Return to Contents

Jersey & Guernsey Law Review – February 2007

PROCEEDS OF CRIME – CHALLENGING SUSPICIONS

Matthew Thompson

1       In his article entitled The informal ‘freeze’ under Proceeds of Crime (Jersey) law 1999 David O’Mahoney suggested in conclusion that finding the right way for a financial institution and its customer to proceed after the police have refused consent was a “fascinating area and one which has created and will continue to create practical and legal difficulties”.[1]  This article explores some of those difficulties and in particular whether the case of Ani v Barclays Bank & Trust Limited[2]still represents the approach the courts should follow.

2       In Ani the Royal Court of Jersey was asked to consider who should pay the costs of proceedings brought by the settlor of a trust against the trustee relating to the filing of a Suspicious Transaction Report (“STR”) under the Proceeds of Crime (Jersey) Law 1999 (“the 1999 Law”).  The STR had led to the freezing of the settlor’s accounts pending the outcome of an investigation by the Attorney General.  The application raised important issues as to the position of customers and financial institutions following the filing of an STR.  The Attorney General was convened to the proceedings and the judgment of the Court was eagerly awaited at the time by financial institutions and trust companies alike, but did it provide the long awaited answers? 

Background

3       On 20 April 1998 Barclays Private Bank & Trust Limited (“the trustee”) established the EYO Trust (“the trust”) by declaration of trust.  The settlor of the trust was Edmund Eyo Ani (“Mr Ani”).  The trust was a discretionary trust and Mr Ani and his issue were the beneficiaries.  In 2002 the trustee made an STR under the 1999 Law in respect of the trust.  The trustee was subsequently refused consent by the police to deal with the assets of the trust and was advised that there was to be a police investigation.  The investigation was focused on the connection between the trust and the affairs of General Abacha, the former President of Nigeria. During General Abacha’s government, Mr Ani’s father was the Finance Minister of Nigeria. 

By agreement between the police and the trustee, in a letter dated 19 June 2002, Mr Ani was notified of the situation.  Mr Ani came to Jersey voluntarily in order to assist with the investigation and was served with notices issued by the Attorney General under the Investigation of Fraud (Jersey) Law 1991.  The investigation being conducted by the Attorney General related to the sum of approximately US$5 million which was originally contributed to the trust in three instalments.

The investigation

5       In March 2003 Mr Ani wrote to the Attorney General complaining about the length of time the investigation was taking and stating that in the meantime he did not have access to the Trust funds.  In May 2003 the advocate representing Mr Ani wrote to the Attorney General’s office enclosing a letter from the Attorney General of Nigeria stating that the Nigerian government and authorities did not contemplate taking any action against Mr Ani and were satisfied that the nature of the transactions undertaken were legitimate. 

6       As a result of this letter the Attorney General confirmed that he would not be pursuing part of the investigation but stated that he still required documentation to explain a particular payment and that enquiries were still being pursued.  It was also pointed out to Mr Ani that the investigation was ongoing partly as a result of certain inconsistencies in the explanations provided by him.

7       Frustrated by the fact that he was still unable to have access to funds in the trust, Mr Ani issued proceedings in October 2003 convening both the trustee and the Attorney General but seeking relief only against the trustee.  The representation referred to the fact that, despite requests the trustee had refused to exercise its discretion to make distributions out of the trust fund because of the risk of committing a criminal offence under article 32 of the 1999 Law.  Mr Ani alleged that this was a breach of trust by the trustee in failing to exercise its powers and sought an order that the trustee should pay over the trust fund.

8       The representation was subsequently adjourned until 5 December 2003 by which time the Attorney General’s office had indicated that it hoped to have all the information it required to reach a decision.  On 9 December 2003 the Attorney General’s office wrote confirming that, in the absence of any further evidence from Nigeria, the Attorney General had decided to close the investigation. 

The costs application

9       Following the Attorney General’s decision, Mr Ani applied to discontinue his representation on terms that the Attorney General, or alternatively the trustee, should pay his costs.  The arguments put forward by Mr Ani were straightforward.  He had been denied access to a trust fund from June 2002 to December 2003.  The investigation into his affairs had been discontinued and he was therefore to be treated as having been cleared of any possible wrongdoing.  Further, he had cooperated with the investigation.  It was said that the Attorney General was under a duty to act promptly when conducting an investigation and that if Mr Ani had not issued the proceedings the investigation would have continued at an extremely slow pace.

10     In response, the Attorney General claimed that the application was misconceived and that, as no relief was sought against him, there was no basis upon which a costs order could be made.  It was further submitted that the Attorney General had pursued the investigation perfectly properly and with reasonable despatch and that it would be quite wrong to make an order for costs against him.

11     The trustee submitted that it was simply caught in the middle and that, having made an STR, it could not safely pay out any monies from the trust fund without the consent of the police.  It claimed to have acted reasonably throughout and had made regular enquiries to the Attorney General as to the progress of the investigation. 

The judgment

12     In giving judgment Birt, Deputy Bailiff, noted that at present there was no clear guidance from the courts on the appropriate procedure to resolve matters in circumstances where a customer is denied access to his funds by a bank because of suspicion of money laundering coupled with the police’s refusal to consent to distributions. 

13     Despite this lack of precedent the Deputy Bailiff took the view that an application for costs was not the right occasion upon which to give general guidance, although he did suggest that when faced with a situation such as this, a customer who wished to try and break the log jam by obtaining access to funds which had been informally frozen by a bank, had at least two potential alternative courses of action, viz,  

·        the client could institute a public law action against the police seeking an order that their refusal to consent to payment be quashed and that they be ordered to consent. 

·        the customer could institute a conventional private law action against the bank seeking an order that it pay him the funds. 

14     The Court noted that a public law challenge to the refusal to consent by the police would be a conventional application for judicial review, but suggested that an applicant would face certain difficulties in succeeding.  It cited Tomlinson J in Amalgamated Metal Trading Ltd. v City of London Police Financial Investigation Unit & others[3] who had made it clear that the issue would not be whether the monies were in fact derived from or used in criminal conduct, but rather whether the decision of the police to refuse consent was liable to be quashed on the usual grounds of judicial review, namely that it was a decision to which no reasonable person could have come.  The Court therefore suggested that the better solution might be a private action brought by the customer against the financial institution.  It was this latter route that had, of course, been pursued by Mr Ani.

15     The Deputy Bailiff also found that there was no dispute between the Attorney General and Mr Ani and that in the circumstances the application for costs against the Attorney General was misconceived.  He went on to say that it would not be a proper exercise of discretion to order the Attorney General to pay the costs of proceedings which were not directed towards him and in which no substantive relief was sought.  Further, the Deputy Bailiff could see no grounds for criticism of the Attorney General in the way in which he had carried out his duty to investigate allegations of money laundering. 

16     As to the claim against the trustee, it had acted reasonably in making an STR and once the suspicion had arisen it was clearly reasonable not to distribute the funds in the face of a refusal by the police to give their consent.  In conclusion the Deputy Bailiff felt that there was no winner or loser in the action, and saw no grounds upon which to penalise any of the parties.  The only fair order was to discontinue the proceedings on the terms that each party would bear its own costs.

Comment

17     In Ani the Attorney General had concluded his investigation and Mr Ani had decided to withdraw the proceedings.  This left only the relatively straight forward issue of costs for the parties to dispute. 

18     The case would have been more problematic however had the Attorney General’s investigation been ongoing and he had refused to provide a date for concluding it.  Is it right to suggest that the better solution for the customer is to instigate proceedings against the financial institution seeking payment of monies?  The apparent justification for this suggestion in Ani was that an application for judicial review would face certain difficulties.  To the extent that the Court was referring to the limited grounds for judicial review, the Court’s observations are obviously correct.  However, the fact that an application seeking judicial review faces certain difficulties in terms of proof does not mean that that is not the correct way to proceed.  If it is not, what are the other options?

19     One approach might be for a financial institution threatened with such an action itself to attempt to launch a pre-emptive strike by seeking some form of declaratory relief that monies were not the proceeds of criminal conduct.  However, such an approach was taken in Amalgamated Metals and was criticised.  Tomlinson J in that case noted that it was never in issue between Amalgamated Metals and the police whether the monies Amalgamated Metals were holding were or were not the proceeds of criminal conduct.  The only question that the police were asked by Amalgamated Metals was whether they were prepared to consent to a payment being made.  The judge interestingly stated -

“The provision would manifestly be unworkable if the constable could only justify the withholding of a consent if he could demonstrate his satisfaction, to whatever might be the appropriate standard, that the funds are in fact derived or used in connection with criminal conduct.  It seems clear from the section as a whole that the existence of a suspicion is sufficient to grant a proper refusal of consent.  It is important to note that there has been no public law challenge to the proprietary of the exercise by the constable of his discretion.  It would surely be odd if a legitimate withholding of consent which can be justified on grounds of suspicion were to lead to the situation in which the police must defend (and perhaps pay the costs of) proceedings directed towards determination of a question wholly different from that which they were asked viz the ultimate question whether the funds are in fact derived from or used in criminal conduct.  I cannot think that either Parliament or the Court of Appeal envisaged that this would be the procedure to be followed consequent upon a proper withholding of consent”.[4]

20     That part of the judgment therefore seems to lean towards judicial review being the right course to adopt rather than a private law action. 

21     If matters are approached from a judicial review angle, a public law challenge, while potentially difficult,         does appear to be consistent with the withholding of consent, since a public law action would not require the police to demonstrate that the funds in question are in fact derived from or used in connection with criminal conduct.  Rather the police would only have to show that they had not acted illegally, improperly or irrationally.  In practical terms, as long as the police could demonstrate, at least to the Court, that there was an issue to investigate and that they were acting with reasonable expedition, why should the Court interfere? 

22     It is hard to see by contrast what a private law action would ultimately achieve.  If such an action were commenced, the customer would be seeking payment of monies held by the financial institution.  Where the background to such an application was the filing of an STR, the reality could well be that the customer would have to explain why the monies were not the proceeds of a crime, yet the financial institution, as the Court recognised in Ani, might not be able to adduce any evidence beyond the concerns that had created the suspicion in the first place.  It would be likely to have little or nothing to offer to the Court by way of further assistance beyond the original grounds of suspicion.  In such a scenario, without the input of the police, the Court is arguably left in the position of being asked to reach a conclusion where it has an incomplete picture.

23     It is the Attorney General who holds the key, and it is also, in reality, the Attorney General who will advise the police whether consent should be given or refused to a financial institution to deal with assets.  Whilst it is of course possible for the Attorney General to be convened to a private law action it is clear from Ani that where no case is directly pleaded against the Attorney General it is open to him to take a back seat. He may not be required to justify his actions, unless compelled to do so by the Court.

24     The Attorney General may of course seek to intervene in a private action if he is concerned that the outcome of the application would be that the Court was either not being given the full story about the customer or that there was a danger that the proceeds of crime might be paid away.  This appears to be judicial review by the back door, but with the institution caught in the middle.  Such an intervention may also be said to circumvent the Royal Court Rules and the simplicity of the judicial review process.  The danger of a private law action is, therefore, that what ends up before the Court is a multi-party dispute where the real nature of the application, namely a challenge to a refusal of police consent, is concealed.  A multi-party dispute gives rise to additional difficulties in terms of costs, in particular where the Attorney General is convened to the proceedings, but no substantive relief is sought against him, (as was the case in Ani.)[5]

25     In Re the Yaheeb Trust,[6] in describing the application by the beneficiaries for a declaration that the trustee of the trust held all the assets for the benefit of the beneficiaries and no other parties as “elliptical”, Bailhache, Bailiff touched upon the same difficulties that Tomlinson J was later to identify in the passage from Amalgamated Metals quoted above.  What the beneficiaries were seeking in Yaheeb was a declaration that the assets of the trust were not the proceeds of criminal conduct. It was an attempt to require the police to defend proceedings directed towards the determination of a question wholly different from that which they, by statute, were required to consider.  The Attorney General was convened and resisted that application on various grounds, including the fact that it would be contrary to public policy to grant the relief sought because the representor intended to use a civil application to hinder the Attorney General’s criminal investigation and any subsequent criminal proceedings.  The Court in its interlocutory decision did not address this submission, but did order cross-examination of the settlor and beneficiary.  However, as decision, it does not sit easily with the approach of the Court in Ani.

26     From one perspective, the Court in Yaheeb was in danger of falling into the trap identified in Amalgamated Metals in that it was being asked to consider (albeit on an interlocutory application) a form of relief which related to the issue of whether or not assets were the proceeds of crime rather than the real question, which was whether or not a refusal of police consent was justified.  Ani also appeared to favour the route of a private law action and, but for the fact that the Attorney General’s investigation had concluded, was in danger of a similar error.  That is because, in Amalgamated Metals itself, having performed the correct analysis as set out above, it is suggested that the Court expressed undue concern at the police becoming involved in private disputes between financial institutions and their customers.  If the premise is accepted that the real issue is whether the police have erred in refusing consent, this concern should not arise.  The question has to be asked why it is inappropriate for the police to be held accountable on the basis of judicial review (subject to a presumption of regularity as discussed in Acturus Properties Limited v Attorney General).[7]  While the Court in Yaheeb rightly recognised the reality of the application, it did not in that case, because the application was simply to cross examine, have to reach any conclusion about the relief sought.

27     In Ani itself, the Court in its quotation from Amalgamated Metal and in advocating a private law action as a better solution, noted a further passage from Amalgamated Metals which stated -

“The Court will only give judgment to a claimant if the bank has no real prospect of successfully defending the claim or issue and there is no other compelling reason why the case or issue should be disposed of at a trial.  Where the circumstances are as suspicious, as they were in this case, they could well provide very good reason for the Court not being prepared to grant summary judgment.”[8]

28     With respect to the views expressed by Birt, Deputy Bailiff, in Ani, it is the institution which is the entity that is least likely to have any more information about its suspicions compared with its customer and the investigating authorities.  At best, it will only have its suspicions which it has already related to the police in the form of its STR.  The “compelling reason”, it is suggested, is likely to be whether or not there is an ongoing investigation and, if there is an ongoing investigation, whether or not it is being pursued with reasonable diligence.  In either case the real issue therefore seems to fall within the jurisdiction of a judicial review action.

29     The view of the Court in Yaheeb in relation to a request for cross examination of the managing director of the financial institution appears to be consistent with the above conclusion.  While the Court accepted that the institution would inevitably be able to answer questions as to whether it was suspicious or not, the issue on the application was whether the trust funds were or might represent the proceeds of crime.  The Court saw that issue as a matter for argument between the beneficiaries and the Attorney General.  Accordingly cross examination of the trustee was refused. 

30     In the recent case of Durant International Corporation and others v Att. Gen. and another,[9] the Court was asked to consider by way of a judicial review application whether the Attorney General should disclose to the applicants certain letters of request received from Brazil.  On the facts of the case it appeared to be unchallenged that judicial review was the correct way to proceed.  If Ani is therefore correct, this leads to the position that, where the Attorney General is exercising his powers and carrying out an investigation either under the Investigation of Fraud (Jersey) Law 1991 or the Criminal Justice (International Co-operation) (Jersey) Law 2001, the exercise of his powers is reviewable by reference to standard judicial review principles.  On the other hand, if the Attorney General were investigating whether an offence had been committed under the 1999 Law in conjunction with the police, and in the interim police consent had been refused, the correct way to proceed would be by way of an action between the customer and the institution.  This seems strange.  It is hoped that in the future these differences can be resolved, and that we arrive at one approach for reviewing any form of investigation being carried out. 

31     More recently, in the case of K Ltd. v National Westminster Bank Plc,[10] the Court of Appeal in England had to consider whether or not to grant an injunction sought by a customer compelling a bank to comply with a payment request.  The bank had previously filed an STR and did not have consent from the police to deal with the customer’s account.  Initially the injunction was refused.  While the payment had been made by the time matters came before the Court of Appeal, the issue was nevertheless considered by the Court of Appeal as one of general importance.

32     The Court of Appeal held that because it was a criminal offence for the bank to make the payment without consent, there could be no breach of contract for the bank to refuse to honour its mandate.  There was no invasion, or threat of an invasion of a legal right which would justify an injunction.  Accordingly any application for an injunction had to be dismissed.

33     The Court of Appeal also explored on an obiter basis concerns expressed by certain decisions of the lower courts in England about preventing the arbitrary or capricious exercise of powers by an investigatory body.  The Court of Appeal suggested, without deciding the point, that any such body might be subject to judicial review. 

34     The question arises as to what extent K Ltd v National Westminster Bank Plc is consistent with Ani.  In Ani the Court  invited customers to sue institutions by way of a private law action.  Yet in K Ltd v National Westminster Bank Plc the English Court of Appeal has suggested that such a claim would fail, and has inferred that the right route is one of judicial review. 

35     Finally, a private law action against the institution by a customer, unless the Attorney General either intervenes or is required to appear before Court, does not bring the Attorney General’s investigation to an end or make him accountable for his actions.  It is therefore hoped that both Yaheeb and Ani are re-visited, especially in light of K Ltd v National Westminster Bank Plc, and the Court can give further guidance as to how to approach these difficult areas and to reflect the reality that what is in issue is a challenge by a customer to the actions of the police and the Attorney General.

Matthew Thompson is an advocate of the Royal Court of Jersey and a partner in the Litigation Group of Ogier, P.O. Box 404, Jersey, JE4 9WG.

Return to Contents