Financial Services and Markets Dispute Resolution Quarterly Update: Spring 2019 - Better Regulation
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Financial Services and Markets Dispute Resolution
Quarterly Update: Spring 2019
macfarlanes.com/what-we-think/in-depth/2019/financial-services-and-markets-dispute-resolution-quarterly-
update-spring-2019/
Judicial highlights include a bank failing to exclude the Quincecare duty; further scrutiny of
representations in the context of benchmark manipulation; and international judicial
assistance in cases of fraud.
The FCA issued its 2019/2020 Business Plan, and in keeping with its cross-sector priority of
Financial Crime and AML, the FCA has issued its second largest AML penalty. The
remediation measures introduced in response to the firm’s AML breaches indicate the
increasing role to be played by technological innovation, which is in turn provided for in the
EU’s Fifth AML Directive, which we also discuss below.
Finally, our Corporate Crime & Investigations team comment on the effectiveness of the UK
at prosecuting financial crime, including the impact of the new Director of the SFO in recent
months; and the NCA’s 2019/2020 Business Plan.
Financial litigation
Bank Fails in sttempt to exclude 'Quincecare' duty
In The Federal Republic of Nigeria (the FRN) v JP Morgan Chase Bank, N.A. [2019] EWHC 347
(Comm), the Commercial Court rejected a bank's application to strike out its customer's
US$1bn claim based on a "Quincecare" duty of care owed to the customer. The Quincecare
duty is a duty on a bank to refrain from executing a customer's order if, and for so long as,
the bank is "put on inquiry", i.e. that it has reasonable grounds for believing that the order is
an attempt to defraud the customer.
The Bank had agreed to act as depository in respect of settlement monies put up by the
FRN in relation to a long-running dispute about an off-shore Nigerian oilfield. The deposit
account was opened pursuant to a Depository Agreement between the Bank and the FRN in
May 2011. Between August 2011 and August 2013, on instructions by authorised signatories
of the FRN, the Bank made three transfers totalling US$875m from the deposit account to
accounts in various names at Malabu Bank and Keystone Bank. It was alleged that the
money was then used to pay off corrupt former and contemporary Nigerian government
officials and/or their proxies, rather than being paid to parties properly entitled to the
settlement monies. Proceedings were commenced by the FRN in November 2017 and the
bank's application to strike out the claim and for summary judgment was issued in July
2018.
1/13By the time of the hearing, the FRN had substantially amended its Particulars of Claim,
relying upon a claim in both contract and tort based upon breach of the "Quincecare" duty
of care, so-called after the case of Barclays Bank plc v Quincecare Ltd [1992] 4 All ER 363 . Put
simply, the duty, according to Steyn J, is that:
"[A] banker must refrain from executing an order if and for so long as the banker is 'put on
inquiry' in the sense that he has reasonable grounds (although not necessarily proof) for believing
that the order is an attempt to misappropriate the funds of the [customer]."
Based upon certain express provisions in the Depository Agreement, the Bank argued that
the Quincecare duty had been excluded so that it did not owe a duty of care to the FRN.
However, the Commercial Court considered that the Depository Agreement was not
inconsistent with and did not exclude, either generally or by particular terms, the
Quincecare duty of care. The duty is a specific manifestation of the duty of care owed by a
banker to its customer in relation to instructions, and was imposed on the Bank as an
implied term in the Depository Agreement under common law, or by statute under Section
13 of the Sale of Goods and Services Act 1982, or by the tort of negligence.
For the purposes of the Bank's strike-out application, the Court had to assume that the FRN
had a realistic prospect of successfully establishing at trial that the bank had reasonable
grounds for believing that the payments out were part of an attempt to defraud the FRN: i.e.
that the Bank was 'put on inquiry'. If so, the Quincecare duty imposed on the Bank would
mean that it could not simply follow the mandate of abiding by the instructions given by the
FRN; the duty at its core required the Bank to protect the FRN against being defrauded, by
not paying out unless and until the bank was 'off inquiry.'
The Commercial Court also "strongly inclined" to the view that, once the Bank had
reasonable grounds for belief (i.e. it was 'put on inquiry'), the Quincecare duty imposes an
additional positive duty to make reasonable enquiries.
In conclusion, the Bank had failed to establish that the FRN's claim had no realistic prospect
of success such that the application for summary judgment failed. It followed that the
Particulars of Claim (as amended) did disclose reasonable grounds for bringing the claim
such that the application to strike out also failed, and the matter would proceed towards
trial.
Landmark ruling – Implied misrepresentations about Euribor rejected
In a landmark ruling on 25 February 2019, the high court dismissed implied
misrepresentation claims against NatWest Markets and a syndicate of banks in relation to
the alleged manipulation of the Euro Interbank Offered Rate (EURIBOR) benchmark.
The judgment in the case of Marme Inversiones v NatWest Markets plc & Others [2019] EWHC
366 (Comm), comes hard on the heels of last year's Court of Appeal rejection of similar,
2/13LIBOR-related, implied misrepresentation claims made against RBS by Property Alliance
Group, and the conviction in absentia of French national Philippe Moryoussef, who was
sentenced to eight years for his part in manipulating/attempting to manipulate EURIBOR
whilst at Barclays.
The Spanish SPV, Marme, bought the Spanish headquarters of the Santander Group in
September 2008 using, in part, a €1.575bn loan from a syndicate of eight banks. The interest
payable was fixed by reference to EURIBOR and was hedged by interest rate swaps.
In a lengthy written judgment, Mr Justice Picken decided that EURIBOR-related
representations alleged by Marme, such as that NatWest Markets had not sought to
manipulate EURIBOR at the time of the loan, could not be implied into the contractual
arrangements between Marme and the banks. Even though, therefore, the knowledge of Mr
Moryoussef, who had briefly joined NatWest Markets, would have falsified such a
representation, Marme could not rely on it. The judge further decided that Marme could not
have rescinded the deal because, by its conduct, it had affirmed the loan, and it could not
rescind the related swaps without first rescinding the loan. Finally, even if Marme had
known the truth about the alleged EURIBOR manipulation, it was unable to show that the
terms of the deal would have changed.
International judicial assistance in Ablyazov bank fraud
One of the largest frauds in history - the misappropriation of more than US$10bn by the
former Chairman of JSC BTA Bank of Kazakhstan, Mukhtar Ablyazov - has taken a new turn
in the UK.
The audacious fraud, which has previously been the subject of more than 100 decisions by
judges in the English Court, currently forms the back-drop to acrimonious proceedings in
New York involving claims made against the Bank by Panamanian entities said to be linked
to Mr Ablyazov and his co-conspirators. In January, the presiding judge in New York acceded
to a Motion by the Panamanian entities that he should issue Letters of Request, seeking the
English Court's assistance to compel oral depositions of witnesses based in the UK. The
witnesses were senior individuals, including a former managing director of the Bank, said to
have been involved in the asset recovery process instigated by the Bank in 2009 once Mr
Ablyazov's fraud had come to light.
Between 2010 and 2012, the Panamanian entities had acquired subordinated debt in the
Bank as part of two restructurings, and claimed that the Bank had knowingly caused the
value of the subordinated debt to plummet substantially by engaging in deals that were
ultimately to the benefit of its majority shareholder, a sovereign wealth fund, and to the
immense detriment of bondholders and creditors.
3/13The individual witnesses and the Bank challenged the Order which the English Court had
made allowing the depositions to take place in London, on the basis that they were
oppressive, and irrelevant to the US litigation. At the same time they argued that because
Mr Ablyazov and his co-conspirators were effectively behind the depositions, they were
merely seeking to gather information relevant to their personal interests in impugning
judgments obtained against them by the Bank as part of the Bank's recovery of US$5bn. In
short, the depositions were nothing more than a "fishing expedition".
On 21 February 2019, Mr Justice Knowles, who, in mid-January, had dismissed the Bank's
and the witnesses' application to stop the depositions, released detailed reasons in a
written judgement.
It has long been recognised by the English Court that the need for international cooperation
through judicial comity is especially acute in cases of international fraud.
Knowles J ruled that the depositions were not oppressive because there was plenty of time
for the witnesses and their lawyers to prepare, particularly since the number of documents
on which questions were to be asked had reduced from around 1,800 to less than 200. In
addition, the topics which the Panamanian entities wished to question the witnesses about
were clearly relevant to the US litigation, since the presiding judge in New York had said as
much in the Letters of Request. In these circumstances, it was not for the English Court to
determine whether the topics and questions were relevant to the issues in the US litigation.
As far as the alleged ulterior motive of "fishing" was concerned, the judge considered that it
was "far-fetched" to suggest this when the US judge had satisfied himself that the
depositions were relevant and necessary for the forthcoming trial in New York.
Foreign law shall not automatically restrict the conduct of English litigation
In Bank Mellat v Her Majesty’s Treasury [2019] EWCA Civ 449, the Court of Appeal ruled that the
English Court’s ability to conduct its proceedings in accordance with English law and
procedure shall not be overridden by foreign law.
It was simply a matter for the Court’s discretion as to whether a party’s perceived risk of
prosecution in its “home” jurisdiction for disclosing unredacted documents in the English
litigation, could warrant an order that the documents should be disclosed in redacted form.
In this case, the Bank sought to recover losses of more than US$800m from HM Treasury
(HMT), alleged to have been suffered as a result of the Financial Restrictions (Iran) Order
2009 which, in 2013, the Supreme Court subsequently ruled to be unlawful.
In relation to its disclosure, the Bank produced expert evidence of Iranian law to support its
contention that to disclose certain documents in unredacted form would expose it to a risk
of criminal prosecution in Iran.
4/13At first instance, Mrs Justice Cockerill ordered the Bank to produce unredacted documents
to members of a confidentiality club, including the lawyers representing HMT. On a fair
reading of the Bank’s expert evidence of Iranian law, the judge concluded that the risk of
prosecution of the Bank in Iran was more than purely hypothetical, but less serious than the
expert had suggested.
On the Bank’s appeal, the Court of Appeal agreed with Cockerill J that the expert evidence
did not deal with the actual risk of prosecution in Iran, and considered the evidence to be
less than compelling. Furthermore, in the context of the English Court’s jurisdiction and
discretion to order production of documents, the actual risk of a party being prosecuted in a
foreign state, and the confidentiality of information contained in its documents, are but
aspects of the discretionary balancing exercise which the Court has to perform between the
parties’ competing interests.
Regulatory developments
FCA Business Plan 2019/2020 – focus on Brexit, consumer protection and financial
crime
On 17 April 2019, the FCA published its 2019/2020 Business Plan (the Plan). The FCA
Chairman’s Foreword emphasises the theme of change and the three areas where he
considered this to be most prevalent: (i) technology; (ii) the global context i.e. Brexit; and (iii)
public expectations. He also noted the potential risk of gaps in global regulation post-Brexit.
In a number of places the Plan emphasises the importance of protecting consumers,
particularly those considered to be vulnerable and Andrew Bailey noted that this is "at the
core of [their] work".
The Plan sets out a number of key cross sector priorities (as well as some detailed sector
specific priorities) including:
1. EU Withdrawal - the FCA emphasised the importance of maintaining effective
international standards that underpin the UK regime post-Brexit and acknowledged
the need to ensure market access is ‘enabled’ at the same time as reducing the risk of
regulatory arbitrage. The FCA intends to do this, in part, by strengthening strategic
international engagement and relationships with key regulators.
2. Financial Crime & AML - the FCA’s overall aim is to stop the UK financial sector being
used to facilitate financial crime. This will be achieved, it says, by using technology to
be more intrusive in assessing the effectiveness of firms' own systems and controls.
Data and intelligence collection will also be a focus to help enable the FCA to monitor
trends in financial crime and target criminals as a result. The FCA also acknowledged
that combatting money laundering required a multi-agency and multi-national
response.
5/133. Fair Treatment of Existing Customers – the FCA notes that firms often have strong
incentives to offer better deals and services to new or prospective customers
increasing the possibility that existing customers will be treated poorly. The FCA will
identify situations where existing customers are treated differently to new customers
and address any resulting harms. The FCA also highlighted its continuing work with
the CMA including considering how best to act on the recommendations made by the
CMA in relation to pricing practices in home insurance and the use of pricing
interventions in the cash savings market.
The Plan also contained a number of other points of interest including that:
the FCA has restated its commitment to an independent investigation into the issues
raised by the failure of London Capital & Finance; and
LIBOR will cease to be supported by the end of 2021 and the FCA will continue to work
with the UK authorities, firms and the market-led Working Group on Sterling Risk Free
Reference Rates to continue the transition to the new risk free rates.
FCA’s continued scrutiny of AML risks for regulated firms
The FCA recently fined Standard Chartered Bank for £102.2m for shortcomings in the
adequacy of the Bank’s AML controls at its branches, subsidiaries and correspondent banks
between 2009 and 2014. The Bank has also agreed to pay $947m to American agencies,
including the US Department of Justice, in respect of allegations that it violated sanctions
against various countries.
As indicated by the FCA’s Business Plan, the FCA’s action forms part of a wider pattern of
increased scrutiny of regulated firms' AML policies and procedures. In a speech in early
April, the FCA's Director of Enforcement and Market Oversight, Mark Steward, announced
that the FCA is currently pursuing a "large number" of AML investigations, with the potential
for criminal proceedings in some cases.
The increased scrutiny of AML controls by regulators poses a significant risk to firms and
places a considerable burden upon their compliance personnel. In its Decision Notice, the
FCA criticised the Bank's past approach as "narrow, slow and reactive", demonstrating the
importance to firms of adopting an agile approach that goes beyond a ‘box-ticking’ exercise,
and of sufficiently deploying resources to achieve this. Meanwhile, the introduction of the
EU's Fifth Anti-Money Laundering Directive (5MLD), which Member States are required to
implement by 10 January 2020, is likely to increase the scope and complexity of the
regulatory landscape in which firms operate.
Notably, the Bank's remedial measures included the introduction of " new technology
including artificial intelligence and machine learning to support [its] screening and investigations
processes". The Bank also stated that some of its breaches arose from "the actions of two
6/13former junior employees", highlighting the risk posed by individual human actions where
there is inadequate oversight. The increasing challenge posed to compliance teams by
regulators' scrutiny of AML controls may encourage growth in the use of such technology, in
an effort to support client due diligence and transaction monitoring, automate audit trails
and reduce the risk of individual human error or misconduct. The global anti-money
laundering software market was estimated at $868m in 2017 and is expected to reach
$1.77bn by 2023.
Indeed, the increasingly central role played by technological innovation in managing AML is
recognised by 5MLD; while nothing previously precluded the use of technology in AML
procedures, the new directive now clarifies that customer identification may be carried out
by "electronic means" (provided the electronic identification process is accepted by the
national regulator).
Upper Tribunal upholds FCA's penalty under a Focused Resolution Agreement
On 9 April 2019, in Linear Investments Limited v Financial Conduct Authority (Case number
FS/2018/054), the Upper Tribunal upheld the amount of a penalty imposed by the FCA on
an authorised broking firm, Linear Investments Limited (Linear), for breach of Principle 3.
In June 2018, the FCA imposed a penalty of £409,300 on Linear in relation to historic failings
in its systems and controls relevant to its electronic Direct Market Access business.
Specifically, Linear was found to have failed to take reasonable care to organise and control
its affairs responsibly and effectively and to implement adequate risk management systems
in relation to the detection and reporting of potential instances of market abuse. Linear had
failed to undertake its own independent surveillance and had instead relied on post-trade
surveillance by the brokers involved in executing transactions. The breaches identified
occurred between January 2013 and August 2015.
This was the first reference to the Upper Tribunal of a partly contested case where the
Applicant (Linear) and the FCA had entered into a Focused Resolution Agreement (FRA),
under which the parties agreed certain elements of the case. Linear agreed the facts and
liability set out in the FCA's Decision Notice, including any reference to the Tribunal.
However, it contested the level of the FCA's fine and made an appeal to the Upper Tribunal.
The Upper Tribunal (i) interpreted Linear's position in a way that did not conflict with the
agreed facts under the FRA; and (ii) did not re-open any matters of fact and liability in its
decision making. It upheld the FCA's reasoning and decision to impose a penalty and agreed
that the size of the fine was appropriate, despite the negative impact it would have on
Linear's business.
7/13On 10 April 2019, the FCA published its response to the Tribunal's decision. Mark Steward
commented: "Firms are expected to play their part in tackling market abuse by ensuring that
they are able to identify and manage the market abuse risks to which they are exposed. The
Upper Tribunal recognised that, despite the pain caused by the size of the penalty, given Linear’s
financial resources and level of profits, Linear’s lack of effective monitoring measures was a
serious matter and the FCA’s penalty was therefore appropriate."
Linear's FRA was the first example of a firm using the process. It remains to be seen what
impact the Tribunal's decision and the outcome for Linear are likely to have on those under
investigation and whether the appetite for the use of FRAs will grow.
FCA imposes a fine on fund manager for failures of Principles 2 and 3
In February, a former fund manager was fined £32,200 for his conduct in relation to an
Initial Public Offering (IPO) and a placing.
On more than one occasion, the fund manager and CF 30 (Customer Controlled Function)
submitted orders as part of a book build for shares that were to be quoted on public
exchanges. The FCA found that the fund manager had failed to observe proper standards of
market conduct in breach of Principle 3; and acted without due skill, care and diligence by
failing to give proper consideration to the risks of engaging in these communications.
For example, in advance of an IPO in September 2015, the fund manager blind-copy
emailed 14 external fund managers at 11 competitor firms (the Email Recipients) informing
them of the volume and price cap of his order, in an effort to persuade the recipients to cap
their orders at the same price limit as his own orders (the Email). In one chat message, he
wrote that he was “in the midst of potentially getting an IPO canned single handedly…by pushing
the price down”.
Although none of the Email Recipients changed their orders following receipt of the Email,
the FCA concluded that by attempting to encourage investors to use their collective power
in this way, the fund manager’s conduct risked undermining the integrity of the market and
the proper price formation process for the IPO, for the benefit of the funds that he
managed, and to his own indirect benefit since his remuneration was linked to the
performance of those funds.
Interestingly, the Final Notice details the responses from the Email Recipients. Whilst the
FCA does not provide an assessment of them, the description provided indicates that those
who recognised the Email to be inappropriate and escalated their concerns were in the
minority.
The Final Notice observes that Newton did have relevant policies and procedures in place at
the time, together with a clear route for escalation of queries or issues; and that the fund
manager received on-going guidance in relation to compliance matters in the relevant time
8/13period.
Some of the facts in this case form the subject of the FCA’s first decision under its
competition enforcement powers, in which it found that three competing asset
management firms had breached competition law by sharing strategic information between
them. The Firm was given immunity under the competition leniency programme, and
therefore it did not receive any fine.
Financial crime
Commentary: How effective is the UK at prosecuting financial crime?
The effectiveness of the UK’s anti-corruption regime has come under greater scrutiny this
year. The UK’s prevention framework and its compliance standards, on anti-money
laundering for instance, continue to be held up as a global standard. The importance of the
financial services sector to the UK economy has impelled lawmakers to protect it from
external threats and from itself. They have done so by introducing strict regulatory
requirements and prohibitions on institutions and individual employees. However, despite
the strength of regulation, research suggests that this jurisdiction remains comparatively
ineffective at following through and actively prosecuting financial crime.
The global anti-corruption NGO "Corruption Watch" has published a critical
report comparing the UK's fight against economic crime unfavourably to that of the USA.
The report highlights some interesting statistics when considering New York and London in
the period 2008 - 2018, including:
in the UK there were no successful criminal prosecutions of a bank, compared to 20 in
the USA; and
the UK imposed c. £2.5bn in non-criminal fines, compared to c. £25bn in the USA.
The report came to some frank conclusions which may give UK lawmakers pause for
thought. In particular, it was noted that UK law on corporate criminal liability makes it more
difficult to prosecute companies in the UK than in the USA. Various MPs have begun to turn
to this issue and actively consider whether the tools given to UK prosecutors are enough to
enable enforcement agencies to carry out effective prosecutions.
Further submissions were made to a Parliamentary Select Committee report on the Bribery
Act 2010, which concluded its work in March this year. The post-legislative scrutiny report
concluded that the Act is exemplary and "an international gold standard for anti-bribery and
corruption legislation". The Committee also noted that Deferred Prosecution Agreements
(DPAs), UK enforcement’s leading innovation of recent years, are largely effective (despite
their relative scarcity since the implementation of the Act), and when used, are not an "easy
way out" for companies as critics had suggested.
9/13The report did acknowledge however that the Government ought to provide better advice to
SMEs on how best to export their products and services, and clearer examples of what
constitutes legitimate corporate hospitality whilst remaining compliant with the Bribery Act.
They also noted that the relevant authorities ought to prioritise the speed at which bribery
prosecutions progress.
Whilst Brexit has consumed Parliament’s current bandwidth for any new legislation, a post-
Brexit Government may find that it has more time to engage with growing calls for reforms
and expanded powers. Any development on corporate criminal liability in particular would
represent a seismic change in UK law.
Critics argue that the need for reform has been reinforced by the SFO's recent decision to
halt investigations into individuals at Rolls Royce and GlaxoSmithKline - two of their most
high profile probes: "After an extensive and careful examination…there is either insufficient
evidence to provide a realistic prospect of conviction or it is not in the public interest to bring a
prosecution in these cases.”
Discontinuing the investigations represented a significant move by Lisa Osofsky, the former
Department of Justice prosecutor who took the helm of the agency just eight months ago.
Ms Osofsky has sought to put her mark on the SFO and avoid some of the criticisms faced
by her predecessors. She told the Bribery Act Select Committee in late 2018 that she was
personally reviewing more than 70 cases and had been challenging staff at the agency as to
why it was not moving faster in its decision-making. Ms Osofsky has sought to bring her
American-style practices to aid the expedition of cases, not just driving a more decisive
culture but attempting to use greater prosecutorial discretion, such as persuading insiders
to “flip” and cooperate with investigators.
As well as overhauling the SFO, Ms Osofsky (along with Sir Brian Leveson, President of the
QBD) urged the Parliamentary Committee on the Bribery Act to expand corporate criminal
liability. In doing so, Ms Osofsky stressed the importance of "failure to prevent" style
offences that shift the burden of proof onto the corporation in question. Such an
intervention will only add to growing momentum in favour of giving prosecutors expanded
powers to tackle corporates.
The extent of Ms Osofsky's impact has yet to become fully apparent, and any proper
analysis of the UK’s ability to combat financial crime must go beyond a simple scorecard of
the SFO’s recent trials. Nevertheless, a more aggressive and decisive SFO is vital to
improving the UK's record of successful white collar prosecutions. Combined with new
powers introduced by statute such as the Criminal Finances Act 2017 (the CFA), the UK could
begin to see a marked improvement in the ability of its enforcement bodies to rival their US
counterparts and become a global force in combatting cross-border financial crime.
10/13In recent weeks, the SFO announced that it had used its first account freezing order (AFO) to
forfeit over £1.5m from a convicted fraudster. Along with the SFO, the National Crime
Agency has also used AFOs to seize nearly half a million pounds from various bank
accounts. In a similar vein, HMRC has launched its first criminal investigations using new
powers brought in by the CFA. The CFA introduced a new corporate criminal offence of
failing to prevent the facilitation of UK tax evasion. The offence places a positive obligation
on companies to implement procedures to prevent the facilitation of tax evasion. Not only
has HMRC begun to exercise its new powers, it has stated that it has a target to bring 100
prosecutions of serious and complex tax crime per year by the end of current Parliament,
which is scheduled for 2022.
Amidst a difficult start to the year, UK enforcement agencies continue to see opportunity. As
authorities make better use of new powers that they were, in some cases, slow to adopt, we
should see an uptick in investigations, fines and even effective prosecutions. We can
anticipate a lobbying blitz, as prosecutors and regulators seek the power and discretion
afforded to their counterparts in the US and elsewhere. Brexit is an opportunity to reshape
the legislative landscape. Whether it will be used to enhance or weaken the UK’s ability to
effectively tackle corporate crime is less clear, but this will be the battle of the coming
months and years.
The Crime (Overseas Production Orders) Act 2019
The Crime (Overseas Production Orders) Act 2019 (COPOA) received Royal Assent on 12
February 2019. COPOA is not yet fully in force, but it nonetheless represents a significant
change in the way that UK law enforcement agencies will be able to pursue documents or
information overseas as part of their investigations, especially once the international
agreements that will underpin it are in place.
At its most simple, COPOA enables UK law enforcement agencies to apply for a court order
to obtain electronic data stored outside the UK. This helps plug a gap that has widened
significantly over the past few years as more and more data held by individuals and
companies is stored overseas or on servers with no easily discernible jurisdiction, often
preventing investigating authorities from accessing it.
This issue was examined at the end of 2018 in the case of R (on the application of KBR Inc) v
Director of the Serious Fraud Office [2018] EWHC 2368 (Admin). Controversially, the judgment
in this case gave extra-territorial effect to orders under Section 2 of the Criminal Justice Act
1987 (CJA) where there is a “sufficient connection” between the subject of a Section 2 Notice
and a foreign body. This has been highly criticised as “judicial law making” – investing
Section 2 CJA with powers that the legislation did not intend. It remains to be seen whether
this decision will be overturned, as many predict it might be on appeal.
11/13The SFO needed to rely on an expanded interpretation of Section 2 CJA, and was fortunate
to get a supportive judgment in that regard, because the existing powers for seizing
documents abroad are in some ways no longer fit for purpose. The principal tool for
obtaining documents or information overseas is a request for Mutual Legal Assistance
(MLA). However, MLA requests are widely acknowledged to be slow and bureaucratic.
COPOA seeks to change this and to create a system that is significantly faster and more
direct.
Specifically, COPOA allows for Overseas Production Orders (OPOs) to be made by a UK court
on the application of an appropriate officer. An OPO requires a person to produce or give
access to the electronic data specified in it. There is a period of seven days in which the data
must be produced or access granted. Furthermore, this is a bilateral order between the UK
courts and the subject of an OPO, which is not overseen by the authorities in the jurisdiction
of the subject. The potential for OPOs to reduce overseas production processes from
months or years down to just days could have a huge impact on the way a case develops,
potentially changing its outcome.
Significantly, an OPO can only be made in respect of persons located in a jurisdiction with a
“designated international co-operation agreement ” in place with the UK. It is understood that
the UK is currently negotiating the first of these designated international co-operation
agreements with the USA. If successful, this would effectively give the UK direct access to the
world’s largest communications services providers, such as Google and Facebook and
potentially a vast pool of data.
Although it received little fanfare when it was given Royal Assent, this legislation may prove
to be extremely significant in major investigations and prosecutions before too long.
NCA publishes its 2019/20 Annual Plan
The National Crime Agency (NCA) has published its Annual Plan for 2019-20 (the Plan),
setting out its priorities for the coming year. The Plan builds upon the new strategy
published by the NCA in November 2018.
Alongside its other sectoral focuses and general operational priorities (such as efforts to
enhance intelligence collection and dissemination capabilities, through measures including
a new "NCA Intelligence Operating Model", and a "NCA Gateway" as a single entry point for all
information and intelligence), the Plan highlights a number of recent developments in the
FCA's focus on driving down economic crime.
The Plan emphasises the NCA's collaborative "whole-system" approach and encourages
partnerships with other law enforcement, regulatory and professional bodies, including the
Financial Conduct Authority. In this regard, the Plan makes the work of the National
Economic Crime Centre (NECC) a priority. The NECC was established in October 2018 as a
12/13partnership of law enforcement agencies, government and regulatory bodies and the
private sector, with the aim of driving down serious organised economic crime.
The priorities set out for the NECC in the Plan indicate the increased depth and breadth of
tackling economic crime. They include:
using the most appropriate of criminal, civil and regulatory measures to ensure
maximum impact;
maximising the use of new powers, such as Unexplained Wealth Orders (UWOs) and
Account Freezing Orders (AFOs), to tackle illicit finance;
ensuring "professional enablers" who enable criminals to exploit the UK financial
system and related sectors are identified and pursued;
work on new and innovative measures (including preventative measures) to tackle
economic crime.
The Plan therefore suggests that the use of such so-called ‘super-powers’ from the FCA may
become a more regular feature of the NCA's efforts to tackle economic crime, having first
become available to it on 31 January 2018 and first used against Zamira Hajiyeva later
that year.
The focus on pursuing "professional enablers", along with references throughout the Plan to
the NCA's aims to lead cross-sectoral efforts in this area, reflect the increased use of
criminal sanctions to drive regulatory compliance culture in the financial sector.
13/13You can also read
