August EWJ 24 - Flipbook - Page 60
Restraint Orders: Is Complexity of Financial
Structures an Indicator of Dishonesty?
by Jonathan Lennon KC, Barrister - www.insights.doughtystreet.co.uk
Solicitors dealing with complex fraud, moneylaundering and corruption cases are very well used to
having clients who are particularly vexed about their
assets being restrained by a law-enforcement agency at
a without notice hearing, the application perhaps
being made without a charging decision even being
in sight. This article focuses on the reliance, arguably
the over-reliance by investigators and prosecutors, of
complex financial arrangements uncovered by the financial investigators which are then labelled as, e.g. a
‘complex web’, ‘designed to obfuscate’ or to keep the
world in the dark about true beneficial ownership etc.
In a challenge to the Restraint Order are these complex arrangements a difficult hurdle to clear for
defenders?
As will be seen this obligation to present a cased fully
and fairly may be especially important where reliance
is made on the complexity of financial arrangements.
Does the existence of a ‘complex’ web’ in a financial/
corporate structure provide evidence of a risk of dissipation? The answer is ‘no’ – at least not on its own.
In challenging the making of a Restraint Order made
in the criminal courts, it is sometimes useful to borrow
from the civil courts’ jurisprudence on freezing injunctions. In Holyoake v Candy [2017] EWCA Civ 92,
the Court of Appeal considered a case that involved
the Claimant’s (H) proposed purchase of a £43M
property in London and the loan to him for that purpose from the Defendant (C). The Defendant was
then subject to an unlawful means conspiracy claim
after H claimed that the agreement was tainted by
later intimidation by C. H secured a world-wide freezing injunction against C. In granting the injunction
the High Court had found that there was a good arguable case on the underlying merits and that there
was a risk of dissipation. In relation to the dissipation
issue the Judge accepted that the mere fact that there
was a large number of off-shore companies in the
structure in issue, by itself was not evidence of a risk of
dissipation, but it was a factor that could “legitimately be
taken into account” (para 20).
Proceeds Of Crime Act 2002; Risk of Dissipation
Though a risk of dissipation is not a requirement for
a Restrain Order under the Act itself, case law firmly
establishes that it is; indeed that there is not just a risk,
but there needs to be ‘real risk’, as opposed to a
‘merely fanciful’ risk; Re AJ & DJ (unrep, December 9,
1992, CA).
In cases of dishonesty, which in reality will be most Restraint Order cases, it might be argued that the risk of
dissipation ‘speaks for itself ’, per Laws LJ Jennings v
CPS [2005] 4 ALL ER 391,55 – though the real risk
still needs to be established. That ‘real risk’ is much
less likely where the suspect has been aware of the investigation and yet made no attempt to dissipate
his/her assets; per Re B [2008] EWCA 1374.
The Court of Appeal rejected that logic. Gloster LJ
found that there had to be a real risk, judged objectively, that any future judgment would not be met because of the risk of an unjustifiable dissipation of assets.
If such a risk had been made out then; “the link to
complex and offshore corporate structures and the potential to
transfer value rapidly and invisibly through corporate reorganisation could contribute to that risk”. However, the “mere
possibility of a party using a complex corporate structure ….
does not equate to a risk of dissipation”; paragraph 50.
In pre-charge applications for Restraint Orders, there
are two hurdles for the prosecution to address; first
that a criminal investigation has been started and secondly, that there are ‘reasonable grounds to suspect that the
alleged offender has benefited from his criminal conduct.’
There is sometimes a conflation between the ‘reasonable suspicion’ test and the un-stated test of ‘real risk
of dissipation’ in cases where there is a complex financial structure, e.g. use of off-shore accounts and
corporations etc.
Where the investigator has in the without notice
application relied on the use of e.g. BVI corporations
and off-shore accounts etc to suggest underlying criminality, as opposed to just the risk of dissipation, then
that too may be challenged.
Whenever a without notice application is made for an
investigatory order, such as a search warrant or a Restraint Order, then there exists a high duty on the applicant to put before the Judge not just the material to
satisfy the Court that the statutory conditions are met,
but there must be full and complete disclosure, including disclosure of anything that might militate
against the granting of the application. This duty requires counsel appearing in the application to, as
Hughes LJ memorably put it, to:
The case of R (Rawlinson and Hunter) v Serious Fraud
Office [2013] 1 WLR 1634 was a search warrant case
but concerned the same duty of full and frank disclosure that is required that is required in any without
notice application. Allegations of misrepresentation
and non-disclosure were made against the SFO and in
the subsequent Judicial Review the warrants were
quashed. The SFO had specifically relied upon a particularly complex transaction as evidence of criminality. The High Court noted that; “like many very wealthy
businessmen, RT operated the business in which he had an
interest through a complex structure based in an offshore
location for fiscal reasons” (para 5). The very complexity
"put on his defence hat and ask himself, what, if he was representing the defendant or a party with a relevant interest, he
would be saying to the judge."
EXPERT WITNESS JOURNAL
58
AUGUST 2024
