the billions of dollars worth of assets shown in the accounts would produce a very substantial income, but that submission depends upon the accuracy of the figures in the accounts, which I do not accept.

If Mr Namli’s clear evidence that FMB’s main income consisted of fees and commissions for producing credit reference letters and other similar documents is correct, or even if this merely provided one regular and reasonably substantial source of income among others, it is remarkable that (as I find) no customer for whose benefit such documents were provided by FMB ever drew upon the funds in question. Mr Namli admitted that this was so in the case of "the vast majority" of such customers, but was unable in fact to identify a single customer who had done so. As he put it in his witness statement:

“I admit that the vast majority of the CRL’s taken out by Clients were not ever called upon by the Client as the Client did not meet the terms of the CFA [Credit Facility Agreement]. However, this was not the fault of FMB. The Clients were all sophisticated clients with knowledge of financial markets and knew what they were doing. … The fact that the majority of Clients who were provided with a CRL (and I believe that in % terms this could be as high as 90%) did not call upon them was of no concern to FMB.

FMB complied with its obligations in full and there were a number of reasons why the CRL may not have been called upon. These include the fact that the Counterparty or Financial Institution did not provide in the agreed time (or within an acceptable delayed period which would have to be in the operating quarter on the basis that a further fee would be payable and that FMB was in a position to offer the facility); did not provide the collateral; the Financial Institution which was presented to FMB did not meet the terms of the CFA; and FMB may have been used by the Client to initiate the transaction but did the closing at another institution.”

This explanation in my judgment lacks all credibility.

In his original Defence Mr. Namli denied ever having had even a civil judgment against him. In his amended Defence, however, he admitted that there had been a judgment against him in Germany, which occurred before the incorporation of FMB. There is very little evidence before me as to the circumstances which gave rise to this judgment and no contemporary documents at all. It appears (and is common ground) that judgment was entered against Mr Namli in absentia on 15 October 1991 by the civil court of first instance in Cologne, which ordered Mr Namli to pay DM 411,500 to the Central Bank of the Republic of Turkey, together with interest. The basis on which judgment seems to have been entered against Mr Namli was that as long ago as 1987, when he was aged only about 21, Mr Namli had withdrawn monies totalling DM 411,500 from ten different German branches of Dresdner Bank AG, and had done so fraudulently on the basis of false documents.

Mr Namli’s own evidence was that he was owed money by a business counterparty named Herbst. Herbst had provided him in settlement of this debt with a bank book and Turkish passport in the name of Ferdal Cakmak, together with a power of attorney, to enable him to withdraw money from Ferdal Cakmak’s account. He said that this was money which belonged to Herbst, who had deposited it in an account in the name of Ferdal Cakmak in order to take advantage of the high rate of interest then being offered by the Turkish Central Bank in conjunction with Dresdner Bank to Turkish expatriates in Germany; that he had attempted to withdraw no more than DM 35,000 or DM 45,000, the amount of the debt owed to him; that when he attended at the bank, in order to do so, he had been arrested and detained without obtaining any money, but was eventually released without charge; and that, unknown and unrelated to him, some other unknown person masquerading as Ferdal Cakmak had also been attempting to withdraw money from this account at other branches of the bank at the same time.

Mr Namli’s evidence was that he had not been aware of the civil proceedings against him in Germany and had only learned of them in 1997 when the German judgment was recognised by the civil court of first instance in Ankara, Turkey. He said that he was advised that despite his complete ignorance of the proceedings it was impossible to challenge the judgment, and that a settlement was then negotiated, whereby on 26 December 1997 Mr Namli paid the sum of DM 539,236.47 to the Central Bank. This represented the principal sum together with interest at 3% per annum (compared with a claim for interest at 8%) and costs. He said that it was a term of the settlement that the payment was made without admission of liability, and that there would be no criminal proceedings against Mr Namli for having defrauded the bank. He revealed in cross-examination, as I understand it for the first time, that he has or had access to a copy of the settlement agreement, but declined to disclose it on the ground of confidentiality, a reason which seems to me to be somewhat flimsy. This settlement was agreed, according to Mr Namli, in order to protect his reputation as the chairman of FMB, despite the fact that he had done nothing wrong and in particular had obtained no money, because he could not afford to have an outstanding judgment against him for fraud; and also in order to protect his family from harassment.

SOCA’s case is that Mr Namli’s satisfaction of the judgment by payment of a substantial sum indicates, despite any non-admission of liability, that he had indeed committed the fraudulent conduct alleged against him. Given the paucity of evidence, I am not prepared to go this far, but I do regard Mr Namli’s own account as implausible. I can see no good reason why money which was owed to him should have needed to be paid in this convoluted manner. Even if his account is taken at face value, however, the incident provides some evidence of his willingness to engage in questionable transactions since he was, at the least, seeking to withdraw money from an account which he knew was being dishonestly used for a purpose for which it was not intended.

The transactions described by SOCA as the English frauds were advance fee frauds perpetrated by fraudsters including Martin Gibbins, Imdad Ullah and Ralph Jarson, with the assistance of dishonest solicitors, Michael Wilson Smith of Wilson Smith & Co, Peter Barnett of Rhodes Barlow, and Minesh Ruparelia of Ruparelia Thaker. Ralph Jarson was a long standing associate of Mr Namli and reappears in later transactions, including the Laconia fraud. As already outlined at [7] above, the typical pattern was for the victim, a would-be investor, to be promised access to a highly lucrative, secret and exclusive investment programme, for which investors were required to demonstrate access to a significant level of available funds. The investors were not deterred by the fact that they did not actually have such funds available, because the fraudsters were able to explain that in return for a suitable payment, a financial institution such as (but not limited to) FMB would be able to provide the necessary credit reference letter. The role of the solicitors was to act as escrow agents to hold the investor’s funds until they were released to the financial institution providing the credit reference letter, as well as to provide a veneer of respectability to the transaction. Once the advance fee was paid, however, the investor would find that he was unable to meet the conditions stipulated by the financial institution for the provision of funds, that his access to the promised investment programme did not materialise, and that he had obtained nothing of value in exchange for the substantial advance fee which he had paid.

Between September 1996 and June 1998 FMB participated in at least 13 such transactions, for which it received total fees of US $3,067,707.42, of which US $942,199.11 came from the clients of Wilson Smith & Co and US $2,125,508.31 came from clients of Rhodes Barlow. The individual payments varied between US $34,192.50 and US $872,542.94. It appears that FMB did not receive fees from clients of the third firm of solicitors, Ruparelia Thaker, at any rate directly, although Mr Ruparelia does appear to have been involved in at least one transaction (involving Mr Jacobson) for which FMB received fees through Rhodes Barlow.

One such transaction involved a would-be investor called Rainer Vogel. On 5 June 1997 Mr Vogel entered into an agreement with a Bahamas company called Clipperton Intertrade Ltd, a company controlled by Mr Ullah, whereby Clipperton undertook to provide Mr Vogel with a “funding commitment” of US $10 million from Credit Industriel & Commercial or Credit du Nord in return for a fee of US $500,000 which was to be held in escrow by Rhodes Barlow and released once the funding commitment was provided in the agreed terms.

The background to this agreement was described in a witness statement dated 26 April 2000 made by Mr Vogel for the purpose of the abortive criminal proceedings as follows. He explained that he "was looking for a higher rate on investment opportunities that were not available from your normal retail or high street bank", that he "realised there was a chance that these investments could be slightly risky", but that he was persuaded by Mr Ullah whom he had never met before but "was a man that seemed very trustworthy” to invest US $500,000 in order to obtain “a return of at least $2.5 million over a number of months", which return was "almost guaranteed" because it was backed by a bank guarantee.

Although initially this guarantee was to be provided by one of the named French banks, this proved impossible. Mr Ullah then explained that the guarantee would be provided instead by FMB. FMB then produced a draft document which it was prepared to issue, stating that Mr Vogel had an account with US $10 million available, and Mr Vogel completed the paperwork to open such an account. He then received, on 21 July 1997, a fax addressed to him from FMB and signed by two signatories including Mr Namli (using the name Dr H.N. Yaman). It read as follows:

“We confirm that Mr Rainer Vogel, account number 49-1-10-533 has immediately available the sum of USD 10,000,000 (IW Ten Million US Dollars) in good, clean, clear funds.

The above amount will be transferred in exchange for a 1 (one) year irrevocable, unconditional and assignable bank guarantee (s) securing 108% (One Hundred Eight Percent) of the transferred amount and issued by a Western European Bank rated A1/P1 or better by Standard & Poors and/or Moodys acceptable to us.

Communication regarding this letter can be made directly to the undersigned bank officers in writing.

This document is valid for 15 (fifteen) banking days and will expire at the close of business on August 7, 1997.”

Despite the fact that Mr Barnett of Rhodes Barlow had been warned by the Law Society in January 1997 that FMB was outside regulatory control and was a front for money laundering activities, Mr Barnett verified to Mr Vogel on 23 July 1997 that FMB’s “letter of Confirmation of Availability of Funds” was genuine and that it complied with the agreement between Mr Vogel and Clipperton. He then distributed the funds in escrow, of which US $117,500 was paid to FMB.

At or shortly after this point it began to dawn on Mr Vogel that something was wrong, but his protests and enquiries were fobbed off by the solicitors and by Mr Ullah, and he finally realised that he was the victim of a fraud.

Despite the extraordinary naivety (at best) demonstrated by his account, Mr Vogel was presented in the criminal proceedings against the solicitors, which as indicated eventually collapsed for reasons unrelated to their merits, as a witness of truth who was the victim of the solicitors' fraud. According to his statement, the FMB letter dated 21 July 1997 which he had received was not what he had expected and did not reflect his understanding of the transaction, which was that his contribution of US $500,000 was to be pooled with contributions from other investors to create a fund of US $10 million, which would then be used to enter an investment programme. This seems hard to reconcile with the terms of the agreement between him and Mr Ullah’s company, Clipperton. However, it is unnecessary to resolve this point.

Another victim of the fraud, according to the prosecution case against the English solicitors, was Mr Jaap Jacobson. In April 1998 Mr Barnett of Rhodes Barlow wrote to Mr Jacobson claiming that he had in the past two years acted as escrow agent in more than 15 bank funding advice transactions “….which have been in the form of Letters of Availability of Funds for the purchase of one year Bank Guarantees at 108% in sums of $10 million to $100 million …. And we have collected personally such letters, and inspected such letters, and inspected tested telexes, at banks in Northern Cyprus, Turkey, France and here in London”. This led to an agreement dated 8 May 1998 whereby a BVI company called Tidal Services Inc agreed to sell to Mr Jacobson’s Luxemburg company, Kokkel Trading & Finance Sarl, three “funding advices” to be issued by FMB, each in the sum of $150 million, in return for US $4 million paid into escrow with Rhodes Barlow, which was to be released once the solicitors were satisfied that the funding advice was genuine.

On the same day, 8 May 1998, FMB issued a credit reference letter signed by Mr Namli (as Dr H.N. Yaman) addressed to Tidal care of Rhodes Barlow, with the reference “Gallagher Investments Ltd – 404434”. It was in the following terms:

“We hereby confirm that our account holder, Tidal Services Inc account number 1-3-10-628 has available with us the amount of USD 150,000,000 (IW One hundred Fifty Million US Dollars) of good, clean, cleared funds of non-criminal origin, as per above reference code.

We also confirm that upon our account holder's instruction, we are prepared to transfer the above referenced amount, by Swift or tested telex transfer, against receipt by us of a bank responsible commitment and/or certified bank invoice for delivery of an acceptable 1 (one) year term demand guarantee for equal value, plus eight percent (8%) interest payable annually in arrears, and to be issued by a major international bank rated “AA” or better by Moody’s and/or Standard & Poors into our correspondent banking coordinates as follows. [Details of FMB’s corresponding account with ABN Amro Bank in New York were then given.].

This document is valid for 15 (fifteen) international banking days after the date of issue and is an operative, assignable and transferable instrument and may be verified by a responsible bank enquiry.”

Mr. Barnett duly confirmed on 15 May 1998 that he had personally attended at FMB’s office, and that the funding advice from FMB was genuine. This was followed by the issue of a second FMB credit reference letter, which Mr Barnett confirmed as genuine on 21 May 1998, following which US $2.25 million of the funds held in escrow was distributed, of which US $875,000 was paid to FMB. Kokkel was unable to obtain the required bank guarantees and, like Mr Vogel, Mr Jacobson came to realise that he had been duped.

On 14 August 1998 Mr Jacobson attended a meeting at which two of the fraudsters, Mr Gibbins and Mr Ullah were present, together with one of the dishonest solicitors, Mr Ruparelia. Mr Namli was also present, as is clear from the letter which Mr Jacobson wrote following the meeting, although Mr Namli said that he had no recollection of it. Mr Jacobson posed a series of questions for FMB to answer and asked for his money back, but it appears that FMB never provided any response.

Mr Jacobson's witness statement in the criminal proceedings tells a similar story to that of Mr Vogel, including promises of "huge profits" to be obtained by access to large investment programmes, the entry ticket for which was a demonstration of access to substantial funds. As Mr Jacobson put it, “he told me that you needed to have your own funds but that it might be possible to lease sufficient funds to enter into these types of transactions. … any leasing of money must be kept secret …” It is apparent, therefore, that on his own evidence Mr Jacobson’s involvement was not entirely honest as he was seeking to obtain access to these supposed large investment programmes by "leasing funds" from FMB, but this was to be kept secret from those to whom he was supposed to demonstrate his access to the necessary funds to participate in the programme. Despite the fact that, as a result, his credibility must be regarded as vulnerable, his account of the meeting with Mr Namli and others rings true. He said that Mr Namli (to whom he referred as Mr Yaman) "tried to explain why it was not FMB's fault that Kokkel had not received any profits”.

The Vogel and Jacobson transactions appear to be typical of the English frauds. In both cases, the credit reference letters produced by FMB and signed by Mr Namli were false. They represented that the customer had funds available with FMB when that was not true and when Mr Namli knew that it was not true. They stated a condition for the transfer of these funds with which FMB knew that it would be impossible to comply. That was, essentially, for two reasons.

The first was that, as FMB knew, it would be impossible for the customer to obtain a bank guarantee in the required amount. If the customer had the assets available with which to persuade a bank to issue such a guarantee, there would have been no need to utilise the services of FMB in the first place. The customer can never have believed that he was actually required to provide a bank guarantee for these enormous sums from a major bank, but was led to believe that the credit reference letter provided by FMB would be sufficient to secure access to the fabulous wealth promised by the investment programmes dangled before him.

The second was that, in the extremely unlikely event that the customer was able to proffer such a guarantee within the very short time limit allowed, language such as "acceptable to us" provided FMB with a sufficient excuse to say that the guarantee proposed was unacceptable – or, more likely, that in the event of a complaint when the customer realised that he had been duped, FMB would be able to respond (as Mr Namli did) that it was not its fault that the customer had failed to comply with the conditions.

I accept the evidence of Mr Jones that the FMB credit reference letters issued to Mr Vogel and Mr Jacobson contained various “Red Flags”, not all of which are present in both documents. These included the references to "good, clean, clear funds" and "good, clean, cleared funds of non-criminal origin", the references to "a major Western European [or international] bank” with a rating from Standard & Poors or Moody’s, the vagueness as to the terms of the required guarantee, the short time limit for compliance, and the requirement for any request for verification to be made by another bank.

Mr Cumberland’s written evidence by reference to the Vogel letter was that a phrase such as "immediately available" would suggest to any reader of the credit reference letter that the customer had the sum in question in cash in his bank account. That is obviously correct. He went on to say, however, that if the required guarantee could be provided, the funds would in essence "be ‘immediately available’, albeit on receipt of the collateral”. With respect, this is nonsense. Funds cannot be both "immediately available" and conditionally available. In his oral evidence Mr Cumberland struggled to maintain this point. He confirmed that the expectation of any reader seeing the words "immediately available" and the reference to an identified account would be that the account had a credit balance of US $10 million, and he agreed that if this was not the case, the letter was misleading.

Mr Namli denied that the letter was misleading and insisted that it had to be read as a whole. I accept of course that the letter must be read as a whole, but that does not avoid the conclusion that the letter was misleading. As I understand it, Mr Namli’s essential point was that because the second paragraph stated that the funds would only be transferred on receipt of the required guarantee, the letter should not be read as confirming the availability of the funds. But that is tantamount to saying that the second paragraph should be understood as flatly contradicting the clear and unequivocal statement in the first paragraph, which referred to specific funds in an identified account, the origin of which was known, as it would have to be in order for FMB to confirm the "clean" or "non-criminal" origin of those funds. Those statements would not make sense if all that FMB was purporting to do was to offer a loan facility in the event that collateral in the form of a bank guarantee could be provided.

It is true that there appears to have been no attempt to prosecute Mr Namli or FMB together with the other fraudsters, and that it was not part of the prosecution’s case that FMB was a party to the frauds. I am satisfied, however, that Mr Namli knew perfectly well that he was putting his signature to false and misleading letters with no commercial value, which letters were intended to deceive, and that he did so in order to obtain a substantial share in the funds which the investors had been tricked into depositing with the dishonest solicitors.

Mr Namli’s evidence was that he met Messrs Gibbins, Ullah and Jarson, who shared an office together, in 1994; that Messrs Gibbins and Ullah were unable to provide evidence that they did not have a criminal record, although Mr Jarson did provide such evidence, and that these individuals would introduce potential customers to FMB. A time came, however, when FMB ceased to work with them, because Mr Namli discovered irregularities in their conduct. He said that this occurred in late 1997 or early 1998 as a result of a visit to Mr Wilson Smith’s office in London which led him to form the view that a fraud was taking place. He claims not only to have confronted Mr Wilson Smith, but to have reported the matter to the TRNC Central Bank, the Serious Fraud Office in London and the Law Society.

As already indicated, no record has survived of any such report, and I do not accept Mr Namli’s evidence on the point. Any suggestion that Mr Namli ceased dealing with the fraudsters, let alone reported them, in late 1997 or early 1998 is inconsistent with his involvement in the Jacobson transaction which took place in May and June 1998. It is true that there is no record of any payment to FMB from funds held in escrow by any of the dishonest solicitors after June 1998, although their activities continued into 1999, but that does not necessarily support Mr Namli’s version of the circumstances in which he ceased his involvement. That account is also contradicted by his participation in the meeting with Mr Jacobson in August 1998. If he had ever been in any doubt about the fraudulent nature of the transaction, Mr Jacobson’s complaint must have disabused him, but instead of responding as an honest banker innocently caught up in the fraud of others would have done, his response was to join those others in the making of excuses as to why the transaction had not been successful. Nor did he ever return any of the fees received by FMB, despite realising (if his claim to have reported the fraudsters is correct) the true nature of these payments. It is also significant that despite Mr Jarson’s close association with fraudsters whom Mr Namli claims to have reported to the authorities, Messrs Jarson and Namli continued to work closely together in transactions of a broadly similar nature.

Mr Gerry Lepkanich was a would-be investor introduced to Mr Namli by Mr Jarson as being interested in the purchase of medium term bank notes. He had previously been introduced to Mr Jarson by a lady named Carolyn Joan Patrick, an associate of Mr Jarson. According to Mr Lepkanich’s evidence in the United States criminal proceedings, Mr Jarson told him that an investor typically required US $100 million for such investments, but that Mr. Lepkanich could participate by leasing a standby letter of credit (or “SLC”) for US $1 million, which FMB would be able to provide.

Mr. Lepkanich appears to have agreed to this proposal and, acting by his corporate vehicle, a company called ISI, agreed to purchase the proposed SLC from FMB for US $1 million. In return, FMB provided Mr. Lepkanich with what purported to be a standby letter of credit dated 10 September 1997 which was addressed to Wells Fargo bank with the request that Wells Fargo bank should act as the advising bank to advise the beneficiary. The beneficiary was stated to be "Attorney trust account Robert Mayman”, but confusingly the credit was also said to be in favour of “HMS Financial ONC/Caprio Properties Ltd”. It was for US $85.75 million, and was said to be available with FMB at sight against the following document:

“Invoice with bank certification, containing all the pertinent information for full verification, authentication, including ‘screening codes’, CUSIP numbers, registration numbers, collateral release codes, for the contractually agreed upon invoice price of USD 87,500,000 (IW eighty five million seven hundred fifty thousand US dollars) of 10 years (ten) bank medium term notes with a face value of USD 100,000,000 (IW one hundred million US dollars) bearing interest at the rate of (7.5%) seven point five percent payable annually in arrears, issued by a “AA" or better rated bank by Moody’s on a asset base, and being a major European bank.”

There are many peculiarities about this letter of credit, which in any event was a most unusual means of purchasing such investments (as distinct from the more usual function of a letter of credit as a means of financing international trade), not least the fact that it was completely unworkable. The banking experts agreed, and in any event it is clear from the citation above, that there is no definition of "all the pertinent information" which is required to be provided. Indeed, it is not even clear whether what is required is one document (an invoice, albeit containing some kind of bank certification) or two (an invoice and a certificate from a bank). The letter of credit was therefore worthless. In addition, I accept Mr Jones’ evidence that it was not only worthless (or as he put it, "containing terms and conditions which make it effectively impossible for the recipient to comply”), but that it also contained a number of other suspicious features.

Wells Fargo bank appears to have shared those suspicions. After making some unsuccessful attempts to authenticate the credit, it wrote to the proposed beneficiary on 19 September 1997, saying that it had received a communication purporting to be a letter of credit "which we could not understand or identify”, and which "did not relate to normal letter of credit, wording, practice or procedures, and we could not verify who sent the communication".

When Mr Lepkanich began to ask questions about the transaction and why it had not proceeded, he was told by Mr. Namli that the credit was properly issued and that any communication regarding the transaction "can only be handled on a bank to bank basis”.

Despite the acquittal of Mr Jarson in the United States proceedings on those counts concerned with the Lepkanich fraud, I have no doubt that Mr Namli knew that the purported letter of credit had no legitimate purpose or value and that he, together with Mr Jarson, dishonestly defrauded Mr Lepkanich in order to obtain the fee of US $1 million, which Mr Lepkanich or his company paid.

In February 1999, a Mr Henry Pearlberg, representing an entity called the "Swan Trust”, transferred US $16.7 million to FMB’s bank account at the New York branch of ABN Amro Bank. This money was originally provided from a total fund of US $24 million, which had been provided by three would-be investors, (1) International Strategies Group Ltd (“ISG”), a BVI company which provided US $4 million, (2) Danstrupland Holdings AS, a Danish company, which provided US 10 million, and (3) Royal Phillips Electronics NV, a Dutch company, which also provided US $10 million.

The US $24 million was initially paid into an account at the Brussels branch of ABN Amro held by a Delaware corporation called the Corporation of the BankHouse (“CoB”) over which the three investors had signatory control, but it appears that by a series of transfers CoB was able to obtain control of these funds and they ended up in an account at the Bank of New York in the name of the Swan Trust of which Mr Pearlberg was the sole signatory. That enabled Mr Pearlberg to open an account with FMB in the name of the Swan Trust and, having done so, he made a transfer of US $16.7 million to FMB’s correspondent bank account at ABN Amro on 5 February 1999. He did so at the suggestion of Ms Patrick who, as described above, had been involved with Mr Jarson in the Lepkanich fraud. Although FMB had opened an account in the name of the Swan Trust, in fact, the US $16.7 million remained in its correspondent bank account at ABN Amro.

Despite Mr Namli’s recognition of the need for proper enquiries as to the source of such a substantial payment, only the most cursory enquiries were made. In fact CoB had persuaded the three would-be investors that they were investing in a so-called "Federal Reserve Guaranteed Program" which would generate extremely high returns, but which required a minimum investment of US $100 million. Various agreements were entered into between CoB and the investors which purported to guarantee such returns and the investors were assured that such returns were indeed being achieved. However, the investment programme did not exist and the scheme was fraudulent.

Mr Pearlberg then instructed Mr Namli to transfer US $15 million from the Swan Trust funds to the account of a company called Lipalsc Ltd, a company for which Ms Patrick was the signatory, in order to enable Lipalsc to effect what was described as a Revolving Underwriting Facility for US $100 million. Although the letter of instruction is not entirely clear, it appears that the fee payable for this facility was to be US $5 million. Lipalsc and Swan Trust appear to have been acting together. There is a trust agreement between them signed by Ms Patrick and Mr Pearlberg, according to which Lipalsc was to act on behalf of Swan Trust.

As already indicated, despite the paperwork described above, the US $16.7 million transferred to FMB’s account with ABN Amro remained in that account for the time being and there was no actual transfer of US $15 million to Lipalsc. Nevertheless FMB confirmed to Ms Patrick at Lipalsc on 12 February 1999 that Lipalsc had cleared funds on deposit in its account of US $15 million, together with “a fully operational revolving underwriting facility in an aggregate amount exceeding USD 100,000,000 … as per ref no. 99/7484” which was to be used “to complete the purchase for the first tranche of bank instruments, with settlement either directly or through our New York correspondent as your bank instructs, subject to approval of ourselves and our client”.

Despite the apparently unconditional description of this revolving underwriting facility, the facility actually issued by FMB, a credit facility agreement dated 12 February 1999 bearing the reference number 99/7484, was heavily qualified. It was not for an amount "exceeding" US $100 million, but for a total amount of US $100 million, but this was only available if acceptable collateral was provided, while FMB had the right to terminate the facility at any time. Nevertheless a commitment fee of US $5 million was payable to FMB on the issue of the facility, which was not repayable in the event that acceptable collateral was not provided or FMB chose to terminate the facility.

As with other FMB banking instruments, Mr Jones identified a number of Red Flags, while Mr Cumberland agreed that payment of a fee of US $5 million for a facility which was never used called the morality of the transaction into question. Mr Trollope sought to compare the terms of the FMB revolving underwriting facility with those of a Coutts loan facility, but in my judgment these were not really comparable. Leaving aside the differences in the form and language of the two documents, a major difference is the requirement in the FMB document of a very substantial non-returnable advance fee for a facility which was never going to be drawn on.

A second credit facility agreement for US $100 million, with another commitment fee of US $5 million, was subsequently issued by FMB, which resulted in vehement protests by Ms Patrick. This led SOCA to contend that, although FMB had initially conspired with CoB and Ms Patrick in this transaction, it was now seeking to cheat her out of a second US $5 million. However, Ms Patrick’s objection was not so much to the issue of a second facility for which a second commitment fee would be payable, but to its timing. Her concern was that the two facilities, and the funds from which the commitment fees should be payable, must be kept distinct and that Swan Trust monies should not be used for payment of the second fee. This appears to have been accepted by FMB.

Although this was a complex transaction which has given rise to extensive civil litigation in the United States, it is clear that the three investors were swindled out of their money by CoB in the belief that they were participating in a US $100 million investment programme which in fact did not exist. It is probable in my judgment that the role of the FMB revolving underwriting facility was to add colour to the claim that such funds were available for investment and were in fact being successfully invested. Given Mr Namli’s knowledge of and willing participation in other similar frauds such as those already described, together with the involvement of characters such as Mr Jarson and Ms Patrick who had also participated in the previous transactions, I conclude that here also he was well aware of the fraudulent purpose of the banking instrument which he provided, for which a fee of US $5 million was to be paid to FMB.

One of the civil cases resulting from the Bank House fraud was a claim by ISG (one of the three would-be investors) against ABN Amro and FMB. The claim against ABN Amro was dismissed in 2005, but the claim against FMB continued, apparently without making much progress. In September 2009 it was dismissed by consent, but without prejudice to ISG’s right to re-file the action. In this action the defendants made something of the fact that the ISG claim had been dismissed, while SOCA emphasised that the terms of the dismissal permitted it to be revived. In reality, however, FMB had been closed down in 2006 and by 2009 may even have ceased to exist. That at any rate was Mr Namli's evidence. Accordingly the dismissal of the action does not represent any acknowledgement by ISG that it had no valid claim, but was a pragmatic recognition that regardless of the merits it was pointless to continue. Similarly the possibility of any revival of the action is no more than theoretical.

It is convenient to consider here what funds were already in the FMB account at ABN Amro with which the Swan Trust payment of US $16.7 million was mixed. The account was opened on 13 January 1998. It is not possible to identify all of the credits into the account during 1998, but they included a payment of US $1 million from Ms Patrick’s company Lipalsc on 16 March 1998, and three separate payments totalling over US $1.4 million from the dishonest English solicitors, Rhodes Barlow and Wilson Smith in June 1998. By 28 January 1999, however, although the account was in credit, the balance was only US $283,048. On 2 February 1999 a credit of US $3,996,193.51 was paid in, with the reference “Sundance Financial Corp”, taking the balance to US $4,280,041.51. On 22 January 1999 FMB had issued a credit reference letter confirming "To whom it may concern" that Sundance had US $10 million in its account with FMB "available for investment … verifiable on a bank to bank basis and … unencumbered, good, clean, clear and of non-criminal origin”. This letter has every appearance of being another fraudulent FMB instrument of which the credit into the ABN Amro account of US $3,665,041.51 represented the proceeds. Although very little is known about this transaction, I find that this is the most probable explanation. By 5 February 1999, immediately before the US $16.7 million was transferred into the FMB account at ABN Amro by Swan Trust, the credit balance had fallen to US $3,665,041.51.

Consequently, even before the Swan Trust credit, it is possible to conclude that much the greater part and perhaps all of the funds in the account represented the proceeds of FMB’s fraudulent banking activities. All the credits into the account for which a source can be identified at this time fall into this category and in my judgment it is more likely than not that the same is true of those credits for which a source cannot be identified.

Between 5 February and 11 March 1999, a number of payments were made from the ABN Amro account, including payments totalling US $1,131,300 to Mr Jarson, no doubt representing his cut of the proceeds, and a payment of US $600,000 with the reference “Elaine Ryckman (Sundance)”, but there was only one significant credit recorded in the account, in the sum of US $900,000. It is not clear, however, whether this was an actual credit to the account, and if so what it represented, as it is described as "Transaction(s) not listed/Error”.

On 11 March 1999, by which time the balance of the account was US $16,917,729.38, US $1 million was transferred from the ABN Amro account to the Topinvest account at Coutts. This was the first of the six credits at issue in this action. It follows from the analysis above that the source of this US $1 million transfer was one or more of (1) the Swan Trust funds, (2) the Sundance funds, (3) in part, the US $283,048 which had been in the account before the Swan Trust and Sundance credits or (4) the US $900,000 credit recorded in the account as an unlisted error. If the credit to the Topinvest account is attributable to the Swan Trust or Sundance funds it is possible to conclude with a high degree of confidence that this represented money obtained through unlawful conduct. However, in view of the purpose for which Mr Namli appears to have used this account, that is to say, as a vehicle to receive the proceeds of FMB’s unlawful activity, I would conclude that it is more likely than not that all of the funds in the account at the time of the transfer to Coutts were so obtained.

The transactions described as "the Turkish loan backs” comprised loans made by two BVI companies, Citi-Finance Ltd and United Systems Ltd, both of which were owned and controlled by Mr Namli, to Mr Namli and other members of his family. The loans were guaranteed by FMB. The funds thus loaned were paid into accounts held by members of the Namli family at the Suadiye branch of Koc Bank in Turkey. These funds were frozen by the Turkish authorities at the time of the MASAK report and the Turkish criminal proceedings, but were released when those proceedings finally concluded with Mr Namli's acquittal. It is common ground that they were then paid, albeit by a very convoluted route, into the Topinvest account at Coutts, where they comprised Credits 2 to 4.

SOCA’s case is that these credits represent money-laundering of the proceeds of crime. It points to an FATF paper entitled “Money Laundering and Terrorist Financing through the Real Estate Sector” which explains in general terms the use of such loans in money laundering:

“Essentially, suspected criminals lend themselves money, creating the appearance that the funds are legitimate and thus are derived from a real business activity. The purpose of the loan is to give the source of the money an appearance of legitimacy and to hide the true identity of the parties in the transaction or the real nature of the financial transactions associated with it. The lack of information caused by the internationalisation of these structures and their specific morphology make it difficult to understand the true relationship between the various corporate vehicles involved in the loan structure and to be sure of the real origin of the funds, and thus determine whether they are linked to criminal activities or not. In several cases, offshore company loans were used.”

Whether the transactions in issue in this case are an example of such money laundering depends upon the ultimate source of the funds which were the subject of the loans. This raises the same issue as was the subject of the Turkish proceedings. SOCA contends that there is no reliable evidence of any legitimate source of the funds which were loaned by the two BVI companies; that if there were any legitimate source of these funds Mr Namli would have provided a proper explanation of it but that he has failed to do so; that Mr Namli repeatedly failed to explain the source of the funds; and that the probability is that they represent proceeds of the illegitimate business conducted by FMB. Mr Namli on the other hand relies on his acquittal in the Turkish proceedings and maintains that he has provided a proper explanation.

SOCA made repeated requests to Mr Namli in correspondence and in Requests for Information that he should identify the ultimate source of the funds concerned, but Mr Namli steadfastly refused to provide this information, insisting that SOCA had failed to plead a sufficient case to require him to do so. I agree with SOCA that Mr Namli’s responses can accurately be characterised as stonewalling. His evidence in cross examination in very general terms was that these responses were given on legal advice, but there is no evidence as to what information he gave to his legal advisers to enable them to advise or the precise terms in which any such advice was given. In any event it was Mr Namli’s decision whether to act on that advice. I accept SOCA’s submission that an honest man with nothing to hide would have been able and willing to provide this information.

Eventually Mr Namli’s witness statement described the source of the funds as follows:

“The money was borrowed by my family from United Systems and Citi Finance Limited, which in turn either entered into loan agreements with foreign banks ... to borrow money or used its own money (which would have come from a variety of sources, including stocks, shares, bonds, the fees it received from FMB for my services to FMB, commissions it received as a result of my other business activities etc.”

Accordingly four sources of this money are identified by Mr Namli in this paragraph. The first is money borrowed by the BVI companies from three banks, which Mr Namli names, located in Switzerland, Austria and Germany respectively. It is obvious that a loan by any of these banks to a BVI company would be in writing, and that either collateral or personal guarantees, or perhaps both, would have been required by the bank. However, no documentation has been provided to support the existence of such loans. Even if Mr Namli or his family no longer has whatever documentation existed, it ought not to have been difficult to obtain either the documentation or at least some independent confirmation of the existence of such loans from one or more of the banks concerned. However, there is no such evidence.

The second source identified by Mr Namli is that the BVI companies used their own money from various investments ("stocks, shares, bonds"). That begs the question, however, where the funds to purchase such investments came from, as the companies concerned were simply investment vehicles for Mr Namli. They had no money of their own, but only what he had provided.

The third source identified by him consists of fees received from FMB for his services. It may well be that the funds held by the BVI companies originated from FMB and it is SOCA’s case that they did. However, the difficulty with Mr Namli's suggestion that they represent fees for his services to FMB is his evidence to MASAK that he received no such fees, that being evidence which he repeated in this action, saying that what he received from FMB were dividends, not fees.

Finally, Mr Namli referred to commissions received by FMB as a result of his other business activities. Once again, however, and quite apart from the complete absence of any documentation evidencing such activities, this suggestion runs up against the evidence which Mr Namli gave to MASAK. In answer to the question "what is your occupation, and what work do you do to earn a living?" Mr Namli responded that in addition to his role at FMB, he was a "member of the board of directors and Director/Manager of the various finance and insurance establishments in various countries", but he was careful to add that "I do not get a salary or fee from the service I provide however, I am paid for the travel expenses and expenditure that I incur”.

While it is I suppose possible that Mr Namli was lying to MASAK, perhaps with an eye on his liability to tax in Turkey, I am left in a position where I cannot accept the account of the sources of the funds held by the BVI companies given in Mr Namli's witness statement and set out above.

In his oral evidence Mr Namli referred to personal funds obtained from property dealing, although that was not the way the case had been opened on his behalf by Mr Trollope, who described these funds as legitimate income derived from FMB’s lawful banking activities. Mr Namli did agree, however, that at any rate some of the funds were derived from FMB’s activities. The source of these funds was also a matter of interest to Coutts, which was required to satisfy itself as to the provenance of the credits to the Topinvest account. Mr Namli never really provided a satisfactory explanation in response to Coutts’ questions, but such explanation as he did give either personally or through his solicitor, Mr Nigel Rowley of Mackrell Turner Garrett, were to the effect that the funds were from "his own family resources", which had "been in the family for a number of years”. This seems hard to reconcile with the account given in Mr Namli’s witness statement.

The MASAK report itself, describing the investigation made by MASAK as to the payments into the Koc Bank accounts held by members of Mr Namli's family, appears to indicate that in addition to unexplained cash deposits of substantial sums, payments were made into these accounts amounting to more than US $3 million from the two BVI companies and US $2.5 million from FMB.

Mr Namli’s explanation of the purpose of the BVI companies' loans to the members of his family was threefold. First, he said that it was to take advantage of the higher interest rates available in Turkey, compared to the cost of borrowing in Western Europe and North America. That might explain why he would have wished to borrow money from western banks in Switzerland, Austria and Germany, but does not explain why it was necessary or advantageous for such loans to be taken out by BVI companies. Nor does it explain what security would have been needed for such loans, or what was the cost of providing such security.

Second, he said that it was to minimise taxation, because income on Turkish bonds purchased with the loan money was tax-free when the bonds were held by an individual, as opposed to a corporate entity. That may have been so, but if the ultimate source of the loan monies was old family wealth already in Turkey, as he told Coutts, it does not explain why it was necessary to route such monies through BVI companies and back to Turkey.

Third, he said that the purpose of the loans was to avoid Turkish currency control restrictions, which restricted Turkish nationals in sending money out of Turkey, but that such restrictions did not apply to foreign nationals or corporations. This does not appear to make sense. The effect of the loans was to transfer money from out of Turkey into the bank accounts of Turkish nationals, where it would presumably be subject to the restrictions of which Mr Namli speaks.

In most cases there is no direct evidence of the source of the funds paid into the Koc Bank account. There is, however, one exception which is of interest. That is a payment of US $1 million made on 27 October 1997 from an account at Credit Lyonnais. Instructions to transfer this amount to Koc Bank were given by Citi-Finance. It is striking, and in my judgment cannot be a coincidence, that on 27 August 1997 FMB had given Mr Lepkanich details of a US dollar account at Credit Lyonnais to use as FMB’s correspondent account, and that Mr Lepkanich had paid US $1 million into that account. Subsequently on 9 September 1997, he authorised FMB to debit US $1 million from his company’s account held with FMB in Credit Lyonnais. I conclude that this US $1 million, which represented the proceeds of the Lepkanich fraud, was the source of the subsequent transfer of the same amount to Koc Bank as part of the Turkish loan-backs. That demonstrates that at least part of the Turkish loan-backs constituted money laundering.

On the evidence before me I am satisfied that the probable explanation of these Turkish loans was that they constituted, not just in part but in their entirety, money laundering of the proceeds of the illegitimate business being conducted by FMB. The transactions in question certainly have every appearance of being money laundering and I have rejected such explanations as Mr Namli has provided. That they represented profits earned by FMB is at least consistent with Mr Namli’s case as opened and, at any rate to some extent, with his evidence in cross examination. It appears to me to be the most likely source of these funds. I take into account the fact that Mr Namli was eventually acquitted of money laundering in the Turkish proceedings, but in the end, applying the approach which I have set out at [41] above, my conclusion on the balance of probabilities is as I have stated. I should record, however, that it was common ground that if, contrary to my conclusion above, the loans represented a mixture of unlawful proceeds and legitimate funds, only the former would be recoverable.

The so-called Laconia fraud was in fact, as already explained, an FBI sting operation. It began in February 2001 when the FBI obtained intelligence from a suspect, who had been arrested but who expressed a wish to co-operate, that Mr Jarson was in the business of selling "credit enhancement" products from an offshore bank, FMB. Arrangements were made for the suspect to meet Mr Jarson in New York, and to tell him that the suspect had a client who wanted to enter into a lucrative investment scheme, but who needed to demonstrate access to a line of credit in order to do so. Eventually, this led to Mr Jarson being introduced to "Michael Shannon", who was in fact, FBI Special Agent Keeley.

In a letter dated 15 May 2001 Agent Keeley explained that his client, Laconia Capital, was a start up brokerage firm in need of "asset strength" which would enable it to meet capital requirements and support a balance sheet to enable margin lending from its clearing house. He said that Laconia was looking for "credit enhancement" of at least US $20 million, for which it would be willing to pay a fee of 10-20%, and that he had heard that Mr Jarson could assist in obtaining this through his association with FMB.

In a recorded telephone conversation between Agent Keeley and Mr Jarson on 17 May 2001, it was made clear that the object of the exercise was to provide an asset, which could be shown on the client’s balance sheet in order to give the impression of asset strength, but which was not in fact owned by the client or worth the amount shown. It was in the context of this conversation that Mr Jarson referred to FMB’s practice of recording Tajikistan and Kazakhstan government bonds on its balance sheet at a fraction of their true value (see [85(6)] above). He identified a number of ways in which the client’s need might be met, including adopting the same practice as FMB or "buying" a letter of credit apparently available against documentary requirements which could be shown as an asset although it was known that those requirements would not in fact be fulfilled.

After some further contacts there was another conversation between Mr Jarson and Agent Keeley on 8 November 2001. Agent Keeley indicated that his client had US $2 million available, but wanted to be able to show assets of US $20 million. Mr Jarson suggested that the way to achieve this was "some sort of special account statement" from FMB, to whom he would introduce "Michael Shannon".

On 10 January 2001 Mr Jarson and Agent Keeley spoke again. Mr Jarson explained that in return for a fee of US $2 million FMB could provide a "special account statement" showing an available balance of US $20 million, but that the statement would include a "reference number". This would enable Laconia to produce the account statement in order to demonstrate that it had assets of US $20 million, although in fact the reference number would refer to a side agreement stating that FMB need not provide the US $20 million unless Laconia provided collateral, which of course would never happen. However, what Mr Jarson referred to as the “downstream”, that is to say anyone to whom the special account statement might be shown, would not have access to this side agreement.

On 23 January 2002 FMB wrote to "Michael Shannon" proposing a different deal, a “lease” of dollar denominated Turkish bonds in the amount of US $20 million for US $2 million, to which Agent Keeley responded by email stating that Laconia “desires to establish a banking relationship with FMB and seeks to enhance its asset base by US $20 (Twenty) Million” by means of "a special account statement or lease of Turkish Treasury Bonds, or combination of both with a value of US $20 (Twenty) Million” for which it "has available US $2 (Two) Million to cover costs of this transaction for the initial year”.

There followed a telephone conversation on 31 January 2002 in which Mr Jarson and Mr Namli who were together in London called Agent Keeley to discuss the proposed transaction. Mr Jarson introduced the subject by explaining that Laconia “wishes to have a twenty million dollar balance sheet enhancement exercise and I told him [ie “Michael Shannon”] that we could issue a special account statement”, for which there was US $2 million available. There was some discussion of the function of the "reference number" to be shown on the statement and of how the statement would be worded, but it is clear from this conversation that Mr Namli understood precisely what was being asked for, namely a statement which was designed to mislead, and was willing to proceed.

The proposed transaction was discussed further at a restaurant meeting between Mr Jarson and Agent Keeley on 12 February 2002 at which Mr Jarson explained that he received a fee for bringing customers to FMB, which usually involved asset enhancement deals, and offered to pay Agent Keeley US $100,000 if the deal went ahead (an offer which Mr Namli subsequently confirmed). Once again Agent Keeley made the purpose of the transaction abundantly clear:

“The purpose is to pretend they’ve got twenty million dollars so they can conduct their brokerage business. If they had twenty million dollars they wouldn't need to pay two million dollars to get the twenty million dollars account statement.”

Mr Jarson understood this perfectly. He explained that FMB would need an underlying agreement to make clear that Laconia was not entitled to withdraw US $20 million, but that this underlying agreement would not be shown to anyone apart from any United States government agency to which FMB was obliged to show it. His ironic comment that “I draw the line, and I don't cross it. At least not knowingly (chuckles) … Maybe I’d go under it” demonstrates his awareness of the dishonest nature of the transaction.

Following this meeting Mr Jarson’s office faxed FMB account opening forms and a draft credit facility agreement and a draft “funds available for investment” statement to Agent Keeley, which were then discussed in further conversations on 13 February 2002. Amendments were proposed, with a view to making the “reference number" which was the link to the underlying credit facility agreement less conspicuous. Mr Jarson and Agent Keeley then telephoned Mr Namli to discuss these changes, and in the course of the conversation he agreed to the proposal to pay “an introducer’s fee” of US $100,000 to Agent Keeley.

On 20 February 2002 Agent Keeley received from FMB a further draft of the proposed statement of account which did not reflect all of the changes which had been discussed with Mr Jarson. In particular, although the draft contained a confirmation that Laconia’s account had "an available account position" of US $20 million, it also stated that this was "as per ref …”, and that the funds were "freely available as per above ref … and verifiable on a bank to bank basis". In my judgment even this proposed language was thoroughly misleading, as on no view would Laconia have US $20 million freely available, but Agent Keeley was concerned by the references to the "reference number" and wanted the statement to use the term "available balance" rather than "available account position”. He expressed his displeasure about these points with Mr Jarson.

After making enquiries Mr Jarson reported that Mr Namli was not willing to use the term "available balance”, but was willing to use the term "immediately available account position”. He was also prepared to remove a reference to the "reference number". In my judgment, although Mr Namli may have regarded the term "available balance" as a step too far, there was no material difference of substance between that and the term "immediately available account position" which Mr Namli proposed. Both expressions were intended to convey the immediate availability of funds to a reader of the document who was not aware of the terms of the underlying credit facility agreement and in that respect they were both intended to mislead.

On 28 February FMB faxed to Agent Keeley a final draft of the proposed special account statement. After referring to Laconia as the account holder and the number of its account, this was to read:

“We the undersigned bank officers of First Merchant Bank, hereby confirmed that the above referenced account has an immediately available account position of US $20,000,000 (IW twenty million dollars).

We further confirm that these funds of the available for other account holder, and as per ref. … and verifiable on a bank to bank basis.

Account statement as of close of business … (date).”

On 12 March 2002 Agent Keeley spoke to Mr Jarson to arrange a call with Mr Namli. He explained that the purpose of the call was for Mr Namli to clarify what would happen if someone to whom Laconia had disclosed the special account statement (such as a clearing broker) were to seek confirmation of it from FMB. Mr Jarson said that FMB would give out no information without Laconia’s permission. What Agent Keeley wanted to know was what would happen in such circumstances if Laconia instructed FMB to confirm the statement. It was agreed that they would speak to Mr Namli.

That conversation took place on the following day, 13 March 2002. Agent Keeley asked what FMB would say if asked to verify the statement. Mr Namli’s immediate response was that FMB would do so ("Well normally if they call us to confirm the account position. We’d say yes"). He qualified this if there were to be a legal case or an insolvency, in which case the credit facility agreement would have to be disclosed, "but in the normal conditions, not”. Agent Keeley pressed him further, asking what would happen to an inquiry from a telephone caller who had been shown the statement of account, to which Mr Namli responded that FMB would seek instructions from Laconia, but would be willing to confirm the statement of account without explaining the existence of or the qualifications contained in the credit facility agreement:

“MK (Keeley) I’m just saying if, if, if ah … let’s say I was … I was a caller and I'm calling First Merchants as I am like now and I say, listen, my name is you know … Michael Shannon. I’ve been given a copy of an account statement.

HYN (Namli) We would not do it over the phone anyway to any non, uh third party we would get it in writing and then we'll get your ah explicit authorisation to reveal what to be revealed and what not to be revealed what not to be revealed.

MK Okay.

HYN That simple. Okay?

MK But if they were … if they were to call and say I wanna verify this you, you would say the account statement is verified.

HYN Of course, of course.

MK That Laconia has twenty million dollars available and um … if they asked you what the, what that per reference means, … I’m told by ah Ralph that you’d basically say that’s just ah … a reference on every account.

HYN Mm hmm.

MK And if they wanted more detail about um.

HYN Then it goes into details of disclosing, of disclosing ah … do you want it, do you authorise it or do we want it to be authorised, very simple.

MK Right, you would tell the caller that you would have to get authorisation from the account holder.

HYN Yes, yes, of course.

MK That would be perfect.”

In my judgment it is absolutely clear from this passage that Mr Namli was well aware that the statement of account document which FMB was being asked to issue was intended to mislead; that he understood that “Michael Shannon” was seeking reassurance that in the event of an enquiry from someone to whom this misleading document had been shown and whom it was intended to deceive, FMB would be prepared to confirm the statement of account without explaining that the US $20 million was not in fact available to Laconia because of the qualifications contained in the credit facility agreement; and that he was willing to maintain the deception by providing that confirmation.

By 19 March 2002 the FBI considered that it had enough evidence to bring criminal proceedings against Mr Jarson and Mr Namli, and a Complaint was issued in the United States District Court for the Southern District of New York charging conspiracy to commit wire fraud. On 23 April 2002 Mr Jarson went to New York to meet Agent Keeley at a restaurant for what was supposed to be the closing meeting of the Laconia transaction and was arrested as he left the restaurant. When the charges against him were explained, he stated "you got me good and I want to cooperate”.

For a while he did cooperate, although eventually he decided to contest the charges. That cooperation while it lasted included making a telephone call to Mr Namli on the day of his arrest, which was intended to give the impression that matters were proceeding as planned, but that Agent Keeley still had a couple of points that he wished to discuss. In a further telephone call of 24 April 2002 Mr Jarson told Mr Namli that the deal was still moving forward and Mr Namli responded that he had sent "Michael Shannon" an e-mail requesting additional documents. That e-mail, dated 24 April 2002, was sent by FMB’s compliance department and requested various formal documents from Laconia.

Mr Namli relied heavily on an earlier document, dated 12 April 2002, in which FMB appeared to withdraw from the transaction. It read:

“We hereby would like to inform you that we are not in a position to proceed with your transaction due to non-plausible explanation of the intended transaction, which has been refused therefore by the due diligence and legal department.”

This is a puzzling document, which was not produced as part of the defendants’ standard disclosure (although there was no explanation why not), but only as an attachment to their later Amended Defence. SOCA’s response was to suggest that the document had never been sent, although the fax transmission slips also disclosed do appear to confirm that it was faxed to each of "Michael Shannon" (at the fax number which Agent Keeley was using), Mr Jarson (at a fax number in the United States) and Concord Wyvern Atlantic (Mr Jarson’s company, at its English fax number). In the end Mr Beloff did not suggest to Mr Namli that this fax was a subsequent concoction never in fact sent.

Nevertheless the document remains puzzling. It makes no sense that Mr Namli should need to be told by his legal department (if indeed FMB had such a department) that the explanation of the intended transaction was "non-plausible” when it had been made perfectly plain to him that the transaction was dishonest from start to finish, and he had made clear in response that he was well aware of and content with that position. Further this cannot have been a document which registered with either Agent Keeley or Mr Jarson, as it clearly would have done if it was sent as the fax transmission slip purports to record. If FMB had actually withdrawn from the transaction, the meeting on 23 April 2002 at the conclusion of which Mr Jarson was arrested would not have taken place. Moreover, the conversation between Mr Jarson and Mr Namli on 24 April 2002 after the former’s arrest undoubtedly took place as described at [170] above, as confirmed not only by a contemporary note by Agent Keeley but by the fact that the e-mail asking for further documents which Mr Namli described was in fact sent. That conversation and e-mail are inconsistent with FMB having withdrawn from the transaction.

In these circumstances I am not prepared to find that the FMB fax dated April 2002 is genuine, despite the fax transmission slips and the fact that it bears a sequential unique reference number (2002/11909) which appears to be consistent with other contemporary documents. However, even if this fax was in fact sent as it purports to have been, I have no doubt that it was rapidly superseded and that by the date of Mr Jarson’s arrest, so far as Mr Namli was concerned, the transaction was back on again. Accordingly this fax provides no support for Mr Namli’s case that his role in the Laconia fraud was entirely innocent and that once he became suspicious of it he withdrew of his own volition.

As indicated at [52] above, I regard the evidence in relation to the Laconia fraud which includes the transcripts to which I have referred as dispelling any possible innocent explanation of Mr Namli’s role in relation to the other transactions described above where no such transcripts are available. Ultimately, however, I would have reached the same conclusion even without these transcripts. The evidence of Mr Namli’s knowing and willing involvement in fraudulent transactions from which he derived very substantial fees is overwhelming.

It may be helpful to draw together some of the conclusions reached in the light of the matters considered so far.

For the reasons given above I have concluded that SOCA has proved its case that Mr Namli was a knowing participant in fraudulent conduct in each of the English frauds, the Lepkanich fraud, the Bank House fraud and the Laconia fraud. As I have said, the evidence to that effect is overwhelming.

As a result of that conduct FMB received very substantial fees, amounting to over US $3 million for the English frauds and US $1 million for the Lepkanich fraud. It also received US $16.7 million which was the proceeds of the Bank House fraud, of which it appears that FMB’s share was intended to be US $5 million, the balance presumably being intended to be shared with the other conspirators.

In my judgment the evidence amply justifies the further conclusion that Mr Namli’s and FMB’s fraudulent activities were not limited to these particular instances of fraud, but extended much more widely. It is most unlikely that the particular frauds examined in these proceedings constituted the only such activity in which FMB was involved. Indeed it was Mr Namli’s evidence that FMB issued very many documents (he said “hundreds” although that may have been an exaggeration) of the kind which I have found to be fraudulent, and that they constituted FMB’s main source of income (see [89] above), although of course his position was that they were normal and legitimate banking instruments. I consider that this further conclusion that FMB’s fraudulent activities extended much more widely is highly probable, even bearing in mind the need for cogent evidence of unlawful conduct.

I have further concluded that FMB’s correspondent bank account with ABN Amro was used by FMB as a vehicle to receive the proceeds of such unlawful activity, and that there were at least some periods of time, including for example the first quarter of 1999, when it is probable that all of the funds in the account represented the proceeds of such conduct. Other correspondent bank accounts were used for the same purpose, including at least one account held with Credit Lyonnais.

I have concluded also, on the balance of probabilities, and despite Mr Namli’s acquittal in Turkey, that the Turkish loan-backs represented money laundering of illegitimate business being conducted by FMB.

In addition, I have concluded that the balance sheets and profit and loss statements produced by FMB cannot be relied upon as accurate. It does not follow from this, however, that the bank had no depositors at all or that it conducted no business apart from its sale of fraudulent banking instruments, albeit that there is no reliable positive evidence of legitimate business. While I do not regard the figures in the balance sheets as reliable, it is highly likely that FMB did have depositors, perhaps a large number (Mr Namli said that there were 6000 at the peak), who were attracted by the "ultimate confidentiality" which was emphasised in FMB’s marketing literature directed in particular towards the Russian market. It is important to note, however, that there is no evidence to suggest that such deposits were mixed together with FMB’s own funds.

Finally, although Mr Namli’s evidence referred in very general terms to old family wealth and to numerous business interests in addition to FMB, there was little or no independent evidence to substantiate either claim. I would not exclude the possibility that Mr Namli did have some sources of income apart from his interest in FMB, but the strong probability is that FMB represented his main source of income, and that much the greater part of that income consisted of the proceeds of FMB's fraudulent activity.

In the light of these conclusions, I turn to consider the issue of "recoverable property", in particular whether SOCA has proved that the six credits to the Topinvest account at Coutts represent the proceeds of FMB’s unlawful conduct.

SOCA puts its case on this issue in two ways. Its primary case, which it also describes as its "macro" case, is that in view of the scale of FMB’s unlawful conduct, together with the lies told by Mr Namli, his refusal to identify the ultimate source of the credits into the Topinvest account and the absence of any reliable evidence of any legitimate source for these credits, the strong probability is that they were all derived from Mr Namli’s criminal activity in supplying fraudulent banking instruments via FMB. My conclusions so far mean that the various component elements of this “macro” case have been established, but it remains to consider whether the conclusion contended for by SOCA is justified.

SOCA’s alternative or "micro" case is that Credits 1 and 6 can be shown to be or to represent the proceeds of one or other of the specific frauds which I have already examined, while Credits 2 to 4 can be shown to constitute money laundering of the proceeds of similar frauds. It accepts, however, that it cannot specifically identify the source of Credit 5.

The defendants of course deny that there was unlawful conduct or that Mr Namli was an untruthful or unreliable witness and rely on the FMB account documents as showing that FMB was conducting lawful banking business on a very substantial scale. Alternatively they say that if there was fraudulent activity, it was limited to whichever of the particular frauds examined above SOCA is able to prove and that the proceeds of such activity represented a very small part of FMB’s assets, much the greater part of which consisted of funds deposited by customers, which as a matter of law became assets of the bank, which merely owed a debt to its depositors. They contend that any proceeds of unlawful conduct became mixed with the substantially greater proceeds of FMB’s lawful business and that the credits into the Topinvest account were made from this mixed fund with the consequence that those credits are not "attributable" (or that there is no proportion which can be proved to be attributable) to the proceeds of the unlawful conduct within the meaning of section 306 of POCA and that the claim must therefore fail. Although this submission was advanced on a factual premise which I have rejected, namely that any proceeds of unlawful conduct were dwarfed by the general (and legitimate) assets of FMB, it would apply with similar force in the event that unlawful proceeds and any legitimate assets were mixed together.

In principle I accept that if the unlawful proceeds of FMB’s fraudulent activity were paid into a bank account which also contained funds which were the proceeds of lawful business, the combined account balance would constitute a mixed fund, and that only the proportion “attributable” to the unlawful conduct would comprise "recoverable property". That is what section 306 (set out at [22] above) says. I accept also that in general if, from this mixed fund, a transfer were made to another account which also contained funds lawfully held, the proportion comprising "recoverable property" would become further diluted. In the event of a series of such transfers, that could mean that the proceeds of unlawful conduct could very quickly be very substantially diluted and effectively impossible to trace. The position would be different, however, as Mr Talbot accepted, if such transfers could be shown to be specifically referable to the unlawful conduct (or, as he also put it, if there were a direct nexus between the proceeds of the unlawful conduct and the subsequent transfers), for example if there was a close correspondence in timing or amount between a deposit into an account and a subsequent withdrawal or transfer.

Before examining further the principles applicable in the case of mixed property and their application in this case, it is convenient to recall the findings as to the source of the various credits made so far, to identify the credits to which these issues may remain relevant, and to consider what findings can be made in relation to such credits. Since I have already found, applying the balance of probabilities test, that Credit 1 of US $1 million consisted of money obtained through unlawful conduct (see [133] to [136] above) and that Credits 2 to 4 amounting to US $2.75 million constituted in their entirety money laundering of the proceeds of crime (see [153] above), SOCA has already proved to the relevant standard that US $3.75 million out of the total credits of US $5,857,000 constitutes recoverable property. On my findings of fact, therefore, none of these Credits 1 to 4 gives rise to any issue as a result of being derived from a source consisting of a mix of legitimate and illegitimate funds together. The only remaining issues concern what can be proved, or what inferences can properly be drawn, in the case of Credits 5 and 6.

Credit 6 is said by SOCA to represent part of the proceeds of the English frauds. As indicated at [133] above, during June 1998 the sums paid into the ABN Amro account included over US $1.4 million from the dishonest solicitors. These comprised three separate credits made between 2 and 24 June 1998. At about the same time, between 30 April 1998 and 6 July 1998, there were three transfers from the ABN Amro account in the total sum of US $1 million in favour of an entity called Stuart & Associates Corp, an entity owned and controlled by Mr Namli, although the first of these in the sum of US $300,000 was before the first of the credits from the dishonest solicitors. Stuart & Associates’ account at Banque Ferrier Lullin (Luxembourg) SA was the source of Credit 6.

SOCA’s case is that the second and third payments to Stuart & Associates, totalling US $700,000, can be identified not only as part of the proceeds of the English frauds, but also as the source of Credit 6. In my judgment, however, the evidence does not go this far. All that can be said on the basis of the entries in the ABN Amro account is that there was a payment to Stuart & Associates of US $200,000 on 4 June 1998, at which time the account balance stood at US $1,492,970.48, of which some US $500,000 represented a credit by Rhodes Barlow; and that on 6 July 1998 there was another such payment, this time of US $500,000, at which time the account balance stood at US $2,161,993.29, which included the payments made by the dishonest solicitors. While the payments out to Stuart & Associates may be regarded as having included a proportionate part of the payments in made by the solicitors, they cannot be shown to have been specifically referable to those payments and were essentially payments from a mixed fund, the mixture consisting of the proceeds of the English frauds together with whatever other funds had been credited to the ABN Amro account. This does not exclude the possibility that those other funds themselves represented the proceeds of FMB’s unlawful conduct, but that will depend upon whether it is appropriate to draw that inference from the evidence as a whole (SOCA’s “macro” case). Further, and even if the payments from the ABN Amro account to Stuart & Associates were referable to the proceeds of the English frauds, those payments were made in June and July 1998. Credit 6 to the Topinvest account in the sum of US $1.41 million was not made until 4 February 2005. There is no evidence to show what happened to the funds held by Stuart & Associates in the meanwhile. It is therefore impossible to conclude that any part of Credit 6 in February 2005 represented the same funds as had been paid into the Stuart & Associates account in June and July 1998, over six and a half years before.

However, while SOCA has not made good its "micro" case in relation to Credit 6, it remains to be considered what evidence there is as to the ultimate source of that credit and what conclusions can be reached. According to a Coutts file note of February 2005 bearing the initials “EO”, Mr Namli told Coutts that Credit 6 was the result of a sale of bonds which he held with Kleinwort Benson. However, it appears that this was another lie. On 10 December 2009 Kleinwort Benson confirmed, in response to a disclosure order obtained by SOCA in these proceedings, that "we have checked all records held in our UK and Channel Islands offices and we hold no record of investments past or present in the names of Hakki Yaman Namli or Stuart & Associates Corporation”. When asked about this in cross examination, Mr Namli’s first reaction was to question the accuracy of the Coutts file note and (briefly) even the identity of "EO”, although he could not persist in that response as “EO” was clearly his client relation manager at Coutts, Ebru Ozsezgin. He then admitted that he had told Coutts that Credit 6 came from the sale of bonds held with Kleinwort Benson, and insisted that this was correct despite Kleinwort Benson's denial of any knowledge of him and the fact that he had failed to produce any evidence to call the accuracy of that denial into question. It was apparent from Mr Namli’s initial attempt to question the reliability of the file note that he was reluctant to accept that this is what he had told Coutts about the source of these funds.

Looking at the matter overall, I consider that it is appropriate to draw the inference that the payment from Stuart & Associates which comprised Credit 6 did constitute the proceeds of FMB's unlawful conduct. I draw this inference for six reasons. First, Stuart & Associates was Mr Namli’s company, which so far as the evidence goes carried on no business of its own, but was simply his investment vehicle. Second, the evidence of the transfers to Stuart & Associates in 1998 referred to at [191] above demonstrates that this was one of the entities used by Mr Namli as a vehicle to launder funds derived, at least in part and perhaps as a whole, from FMB’s fraudulent activities. Third, there has been no explanation which I accept of the source of these funds. Fourth, the explanation given to Coutts and reluctantly confirmed in Mr Namli’s cross examination was a lie, which suggests that there was no truthful explanation which would be likely to stand up to scrutiny. Fifth, although I have accepted that FMB did have some legitimate depositors, there is no evidence that deposits or any other legitimate assets which FMB may have had were mixed with the proceeds of its fraudulent activities which constituted its main source of income. There was, for example, no evidence to explain the nature or source of those credits into the ABN Amro account which have not been positively shown to comprise the proceeds of fraud. Sixth, if these were legitimate funds I see no reason why evidence should not have been provided from the Luxembourg bank where Stuart & Associates' account was held, which would have identified the payments into that account and their source. As it is, Mr Namli has chosen not to provide that evidence.

Although my conclusion in relation to Credit 6 is therefore a matter of inference rather than direct evidence, I consider that it is an appropriate inference to draw on the balance of probabilities, and that in the case of this credit also there is no reason to suppose that it represents a credit from a mixed fund consisting of both legitimate and illegitimate money. Credit 6 is certainly a transaction that looks like money laundering and which has not been satisfactorily explained. Applying the approach summarised at [45] to [49] above, I conclude that is what it was.

That leaves Credit 5, a credit of US $697,500 received on 13 April 2004 from an account at Deutsche Bank in the name of Mr Namli. Here SOCA accepts that there is no evidence as to the ultimate source of these funds other than Mr Namli’s answer in cross examination that the account was an old account, which he had held for many years, and that he could not recall their ultimate source. Accordingly this credit raises in a stark form the question whether SOCA’s "macro" case described at [185] above should be accepted. I conclude that it should. In addition to the points already considered in relation to the other credits, including the fact that FMB’s fraudulent activity was the main source of Mr Namli’s income and that (on my findings) all other credits into the Topinvest account represented the proceeds of unlawful conduct, here too it can be said that if these funds had indeed been held for a long period in the Deutsche Bank account, it ought to have been straightforward for Mr Namli to have provided evidence from Deutsche Bank.

As I have said, there is no evidence that Credits 5 and 6 represented credits paid from a mixed fund comprising both tainted and untainted money, while I have been able to reach a more positive conclusion that Credits 1 to 4 were not so paid. I recognise that drawing an inference adverse to Mr Namli on this question, based in part on his refusal at an earlier stage to identify the source of these credits and on his failure at trial to adduce evidence from the banks from which the credits in question were paid, carries a risk. In such circumstances a defendant such as Mr Namli may face a dilemma. Suppose for example that the source of one or more of the credits in question was indeed a mixed fund, but that Mr Namli could only prove that part of the fund was untainted by revealing evidence which would assist SOCA to prove its case that the remainder of the fund was derived from unlawful conduct. A defendant in such circumstances, particularly one who was protesting his innocence, might prefer to take his chance, rather than to reveal evidence which in some respects could be damaging. In my judgment, however, such a defendant has no valid ground of complaint if the court concludes that it is appropriate to infer from his failure to adduce evidence of an innocent source of the funds not only that the funds are derived from unlawful conduct but that there is no reason to suppose that tainted and untainted money were mixed together.

For these reasons I conclude that all six credits into the Topinvest account constituted "recoverable property".

It is therefore unnecessary to consider further what approach should be adopted in a case where it can be proved that money in an account includes recoverable property, but there is no positive evidence enabling the court to identify how much of the money is recoverable property (see [24] above). This is potentially an important issue, but as it does not arise on my findings of fact I propose to say no more about it.

The credits paid into the Topinvest account were invested by Coutts on Mr Namli's instructions. In addition Coutts loaned money to Mr Namli for the purpose of such investments. An issue arises as to the profits earned on those investments. Section 307 of POCA (set out at [22] above) provides that profits accruing in respect of recoverable property are also to be treated as representing property obtained through unlawful conduct. SOCA seeks to recover pursuant to this section the entirety of the profits earned on the sums invested. The defendants submit that part of those profits were earned by the money borrowed from Coutts, and that this part of the profits did not accrue "in respect of the recoverable property”.

The factual position, which was common ground, was as follows. On or about 27 May 1999, on Mr Namli's instructions, Coutts invested the US $1 million which constituted Credit 1 in a US equity programme and in a portfolio of US dollar denominated Turkish bonds. Given my finding that Credit 1 constituted recoverable property, there can be no doubt that any profits earned on that investment also constitute recoverable property.

In or about June 2004 Coutts and Mr Namli agreed that an investment of US $4.5 million would be made into funds operated by Coutts and known as Coutts' "Orbita Strategies”. US $1.8 million of this (i.e. 40%) was to be funded from the Topinvest account. US $2.7 million (i.e. 60%) was to be loaned by Coutts to Mr Namli. This investment proceeded, and by 24 April 2006 the value of this US dollar fund had grown to US $5,605,750, a profit of $1,105,750. On that date, the fund was redeemed and the proceeds were credited to the Topinvest account after repayment of Coutts’ loan together with accrued interest in the sum of US $2,965,512.23. The balance on the account at that time was US $5,605,512.23.

In addition, in September 2005 Topinvest borrowed a further €2 million to be invested in a Euro Orbita investment. This too was profitable. The fund was redeemed in two tranches in April and May 2006. After repayment of the loan plus interest the balance of funds amounted to €149,999. This was transferred to a Euro accounts at Coutts.

Since 2006 the balances on these dollar and euro accounts have earned interest.

On the basis of my findings, there is no doubt that 40% of the profit on the US dollar Orbita investments comprise recoverable property pursuant to section 307 of POCA. The issue is as to the remaining 60%, which represents the profit earned by the funds which were loaned, together with the profit of €149,999 on the Euro Orbita investment.

I accept SOCA’s submission that Coutts was only prepared to make these loans because of the substantial credit balances in the Topinvest account which represented the fruits of Mr Namli’s and FMB's unlawful conduct. In that sense, it can be said that but for that unlawful conduct the loans would not have been made, and therefore that the loans were "property obtained through unlawful conduct”. SOCA’s case is that this is sufficient for the loans themselves to constitute "recoverable property" within the definition of "recoverable property" in section 304. The defendants respond that this “but for” test is not enough.

This submission requires consideration of the decision of the Court of Appeal in Olupitan v. Director of the Assets Recovery Agency [2008] EWCA Civ 104. The case involved a property which was purchased in part with a cash deposit which was found to constitute tainted funds and in part with a mortgage loan which had been obtained by fraud. Carnwath LJ held at [37] that in order to comprise "property obtained through unlawful conduct" it is not enough to show that the property would not have been obtained "but for" the unlawful conduct. He continued:

“The Act requires a more specific causal connection: that the property was obtained ‘by or in return for’ the unlawful conduct.”

At [38] he gave the example of a house purchased for £100,000, £75,000 of which had been stolen while £25,000 had come from an untainted source:

“In such a case it could no doubt still be said that the £100,000 house would not have been acquired ‘but for’ the theft, and possibly, in ordinary language, that it was ‘obtained’ by theft. However, the Act seems to me to require a more precise analysis. The original recoverable property is the stolen £75,000, which is then ‘mixed’ with the lawful £25,000. Under section 306, the recovery order can only bite on the ‘portion’ of the mixed property which is attributable to the unlawful £75,000.”

Toulson LJ expressly agreed at [48] that:

“if a property is acquired in part with untainted money and in part with the proceeds of a mortgage fraud, it was not Parliament's intention that the purchaser should be deprived of the portion of the value of the property derived from untainted money. The object of s 306 (mixing property) is the opposite.”

Carnwath LJ’s judgment was a dissenting judgement on the issue in that case whether property purchased in part with tainted funds and otherwise with the aid of a loan which had been obtained by fraud constituted recoverable property. He held that it did not, whereas the majority held that it did. On this issue Sir Anthony May PQBD said at [65]:

“True it is that the building society did not hand any cash directly over to either appellant personally to enable the purchase of the property to proceed. Instead Mr Olupitan's dishonesty led the building society to make contractual arrangements by which the necessary funds for the purpose were transferred to the solicitors for the appellants to hold on trust for the building society, but in due course on completion, for their transfer to the vendor of the property. This is what the solicitors did. Neither appellant ever touched a single penny of the money held by their solicitors, but, as a matter of reality, the property in which they obtained their registered interest (and which is the subject of these recovery proceedings) was purchased in its entirety as a direct result of Mr Olupitan's unlawful conduct. It would be most surprising if the proceeds of this particular form of dishonesty (purchasing an interest in a house as a result of obtaining a mortgage by deception) were excluded from the ambit of the 2002 Act. In my judgment, as a matter of fact, the property registered in the name of the appellants and their entire interest in it was obtained by unlawful, dishonest conduct.”

This is an authority which binds me to hold that a loan obtained as a result of a fraud on the lender does comprise recoverable property; however, if there is no such fraud, a property purchased in part with tainted funds and in part with a loan comprises mixed property, even if without the tainted funds the property could not have been purchased. Accordingly the critical question is whether the loans provided by Coutts were obtained by fraud on the part of Mr Namli.

I can see the possibility that Coutts may have agreed to provide the loans as a result of a representation, express or implied, by Mr Namli to the effect that the credits to the Topinvest account represented money to which he was lawfully entitled. However, SOCA did not put its case in this way or call evidence from Coutts to explain what motivated the making of the loans. Indeed, such a case was not even pleaded, the nearest that SOCA’s pleading claim to such an allegation of fraud being that:

“Coutts’s lending decision was accordingly based (unwittingly so far as Coutts was concerned) upon the fact that the defendants had acquired substantial property through unlawful conduct, and without that unlawfully obtained property Coutts would not have advanced the loan to the defendants.”

Moreover, while I would assume that Coutts would not have advanced the loans if it had known for sure that the money in the Topinvest account was the product of unlawful conduct, it is not at all clear what Coutts’ actual state of mind was at the time when the loans were made or whether those at Coutts who made the decision to lend applied their minds to this question. There was from time to time a degree of suspicion on the part of at least some at Coutts as to the source of Mr Namli’s wealth and a consciousness that he still had questions to answer, but although Mr Namli was cross-examined on the basis that he had told lies to Coutts, it does not necessarily follow that Coutts was in fact deceived.

In the circumstances, I consider that it would not be right to find that the loans were made as a result of a fraud on Coutts. The consequence is that 60% of the profits made on the US dollar Orbita investment and all of the profits on the Euro Orbita investment are not recoverable property. This means that the €149,999 and interest accrued thereon currently in the Topinvest Euro account is not recoverable property and that, to this limited extent, the US dollar account must be regarded as mixed property. However, in determining what proportionof the US dollar account is attributable to the recoverable property, I consider that both the principal (US $2.7 million) and the interest on the loan (US $265,512.23 according to the figures in [202] above) should be treated as having been repaid out of that part of the proceeds of the investment which had been funded by the loan.

Subject to the limited exceptions of (1) the money in the Euro account and (2) such part of the money in the US dollar account as represents profit on that part of the US dollar Orbita investment which was funded by a loan from Coutts together with interest accrued thereon, there will be a civil recovery order over the money in the Topinvest account at Coutts.

The funds in the account which I have held not to comprise recoverable property will continue to be subject to a freezing order until all questions of costs have been resolved.