All posts by James Maton

James is a commercial litigator advising companies and Governments on a wide range of complex contractual and commercial disputes. That work includes litigation, international arbitration under a variety of rules and considerable experience of managing multi-jurisdictional disputes. He also advises Governments seeking to trace, freeze and recover the corruptly acquired assets of dishonest public officials. That experience includes civil proceedings to recover the proceeds of corruption, enforcing foreign confiscation orders, advising on requests for mutual legal assistance in criminal proceedings and using insolvency remedies to recover assets. He speaks regularly about asset recovery at international anti-corruption conferences organised by international donors, and has provided significant pro­-bono support to anti-corruption NGOs.

White collar crime

Unexplained Wealth Orders coming into force

The regime for Unexplained Wealth Orders will come into force on 31 January. This is a novel power in the UK.

Law enforcement agencies such as the National Crime Agency and Serious Fraud Office will be able to apply to Court, without notice to the recipients, for an Order requiring foreign politicians, and their family members and close associates, to identify any interest in an asset worth over £50,000 and explain how it was obtained.

An Order can be made only where the assets appear disproportionate to known legitimate income.   An application can also be made for a UWO against individuals or companies suspected of involvement with other forms of serious criminality, again if their assets appear disproportionate.

A failure to respond to a UWO will create a rebuttable presumption that the assets it targets are recoverable as the proceeds of crime in civil recovery proceedings brought by law enforcement under the Proceeds of Crime Act.

Injunctions can be obtained to secure assets pending a satisfactory response to a UWO, and again can be sought without notice to the defendants.

Deliberately providing false or misleading information or documents in response to a UWO will be a criminal offence.

The regime is based on proposals made in a paper published in March 2016 by Transparency International UK entitled ‘Empowering the UK to recover corrupt assets: Unexplained Wealth Orders and other new approaches to illicit enrichment and asset recovery’.   Our partner James Maton was one of the external experts that assisted TI to prepare the proposal after an evaluation of the problems faced by the UK authorities in securing and recovering the proceeds of corruption.

The authors concluded that a UWO could be most effective when UK law enforcement have material to suspect that an asset has been corruptly acquired but need more time to collect evidence.  That is a common problem, for example, after the filing of a suspicious activity report.

It is a testament to the hard work and quality of research of the TI team that the proposal has been adopted into law.  Its true utility can, of course, only be demonstrated by the use of the power by law enforcement, and it is just one tool that can be used to tackle the problem of identifying and recovering the proceeds of corruption (and other serious crimes).

A final Code of Practice outlining the circumstances in which UWOs will be used is awaited.  There are various factors that will need to be weighed when considering whether to deploy UWOs, including whether there will be any adverse impact on an ongoing investigation, and we wait to see whether law enforcement will be proactive in using this innovative investigatory tool where meaningful action could not otherwise be taken.  The draft Code of Practice is here.

The original TI paper is here.

Asset recovery

Introducing illicit enrichment in the UK: a proposal by Transparency International UK

Too often, for a variety of reasons, law enforcement agencies are unable to take meaningful action against assets suspected to be corrupt. That might be, for example, because the state that has suffered corruption is unable or unwilling to provide supporting information to UK law enforcement in time for action to be taken, or because the evidence required to apply to restrain funds cannot realistically be put together in the time available. International corruption is complex and difficult to investigate and establish.

The United Nations Convention against Corruption was the first global anti-corruption instrument. Amongst other steps, it requires states to enact a range of criminal offences and asset recovery mechanisms as part of measures to address corruption or, in some cases, the convention recommends that consideration is given to doing so.

UNCAC recommends signatory states consider introducing an offence of “illicit enrichment”, which would be committed by public officials who cannot provide a reasonable explanation for large increases in their wealth by comparison to their lawful income.

That offence has not been introduced into English law because of concerns that its reversal of the burden of proof, and lack of a need to demonstrate a link between assets and criminal activity, was inconsistent with due process.

Transparency International UK has today proposed adding “Unexplained Wealth Orders” (UWO) to the civil recovery tools available to UK law enforcement agencies to support recovery of the proceeds of corruption.

The proposal is made in a discussion report called “Empowering the UK to recover corrupt assets, Unexplained Wealth Orders and other new approaches to illicit enrichment and asset recovery”.

The report follows a review of the appropriateness of UK legislation to deter grand corruption and recover stolen assets by a taskforce convened by Transparency International. It comprised academics, civil society and lawyers, assisted by observers from UK Government and law enforcement (our James Maton was a member of the taskforce).

The proposal aims to make better use of Suspicious Activity Reports (SARs), an important tool relied on by UK law enforcement to identify corrupt assets. Anyone assisting with a transaction that they know or suspect may amount to money laundering is obliged to file a SAR, but they are usually filed by banks or other regulated entities.

The taskforce made five key findings:

The level of assets recovered by the UK is very small compared to the likely amounts of corrupt wealth being laundered.

  1. Only a small minority of SARs relating to grand corruption are acted on by law enforcement agencies.
  2. The maximum “moratorium period” of 31 days for law enforcement to take action following a SAR is generally inadequate to investigate and achieve asset restraint for grand corruption cases.
  3. Civil recovery (non-conviction based asset forfeiture) powers are under-used in cases of grand corruption.
  4. The current framework for asset recovery is overly reliant on a conviction in the country that has suffered the underlying corruption.

Suspects served with an UWO would be required to explain legitimate and legal sources of wealth for identified UK assets. A failure to comply, or inadequate compliance, could permit funds to be frozen for a much longer period pending further investigation into their source and consideration of whether a civil recovery case should be brought to recover the asset as the proceeds of crime.

UWOs would most often be served following receipt of a SAR filed by a bank, or another entity in the regulated sector. It is also proposed that the 31 day moratorium period in which law enforcement has to restrain an asset, or consent to its transfer, would be suspended pending a response to the UWO.

A Judge would make the UWO on the application of law enforcement, and would also decide whether it was appropriate to restrain an asset pending further investigations in light of the information and supporting documents provided by the suspect.

TI’s analysis is that the power to serve a UWO would have significant impact where there was existing “moderate” evidence that the asset had been acquired using the proceeds of corruption, and meaningful impact where the evidence was stronger.

Our view is that the introduction of UWOs could have a significant impact on the recovery of the proceeds of corruption. As the discussion paper recognises, further work needs to be done to assess precisely how the UWO scheme would work in a manner compliant with civil liberties, privacy and human rights considerations.

However, the proposal is a proportionate and fair response to assist in addressing the enormous scale and impact of corruption, particularly given judicial involvement and the opportunity for suspects to explain the source of their wealth.

After all, honest public officials should – really – have no difficulty demonstrating the source of a particular asset or bank balance. And the information required to comply with a UWO should not be substantially more onerous than that required by the regulated sector when commencing and reviewing a business relationship with a public official.

Key questions are the test law enforcement would need to meet to persuade a Judge to issue a UWO, the test for assessing whether the information and supporting documents provided in response are adequate, and the consequences of failing to respond to a UWO.

Our view is also that there is a case to be made that a failure to comply with a UWO, or a failure adequately to comply, should give rise to a presumption that the asset is corrupt.

This is a proposal that should be considered in detail, as Transparency International UK suggest, by the Law Commission or an appropriate Parliamentary Committee.

Asset recovery

Privy Council Clarifies When Innocent Bank is Liable to Victims of Theft

To what extent must a bank make inquiries as to the commercial purpose of a transaction, particularly a transaction involving an offshore structure? And when is a bank liable to compensate a victim of theft for receiving funds deriving from stolen assets and using them for its own benefit?

These were the questions addressed in Credit Agricole v Papadimitriou by the UK’s Privy Council (the court of final appeal for the UK’s overseas territories and Crown dependencies, and for Commonwealth countries that have retained it as the ultimate appeal Court; its decisions are authoritative in English law as it comprises judges from the UK Supreme Court).

It is an important and potentially far-reaching decision.

An honest bank, which had unknowingly received stolen funds and used them to repay itself a loan made to the fraudster, was required to compensate the victim of the theft. It must do so because it failed to investigate the commercial purpose of the transaction under which it received the funds in circumstances where the unnecessarily complex structure and cost of the transaction were indicative of money laundering.

The impact of the judgment may reverberate around the risk departments of financial institutions (or, indeed, other regulated entities). It is relevant where stolen funds, or funds deriving from stolen assets, have been used, for example, (a) to discharge a loan or overdraft, (b) to pay substantial fees for a transaction or (c) where the bank has enforced security taken over a stolen asset.

The case concerned the proceeds of sale of artworks stolen from a private collector. It could equally apply to assets or funds stolen by a public official from a bank, or to bribes, which the bank has used for its benefit, for example to pay fees or to pay-off a loan or overdraft. A bank facing a claim from an aggrieved state could be found liable if it failed to seek an explanation when it had serious cause to question the proprietary of a transaction.

The rationale of the case is not, however, applicable where the Bank has simply received funds into a customer’s account and transferred them away on the customer’s instructions. In those circumstances, a claim would only be available against the Bank if it has been dishonest.

Finally, it is noteworthy that the Privy Council reached its decision applying the standards of money-laundering legislation in place in 2000, not the much higher requirements that apply under the present money-laundering regime.   In our view, this suggests that the courts will apply a much higher standard to more recent conduct.

Read the full article

Bribery

Can I sue a bribing competitor in England?

Companies are competing to win a contract. One pays a bribe to exclude its competitor from the bidding process, or to win the contract. If caught, it faces prosecution under the UK’s Bribery Act 2010, as do its bribing directors or employees. The bribing company also risks termination of its contract and claims from its customer.

But could it also be sued by its aggrieved competitor for compensation?

In England, and other common law countries, the answer is yes. And the available claims are not limited to wasted bidding expenditure. Lost profits can also be recovered.

The issue was tested in England in the recent case of Jalal Bezee Mejel Al-Gaood v Innospec Ltd. The defendant, Innospec, had previously admitted paying bribes in criminal proceedings in both the UK and the US. It had also settled a civil claim made against it by a manufacturer of competing chemicals in New York.  The Claimant sued in England.  It lost the case on the basis that it would not have won the contract in any event.   But the case confirms that such a claim is viable.   Our fuller briefing on the case appears here.

Asset recoveryBribery

Who owns a bribe: the bribed public official or the defrauded state?

A public official receives a bribe to award a contract.  Does the bribe “belong” to the official or to the state that he or she represents?

The answer to the question can matter a great deal to the success of a claim. But the issue has been controversial and the answer was for a long time unclear in English law, particularly in recent years.

The English position has been conclusively resolved by the the United Kingdom’s Supreme Court.  It decided that the bribe belongs to the state. The decision ensures that English law is identical to other major common law jurisdictions.

This is important for a number of reasons:

  • First, if the official becomes insolvent, all of the funds can be claimed by the state in preference to the claims of other (innocent) creditors.
  • Secondly, if the funds are invested in assets that increase in value, such as property in a rising market, the state will be entitled to recover the entirety of those assets.  This means the state takes the benefit of the increase in value. In the absence of ownership, this would be more difficult, if available at all, because the increase in value is not itself usually a result of any wrongdoing.
  • Thirdly, claims based on ownership offer more effective mechanisms to trace and recover funds.
  • Fourthly, a claim by the state may be subject to less onerous requirements that claims must be brought within a certain period.
  • Fifthly, the state may be able to obtain better rates of interest on sums awarded to it. That can make a difference when bribes are substantial and uncovered only after a significant period of time.

Our fuller briefing on the English legal position, linking to the judgment, appears here.

Prosecuting “Illicit Enrichment”: a new offence for the UK?

This article by  James Maton and Jamie Humphreys was first published on the blog of the All-Party Parliamentary Group on Anti-Corruption.

There are many policy developments that would help improve asset recovery efforts in the UK (see Transparency International’s publication Closing down the Safe Havens). However, if we were to choose one initiative that we believe should be prioritised by the next Government, it would be the introduction of an illicit enrichment offence.

Article 20 of the United Nations Convention against Corruption (UNCAC) states:

Subject to its constitution and the fundamental principles of its legal system, each State Party shall consider adopting such legislative and other measures as may be necessary to establish as a criminal offence, when committed intentionally, illicit enrichment, that is, a significant increase in the assets of a public official that he or she cannot reasonably explain in relation to his or her lawful income.

In our view, Parliament should introduce legislation to bring the UK in line with the aspirations of UNCAC. In this blog we summarise how it would work and identify what benefits it would bring.

The jurisdiction for such an offence would be any suspicious transaction involving a public official’s assets which passes through the UK financial system. This would ensue that funds obtained corruptly abroad would still be covered, in much the same way as the Bribery Act operates.

In practice, when a financial institution files a Suspicious Activity Report (SAR) in relation to a Politically Exposed Person (PEP), the authorities could serve an Unexplained Wealth Order where there was no obvious explanation for the wealth. This would impose a moratorium on the time limit for the authorities to investigate – which currently stands at 31 days. Under current rules, the funds must be released if insufficient evidence has been found within 31 days. Unfortunately, in most cases this is simply not enough time to meet the evidential standards for seizing the assets. Accordingly, 90% of SARs are cleared and given the UK’s stamp of approval.

Once the Unexplained Wealth Order had been served, it would impose an obligation on the PEP to justify their wealth. Evidence would include their salary as a public officer and any Income and Asset Declaration they had filed in their home jurisdiction. In the event that the PEP could not justify their wealth, the authorities could forfeit the assets under existing civil forfeiture proceedings.

The new offence would remove the requirement for a conviction in the home jurisdiction – a stumbling block for many claims where political will is absent – and allow the UK to take a pro-active stance on corruption. It would strengthen the existing SAR regime and give the authorities sufficient time to conduct an investigation. The importance placed on Income and Asset Declarations may encourage PEPs to file accurate Declarations in their home jurisdictions. Finally, if successfully implemented, we anticipate that it would make the UK a considerably less attractive location for corrupt capital.

Asset recoveryBribery

Recovering the proceeds of corruption: an overview

Victim states seeking to recover the proceeds of corruption, or compensation for corrupt acts, may have a choice of mechanisms to do so:  criminal, civil and non-conviction forfeiture.   Each mechanism has advantages and disadvantages, and the “right” route for a particular case depends on the circumstances.   Flexibility is key, and any substantial programme is likely to deploy all of the available mechanisms.  Indeed, many successful individual cases have used two or more mechanisms to maximise recoveries.

Cooley’s briefing, “Recovering the proceeds of corruption: how states can recover stolen assets” outlines and discusses the recovery options, and the factors that a state should consider when choosing between them.  It is available here.