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In a case which once again raises concerns over investigators’ failures to meet their duty of candour when applying to the courts for invasive orders (search warrants or productions orders), the City of London Police was the subject of trenchant criticism by the high court for serial non-disclosure in an application for a production order and abusing its statutory powers under the Proceeds of Crime Act 2002 (POCA).
The underlying subject matter was a series of transactions conducted by Merida Oil Traders Limited, Bunnvale Limited and Ticom Management LLC ("the claimant companies") on the London-based Intercontinental Exchange (ICE). In May 2016, ICE made a suspicious transaction report (STR) to the Financial Conduct Authority (FCA) concerning a number of trades made by the claimant companies through the brokerage company ADM. While it appears that the FCA took no action, in February 2016 City of London Police opened an investigation into possible money laundering offences. No individuals have been charged.
As part of its investigation, in May 2016 the police applied ex parte (purportedly to avoid prejudicing the investigation) for a production order under s.345 POCA requiring ADM to hand over business material held for the claimant companies and – crucially - four cheques, made out to the sum of USD21 million, representing funds held in its accounts by the claimant companies. The application for the production order was granted and ADM – who had by this stage been cooperating with the investigation for some time - provided the cheques to the police later the same day. Thereafter, the police applied to the Magistrates’ Court for an order under s.295 POCA for continued detention of the cheques.
The claimant companies sought judicial review of the process by which the production order and subsequent detention orders were obtained. The Administrative Court (Gross LJ and Leggatt J) held that the application for the production order was deficient in a number of significant respects, collectively amounting to a serious breach of the City of London Police’s duty of disclosure and a misleading of the Crown Court.
Perhaps most egregious was the failure to disclosure that the cheques had been produced by ADM at the express request of the police, a request made several weeks before the application itself was made. The claimant companies argued that they had not chosen to convert their property (the funds in ADM’s accounts) into cash and that the police’s course of action was “a contrivance which sought to circumvent the greater protections” provided by the restraint and freezing order schemes, which target bank accounts rather than cash and so would have been the appropriate methods for this case. Gross LJ held that parliament had not intended the statutory scheme for the seizure of cash to permit the police to "engineer" a situation in which cash could be seized. The police's conduct was a "clear abuse" of their power and their failure to be candid with the Crown Court hearing the original application rendered the production order unlawful.
The police had also contended that the material they sought – including the cheques - was likely to be of "substantial value" to their investigation (a condition required by s.346(4) of POCA). But how could material that existed only at the police’s behest be ofinvestigative value, let alone substantial value? While the court agreed with the police that “material of substantial value” was not limited to material likely to be relevant evidence, it held that the seizure of cash under POCA (the reason the cheques were created) is not an investigative purpose – the definition of which was is “to find out information with a view to taking some action or decision” - and so the production order fell outside the scope of s.345 POCA.
The production order application was found wanting in another respect by failing to include a copy of the original STR made by ICE to the FCA. Instead, the police provided an incomplete oral summary. The Crown Court was therefore unaware that there were potentially innocent explanations for the relevant transactions, and that the STR had been made many months earlier in response to which the FCA had chosen to do nothing.
The propriety of the police decision not to notify the claimant companies of the production order application - in order to avoid any prejudice to the investigation – also failed to withstand scrutiny. Contrary to the impression given by the police to the judge at the Crown Court, the claimant companies had by the time of the production order application been aware for a number of weeks that they were under investigation and also that their accounts at ADM were frozen. The subject matter of the production order was material held in its entirety by ADM, and so out the claimant companies’ reach. Any justification for not notifying the claimant companies was further undermined by the giving of notice by the police of the subsequent applications to the Magistrates’ Court for detention of the cheques.
While it is gratifying to see the high court firmly reject and deprecate the approach taken by the police, it is troubling that the police deem it appropriate to behave in the way they did and that the lower courts (in this case both the Magistrates’ and Crown Courts) can be so easily misled; appearing ready to grant applications without sufficiently rigorous inquiry. Not every subject of an incomplete and misleading application will have the resources to challenge the injustice. When private individuals and companies are faced with such a draconian regime as that established by POCA, the very least that can be expected of law enforcement agencies and the courts is to ensure that the regime is applied as intended by parliament.
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