International

Mixed messages: is there an inconsistency as to the extra-territorial ambit of disclosure between POCA and the SFO?

On 6 September 2018, the Administrative Court handed down its judgement in the case of the Queen on the application of KBR Inc v the Director of the SFO [2018] EWHC 2368 (Admin), which addressed the extraterritorial ambit of the Director’s power, under section 2(3) of the Criminal Justice 1987, to require the production of documents relevant to an investigation by his office. The Court concluded that section 2(3) did permit such requests to be made of foreign companies which have a “sufficient connection” to this country. But there are reasons to question whether that will be a final answer to that question, given the very different approach adopted by the Supreme Court to an attempt to extend beyond the UK the ambit of information notices under section 357 of the Proceeds of Crime Act 2002 in Serious and Organised Crime Agency v Perry [2012] UKSC 35. At the very least, given the scope for judicial review of the use by the SFO of section 2(3), it is reasonable to anticipate that KBR is unlikely to be the end of controversy as to the use of that power in the modern global financial market.

The KBR decision

KBR Inc. is a company incorporated in the US and the ultimate parent company of a global network of subsidiaries. These include KBR Ltd., a UK-based company which is under investigation by the SFO. In April 2017, the SFO issued a notice under section 2(3) against KBR Ltd, to which that company responded drawing a distinction between documents held by that UK-based company and documents held overseas by the wider KBR group. This resulted in a further notice in July 2017 but which sought material not just held by that company but from KBR Inc. This was the subject of challenge by judicial review, on the basis that section 2(3) did not operate extraterritorially to require a US company to hand over documentation that was held outside the UK. On behalf of the SFO it was argued that given the almost inevitable international element of most SFO investigations, and the multinational nature of many companies involved, the clear purpose of the section would be defeated by such a UK-centric approach.

The Court (Gross LJ and Ouseley J) concluded:

  1. The SFO was required to investigate serious criminal allegations into sophisticated global businesses. This required section 2(3) to have some extraterritorial application, because the SFO’s ability to investigate multinational companies would be easily frustrated. As Gross LJ observed (at para.64): It is scarcely credible that a UK company could resist an otherwise lawful s.2(3) notice on the ground that the documents in question were held on a server out of the jurisdiction. In this regard, were a UK company in a position to forestall a serious fraud investigation by transferring documents abroad … it would be in the highest degree unfortunate”;
  2. Proper regard could be achieved to international comity, if the ambit of section 2(3) included foreign companies, provided that: (i) the material is believed by the SFO to relate to a matter under investigation; (ii) the company has a sufficient connection to the UK; and (iii) the notice requiring production is served within the UK. Gross LJ said (at para. 72): “With regard to foreign companies the “sufficient connection” test strikes a careful balance between facilitating the SFO’s investigation of serious fraud with an international dimension and making excessive requirements in respect of a foreign company with regard to documents abroad. The existence of some extraterritorial reach guards against the risk of SFO investigations being frustrated or stymied while the requirement of a “sufficient connection” justifies the extraterritorial application of 2(3) by reference to the foreign company’s own actions linked to the UK. This is, accordingly, a principled balance”;
  3. The sufficiency of connection to the UK would not be met by a foreign company simply being a parent company of a subsidiary in the UK. Equally, a foreign company could not be said to have sufficient connection to the UK simply by the SFO requiring its officers to come within the jurisdiction; there must be a functional connection between the UK and the foreign company.

What about Perry?

In the course of his judgement, Gross LJ made reference to and considered the application of the decision of the Supreme Court in SOCA v Perry. Before considering how the Administrative Court did so, and whether its analysis is likely to withstand scrutiny in the future, it is worth considering what the Supreme Court decided, and why it therefore has a direct relevance to the issue that Gross LJ was addressing.

Mr Perry had been convicted of fraud offences in Israel. SOCA commenced proceedings in the UK for a civil recovery order, under part 5 of the Proceeds of Crime Act 2002 (‘POCA’). The Supreme Court was considering both information notices, under section 357 of POCA, and property freezing orders issued under part 5 of the same Act as part of the SOCA investigation. It is their analysis in relation to information notices that is potentially of direct relevance to the consideration of section 2(3). Section 357 (in conjunction with section 359) confers on SOCA, amongst others, the power to impose on persons a positive obligation to provide information or produce documents relevant to their investigation. In this particular case, those information notices issued against Mr Perry and members of his family, none of whom were either resident or domiciled in the UK.

Although there was an absence of unamimity amongst the members of the Supreme Court as to the extraterritorial potential of property freezing orders, the Supreme Court was of one mind in finding that information notices under POCA were limited to those within this jurisdiction. Their reasoning is informative, and was aptly summarised by Lord Phillips (at para.94), who observed: “No authority is required under English law for a person to request information from another person anywhere in the world. But section 357 authorises orders for requests for information with which the recipient is obliged to comply, subject to penal sanction. Subject to limited exceptions, it is contrary to international law for country A to purport to make criminal conduct in country B committed by persons who are not citizens of country A. Section 357 , read with section 359 , does not simply make proscribed conduct a criminal offence. It confers on a United Kingdom public authority the power to impose on persons positive obligations to provide information subject to criminal sanction in the event of non-compliance. To confer such authority in respect of persons outside the jurisdiction would be a particularly startling breach of international law. For this reason alone I consider it implicit that the authority given under section 357 can only be exercised in respect of persons who are within the jurisdiction.”

How does KBR sit with Perry?

Gross LJ recognised that the approach of the Supreme Court in Perry  had to be addressed in answering the question of the extraterritoriality of section 2(3). He rightly identified a number of important factual and other differences:

  1. The two cases were addressing different pieces of legislation, although the public interest considerations under POCA and the CJA 1987 were “very similar”;
  2. The information notices in Perry were issued against persons outside and unconnected with this country, whereas the notices issued against KBR were issued against a company based here where the wider group was sufficiently connected with the UK. As Gross LJ observed (at para.72): “There is no question, therefore, of the notice being sprung on some unsuspecting corporate entity out of the jurisdiction without prior warning”.
  3. Gross LJ acknowledged that in Perry Lord Hughes (at para.156) had concluded that the use of sufficient jurisdictional connection would involve “illegitimately re-writing” POCA to permit it to apply to extraterritorial service of information notices, but the Court considered that section 2(3) already had “some extraterritorial application”, which was not the case with POCA.

There are, arguably, a number of difficulties with distinguishing Perry in this way. Amongst the concerns at the heart of the Supreme Court’s rejection of the extraterritorial ambit of POCA information notices for which SOCA contended were the fact that, as Lord Judge said (at para.183): “there is nothing in section 357…to indicate that it was intended that a notice under a disclosure order could be given to a person outside the jurisdiction”, and because section 357 carried with it a criminal sanction in the event of non-compliance (as Lord Phillips’ observations at para.94 of the judgement, quote above, make clear). There is at least an argument for saying that each of those concerns also arises in relation to the extraterritoriality bestowed on section 2(3) by the Administrative Court’s decision in the case of KBR Inc., and that the underlying rational in Perry therefore renders the decision in KBR Incvulnerable to future challenge.

Section 2(3) does not, on its face, assert any extraterritorial ambit, any more than section 357 of POCA did. The principle of international comity is described by Lord Mance in Masri v Consolidated Contractors Int (UK) Ltd (No. 4) [2009] UKHL 43 (at para.10): Unless the contrary intention appears…an enactment applies to all persons and matters within the territory to which it extends, but not to any other persons and matters…”. Gross LJ (at para.70) recognised this principle, but he considered “a careful consideration of the context, the underlying policy considerations and the overwhelming case for s.2(3) having at least some extraterritorial application, would compel the answer that there was no jurisdictional bar precluding the SFO from giving a notice to any foreign companies in respect of any documents held abroad, regardless of their relevance to an investigation into a UK company, and regardless of the degree of connection between the foreign company, the UK and a UK company.” However, it could equally be argued that the pragmatic desire to make SFO investigations effective ought to be outweighed by the absence of anything in the wording of the provision which would permit that pragmatic desire to be brought into effect.

The argument that such extraterritorial construction is necessary to make SFO investigations effective also proceeds on the assumption that there is no other means by which the SFO could make a request for documents held in another jurisdiction, or that such a lacuna could be exploited by multinational companies that move material abroad when they become aware of an investigation against them. It was submitted on behalf of KBR that such contentions ignored the fact that MLA was available in such circumstances, and that there were sanctions within section 2 of the CJA 1987 to address such evasive action.

Gross LJ addressed the MLA argument (at para.77) when he said: “To begin with, the construction given to s.2(3) cannot vary, depending on whether MLA is available or not. If KBR Inc is right, then although the SFO would be able to pursue the documents by way of MLA in this case (given the arrangements in place with regard to the US), the SFO would be without a remedy as to documents held by a foreign company abroad if that company was based in a state with which there were no MLA arrangements. For my part, I do not think that Parliament is likely to have intended such a result. Secondly, the CJA 1987pre-dates the crucial MLA arrangements (discussed further under Issue II below). In the circumstances, I do not see how those MLA arrangements can impact on the true construction of s.2(3) , whatever their impact on the exercise of the Director’s discretion under that section”.

However, this argument is predicated on it being Parliament’s intention that section 2(3) ought to have extraterritorial effect, which it had not indicated through the wording of the section as the principle of international comity would otherwise have required. Moreover, a counter argument could be that MLA arrangements would be unnecessary if provisions such as section 2(3) can be said to have extraterritorial effect because that will make them more effective. Moreover, the developing range of mechanisms that Parliament has brought into effect, most recently the Crime (Overseas Production Orders) Bill, which concluded its House of Lords Committee stage on 10th September 2018, would also be unnecessary if its intention had been that earlier statutory powers already provided the necessary extraterritorial reach. It might equally be argued that the use by the SFO over the years of MLA itself, and in more recent times of European Investigation Orders does not evidence a confidence that section 2(3) renders their own use of such measures otiose.

In terms of the risk that a lacuna might encourage multinationals to move documents to thwart the SFO, such conduct is already subject to sanction under section 2(16) of the Criminal Justice Act 1987.

The more worrying consequence of the interpretation of section 2(3) reached by the Administrative Court in KBR is the extension of the criminal sanction that attaches to a failure of compliance with a notice issued under that section. This is because failure of compliance with section 2(3) carries criminal sanction every bit as much as section 357 of POCA. It follows that the central concern in Perry, namely that it was contrary to established principle for country A to criminalise conduct by a citizen of country B in country B. Here, the jurisdictional extension identified in KBR would make it an offence for a citizen of country B to fail to produce documents that are also held in country B at the request of country A. This would have potential practical implications where, for example, legal counsel for or an executive officer of a multinational a subsidiary of which is served with a notice, enters this jurisdiction to meet with the SFO in connection with that notice. Alternatively, the KBR Inc approach provides an incentive for such executives to stay away from the UK, so that notices cannot be served on them, or sanctions taken against them.

Such ramifications were to the fore when the Supreme Court rejected extraterritoriality in Perry, and yet received far less attention from the Administrative Court in KBR Inc. It is arguable that this may prove to be the pressure point for future challenge to the ambit of section 2(3), which the decision in KBR Inc may prove not to have put to rest.

Jonathan Hall QC appeared for the SFO.

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European Production and Preservation Orders

On 17 April 2018, the European Commission issued a proposal for the introduction of ‘European Production and Preservation Orders for electronic evidence in criminal matters’. The aim is to make it easier and faster for police and judicial authorities to obtain electronic evidence for investigations or prosecutions, including emails or documents stored on the cloud. As the proposal appears to suggest, existing mechanisms for the sharing of evidence are not fit for the modern world of social media, messaging services and other communication ‘apps’. The problems this technology creates for investigators and prosecutors are obvious.

The EU proposal

A European Production Order would allow a judicial authority in a Member State to request electronic evidence directly from a service provider offering services in the European Union, and established or represented in another Member State. This would apply regardless of the actual location of the data. The provider would be obliged to respond within 10 days (reduced to within 6 hours in cases of emergency).

A European Preservation Order would allow a judicial authority in a Member State to oblige a service provider to preserve specific data, so that it may be requested later via mutual legal assistance, a European Investigation Order, or a European Production Order.

There is at present no timetable for the Regulations to be brought into effect. It is highly likely any implementation would be after ‘Brexit’ in March 2019. In any event, as this would be a ‘Freedom, Security and Justice’ measure, the UK would have had to ‘opt-in’ to the Regulation.

The UK’s White Paper

The UK Government’s recent White Paper pledged to “maintain existing operational capabilities”, including “practical cooperation to investigate serious criminality and terrorism” and “existing tools and measures”.

However, it says the UK will no longer be part of the EU’s common policies on security, justice and home affairs:

“Instead, the Government is proposing a new security partnership that maintains close cooperation – because as the world continues to change, so too do the threats the UK and the EU both face.”

In light of these comments, it might be thought that the UK government would be keen to be a part of the new scheme. Without a right to opt-in, however, it will be for the EU to decide whether it is permitted to do so and what (if anything) the UK will need to do in return.

Crime (Overseas Production Orders) Bill

It appears that the Government is preparing to go ahead on its own in this area, or at least to prepare the way for similar orders to be available in the UK, should there be a separate arrangement between the UK and the EU in the future.

The Crime (Overseas Production Orders) Bill, which had its second reading in the House of Lords on 11 July 2018, proposes to give the courts powers to make orders very similar to European Production Orders. Upon an application by an “appropriate officer”, a judge may only make the order if satisfied of several conditions.

One of those conditions is that there must be reasonable grounds for believing that the person against whom the order is sought operates or is based in a country outside the UK that is a party to, or participates in, an international co-operation arrangement specified in the order.

Evidently the Government is anticipating international agreements to facilitate the recovery of electronic documents stored abroad. Without being able to benefit from Electronic Production Orders, the UK is bound to require such an agreement with the EU, but there is no telling whether (or when) it would materialise.

Moreover, there does not appear to be any intention at present to replicate the European Preservation Order. Given the ease with which electronic documents can be disposed of, and the fact that mobile phone companies in the EU delete their data relatively quickly, could this be a missed opportunity for the Government?

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Making applications to the ECtHR: clearing the admissibility hurdle

Around 95% of applications to the European Court of Human Rights are declared inadmissible or struck out without substantive consideration on their merits. This may be because an application is obviously unmeritorious (‘manifestly ill-founded’), or alternatively as a consequence of some unsurmounted procedural or jurisdictional hurdle. Given the Court’s heavy caseload, the numbers of applications resolved in this way are vast. In 2017 alone, 70,356 individual applications met this fate.

It is obviously unfortunate for an applicant, who otherwise might have prospects of succeeding, to be refused substantive consideration by reason of a (possibly avoidable) procedural or jurisdictional flaw. The purpose of this blog post is to provide a check list setting out the main features of the Court’s admissibility requirements[1], which, if not satisfied, could lead an unwary applicant to a finding of inadmissibility. It is hoped that this will assist future applicants in preparing properly sustainable cases before the Court.

  • Does the applicant qualify to bring an application, that is, does he or she fall into one of the categories mentioned in Article 34 of the Convention?

An application may be brought where the alleged violation took place within the jurisdiction of the Respondent State in accordance with Article 1 of the Convention. Applications may only be brought by living persons or on their behalf. A deceased person may not make an application, even through a representative. Organisations may apply to the Court, as long as they are non-governmental organisations.

  • Can the applicant show that he or she is the victim of an alleged violation of the Convention? 

In order to demonstrate ‘victim status’ for the purpose of compliance with Article 34 of the Convention, the applicant must be ‘directly or indirectly affected’ by the alleged violation. Examples of ‘indirectly affected’ applicants who may still pursue a complaint are: (i) a close relative of a person whose death is alleged to engage the State’s responsibility under Article 2 of the Convention, or; (ii) the alleged legal heir to a now deceased victim of an alleged violation. In relation to companies, no complaint may be brought in respect of a violation alleged to have occurred in proceedings to which the proposed applicant was not a party, even if the applicant was a shareholder and/or director of a company which was a party to proceedings. Where a person has accepted a final settlement from the Respondent State in the domestic proceedings underlying the application, they may lose their victim status – or standing – for the purpose of making an application to the Court.

  • Has the application been introduced to the Court within the 6 month time limit for applying to the Court from the final domestic judicial decision in the process of exhaustion of domestic remedies (Article 35(1) of the Convention)?

The date on which time starts to run will vary according to the facts of a particular case. Generally, the six month period will begin on the day after the date on which the applicant was informed of the final decision in the domestic proceedings, or the decision was pronounced in public. Where the alleged violation was continuous (such as alleged unlawful detention), the time limit may start to run from the date on which the violation ceased. The deadline expires six calendar months later, regardless of the actual duration of those calendar months. The date of introduction of an application for the purposes of Article 35(1) of the Convention is the date on which a properly completed application form is sent to the Court (rule 47 of the Rules of Court).

  • Have domestic remedies been exhausted prior to the application being made to the Court (Article 35(1) of the Convention)?

The Court requires applicants to have raised the alleged violation with the national authorities – principally the domestic Courts – with a view to enabling those authorities to prevent or provide redress for alleged violations. The violation should be raised at all levels permitted by the domestic law machinery. For example, in proceedings in England and Wales, a Convention complaint raised unsuccessfully by way of a civil judicial review claim should be challenged by an application for leave to appeal to the Court of Appeal (Civil Division), and, if that appeal was entertained and dismissed, on appeal to the Supreme Court. It would not be acceptable for the purpose of Article 35(1) of the Convention to launch an application on the basis of a High Court ruling on a judicial review claim, against which there had been no attempt to appeal. That said, applicants are only required to pursue remedies that are accessible, capable of providing redress and which offer a reasonable prospect of success: exceptional or discretionary remedies are not required to be pursued. The exhaustion rule has been described as one that is ‘golden rather than cast in stone’. It is applied with a certain flexibility and the Court will not always require the Convention right to be explicitly raised in domestic proceedings provided that the complaint is raised ‘at least in substance’.

[1]The Court has produced a detailed guide, entitled ‘Practical Guide on Admissibility Criteria’, which is a very useful tool to enable any potential applicant to understand the contours of the Court’s admissibility criteria.

 

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The Brexit Transition Agreement – What it Means for Criminal Justice Cooperation

On 19 March 2018, the EU and the UK agreed the terms of a transition period (referred to by the UK as ‘an implementation period’) that will extend the time during which EU law will apply to and in the United Kingdom. The agreement is Part 4 of the draft Article 50 Withdrawal Treaty (the draft Withdrawal Treaty). The text of the draft Withdrawal Treaty is highlighted to reflect the areas where agreement has been reached between the negotiators (green highlights); agreement on the policy objective has been reached (yellow highlights); or where discussion is on-going (white). The transition period will run between 30 March 2019 and 31 December 2020.

Criminal justice cooperation during the Brexit transition period – the key points

Part 4 of the draft Withdrawal Treaty sets out the terms of the transition period and is entirely highlighted in green, denoting full agreement having been reached on this section. There are four key points to note with respect to EU criminal justice cooperation during this period.

First, the agreement provides that EU law will continue to be applicable to and in the United Kingdom during the transition period (Article 122(1)) but maintains the UK’s current justice and home affairs (‘JHA’) opt-outs (Article 122(1)(a) and (b)). The JHA measures that the UK has opted into as at 30 March 2019 (including the EAW, the European Investigation Order and key MLA and data sharing agreements) will continue to have effect. This effectively extends the status quo in relation to the UK’s participation in existing criminal justice cooperation measures, at least until December 2020. Significantly however, the final Article of the draft Withdrawal Treaty (Article 168) includes a provision highlighted in yellow (denoting agreement as to the policy objective only) that provides that EU member states may make written notification to the UK that they will not surrender their own nationals pursuant to the Framework Decision on the EAW. Such provisions are familiar in extradition law, but would mark a step-change in the UK’s extradition relationship with the EU.

Second, during the transition period, the UK will no longer have the right to opt-in to new JHA measures, although changes to measures that the UK has already opted into will apply to the UK (Article 122(5)). Although, in general, this means that the UK cannot opt-in to new JHA measures (which is a privilege only afforded to EU member states), the wording of Article 122(5),“amending, building-upon or replacing”, suggests that the UK may be able to participate in new measures to the extent that they (for example) replace an existing measure. Further, Article 122(5) provides that the EU may invite the UK to participate in new measures “under the conditions set out for cooperation with third countries”. This is a clear signal that, at present, the EU intends to treat the UK in the same way as other so-called ‘third states’ and there is no sign at this stage of the UK being given any special status in this regard.

Third, and importantly, the CJEU will continue to have jurisdiction over the UK, including in relation to criminal justice measures (Article 126). This area is, and will continue to be, highly contentious as can be seen from the fact that the majority of the white highlighted (no agreement) parts of the draft Withdrawal Treaty in one way or another relate to the role of the CJEU.

Fourth, the UK will no longer be able to submit proposals, initiatives or requests to EU institutions in relation to criminal justice measures (Article 123(3)). Given the leading role that the UK has played up until now in relation to criminal justice cooperation, this will be a significant change and will provide an early indication as to the extent to which Brexit will affect the UK’s EU criminal justice relationships.

What this means for the future?

The main take-away points in relation to the transition period are that criminal justice cooperation will remain largely the same as it is now. The draft Withdrawal Agreement does, however, contain some early indicators as to what the UK’s future relationship with the EU may look like. As noted above, those indicators suggest that the UK will be very much a ‘third state’, with little sign at this stage of any privileged or unique status being conferred. Further, the UK will no longer be able to take a leading policy role on matters of criminal justice cooperation. Finally, there may be some important changes to the EAW arrangements, a further sign of the UK’s more distant future ‘third state’ role.

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Seizing Cryptocurrency - R. v Teresko (Sergejs) (2)

In this second of two posts on the seizure and conversion of cryptocurrency as addressed in the case of R v Teresko (Sergejs) (Kingston Crown Court: HHJ Lodder QC, 11 October 2017, unreported), some reflections are offered on the definitions of ‘realisable property’ and ‘seize’ in relation to bitcoins, and on the application of territorial jurisdiction to cyberspace. The first post, which sets out the facts, can be found here.

Seizing bitcoins

A further interesting aspect of this case, which was not an issue for the Crown Court, is the original seizure of the bitcoin by Surrey Police. The seizure had been effected by the police using the powers of seizure in ss. 47A-S POCA, introduced by s. 55(2) Policing and Crime Act 2009. In most cases this requires permission to have been granted by the Magistrates’ Court, who must have been satisfied that seizure, undefined in the Act, could apply to virtual currency as much as to cars or other valuable items (cash is subject to its own seizure regime).

This turns firstly on the definition of ‘realisable property’ which includes intangible or incorporeal property (s. 84(1)). It is submitted that there is no difficulty in the conclusion that cryptocurrency is realisable property and may be seized.

Courts have no difficulty in finding that a wide range of things that are freely traded are capable of being “property”

Courts have no difficulty in finding that a wide range of things that are freely traded are capable of being “property” – see for example, Armstrong DLW GmbH v Winnington Networks Ltd [2013] Ch. 156, a case on carbon credits, which drew upon the decisions of the Privy Council in Attorney General of Hong Kong v Nai-Keung [1987] 1 WLR 1339 (in which it was held that textile quotas were intangible property and capable of being stolen, with Lord Bridge stating at p.1342 that “…It would be strange indeed if something which is freely bought and sold … were not capable of being stolen”), and of the House of Lords in Provincial Bank Ltd v Hastings Car Mart Ltd [1965] AC 1175 (in which Lord Wilberforce at pp.1247-8 set out the characteristics of property in the following terms , “…Before a right or an interest can be admitted into the category of property, or of a right affecting property, it must be definable, identifiable by third parties, capable in its nature of assumption by third parties and have some degree of permanence or stability”). It is a reasonable starting point that the language of ss.47A-R should not be construed over-restrictively and should be considered as providing, so far as is consistent with the statutory language, an effective means of seizing and detaining things of value of whatever sort to make them available for future confiscation proceedings.

Secondly, the ordinary meaning of ‘seize’ (defined in the New Shorter Oxford English Dictionary as “…Take possession of (contraband, assets, documents, etc.) by warrant or legal right; confiscate, impound”) is wide enough to encompass the administrative act of transferring a bitcoin from one part of the blockchain to another.

The international dimension

The international aspects of the blockchain (the growing de-centralised list of encrypted records that supports the bitcoin technology) should also be considered. Bitcoin transfers are affected by harnessing the power of a distributed network of computers on the internet. Accordingly if UK law enforcement were to cause a bitcoin to be transferred from one public key to another public key, that would in due course cause foreign servers to process information as they validated the transfer across the blockchain. Applying a traditional territorial model, UK law enforcement could therefore be said to have changed data held on servers located on foreign soil (although it is unlikely that one could identify which foreign soil).

The precise application of territorial jurisdiction to cyberspace, if such a concept can even be admitted to exist, is highly contentious and beyond the scope of this commentary. However on the basis that the territorial model does apply, it could be said that this would be contrary to general principles of international law, and therefore unlikely to have been intended by Parliament. The starting point is that under international law, “…The exercise of enforcement jurisdiction is an exercise of State sovereignty, and the rule that governs it is simple.  No State may exercise its enforcement jurisdiction in the territory of another State without that State’s permission”: International Law, Vaughan Lowe, Oxford U Press, 2007, p. 184.

This principle has been identified by the domestic courts as giving rise at the very least to a strong presumption as to Parliamentary intent in a number of cases such as R v Cuthbertson [1981] AC 470 , 485; Société Eram Shipping Co Ltd v Cie Internationale de Navigation [2004] 1 AC 260, para 54; Serious Organised Crime Agency v Perry  [2013] 1 A.C. 182, para 136(5); although the fundamental question in this context is always one of interpreting the particular statute: Bilta v Nazir [2016] AC 1, para 212. Similar arguments as to the intention of the legislature arose in the recent decision of the US Court of Appeals for the Second Circuit, in Microsoft Corporation v United States of America, 14 July 2016, Docket No 14-2985.

It could therefore be argued that whist Parliament did intend to allow seizure of property in England and Wales, it did not intend to allow seizure of property, which – even if not strictly speaking located abroad – would necessarily involve altering data on servers in foreign states. It is thought that this is not a valid objection, not least because as a matter of practical reality a transfer can be significantly progressed (even if not completed) using technology within the jurisdiction. The fact that in due course servers on foreign territory are likely to operate as a result of any transaction does not look like a basis for concluding that Parliament cannot have intended the seizure power to extend to circumstances such as these.

That foreign computers were involved cannot be the beginning and end of the enforcement question

That foreign computers were involved cannot be the beginning and end of the enforcement question otherwise, every time police access a website, they would be involved in an extraterritorial enforcement.

Finally, it should be noted that mutual legal assistance is not a practicable alternative. Given the nature of the internet, it would be impossible to identify which states might give appropriate assistance or consent.

 

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Karl Laird
Karl Laird
14 March 2018

UK "Magnitsky provisions" - time for a change?

Since the events that unfolded in Salisbury last week, there have been calls to introduce into UK law a version of the so-called “Magnitsky Act” that was enacted in the US in 2012 following the death in custody in Russia of the lawyer Sergei Magnitsky. Part 1, Chapter 3 of the Criminal Finances Act 2017 creates provisions that at the time were referred to as “the Magnitsky provisions”, so there seems to be some misunderstanding as to what powers are already available to enforcement authorities, such as the National Crime Agency.  In Parliament, the Security Minister stated that these provisions were intended to have a deterrent effect and to demonstrate that the UK is a hostile environment for those who commit human rights abuses and violations abroad.  The purpose of this post is to examine these provisions with the aim of setting out the powers they confer upon enforcement authorities.

Part 1, Chapter 3 of the Criminal Finances Act 2017 amends the Proceeds of Crime Act 2002 (“POCA”) so that the definition of “unlawful conduct” now includes conduct which:

  1. occurs in a country or territory outside the UK;
  2. constitutes, or is connected with, the commission of a gross human rights abuse or violation; and
  3. if it occurred in a part of the UK, would be an offence triable on indictment only or is an either way offence.

If these conditions are satisfied, then recovery proceedings can be commenced. Crucially, there is no need for the conduct to be a criminal offence in the country in which it occurred, but it must be an offence in the UK. This is significant as generally speaking property is only recoverable if the principle of dual criminality is satisfied.

By virtue of s.241A of POCA, conduct constitutes the commission of a gross human rights abuse or violation if each of the following three conditions is satisfied:

  1. the conduct constitutes the torture of a person who has sought to expose illegal activity carried out by a public official or a person acting in an official capacity or who has sought to obtain, exercise, defend or promote human rights and fundamental freedoms; or the conduct otherwise involves the cruel, inhuman or degrading treatment or punishment of such a person;
  2. the conduct is carried out in consequence of that person having sought to do something falling within (1); and
  3. the conduct is carried out by a public official, or a person acting in an official capacity, in the performance or purported performance of his or her official duties, or at the instigation or with the consent or acquiescence of a public official or a person acting in an official capacity who in instigating the conduct, or in consenting to or acquiescing in it, is acting in the performance or purported performance of his or her official duties.

These new provisions are intended to be broad in scope. That much is evident from the fact that by virtue of s.241A(5)(a)-(d), conduct is connected with the commission of a gross human rights abuse or violation if it is conduct that involves:

  1. acting as an agent for another in connection with activities relating to conduct constituting the commission of a gross human rights abuse or violation;
  2. directing, or sponsoring such activities;
  3. profiting from such activities; or
  4. materially assisting such activities.

At first glance, these provisions appear to be robust.  Their potential effectiveness is undermined, however, by the fact that they only allow for the recovery of property that is obtained as a result of conduct which constitutes a gross human rights abuse or violation.  Proving this causal link could be very difficult indeed.  Even if the enforcement authority is able to establish that someone has committed gross human rights abuses or violations, proving that the house they own in Belgravia was obtained as a result of that conduct could prove impossible.

According to news reports, MPs are campaigning for a “Magnitsky amendment” to be introduced into the Sanctions and Anti-Money Laundering Bill that is currently progressing through Parliament.  It is unclear from news reports what form such an amendment would take and what exactly it would be intended to achieve.  What is clear is that if any new law is to be effective, it must be drafted very differently from the “Magnitsky provisions” that are currently in force.

Karl Laird is a Fixed-term Fellow and Tutor in Law at St Hilda’s College, Oxford and a future 6KBW pupil. 

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Electronic data: does the long arm of the law reach across continents?

When Lord Halsbury stated in 1891 ‘all crime is local’, he cannot have foreseen the complications and challenges created by technological advances.  Commonly understood notions of territoriality and jurisdictional scope can be difficult to apply when an individual sitting in front of a computer in one country can create an effect hundreds, if not thousands, of miles away in another.  In a world in which electronic data has become indispensable, where fragments of data may be stored in ever changing locations, the scope of powers to compel in one jurisdiction the production of material physically located in another has become of vital concern to law enforcement agencies.

The precise scope of such powers  is the issue to be considered by the US Supreme Court on Tuesday 27 February, when it hears the United States’ appeal against the decision of the Court of Appeals for the Second Circuit in the ‘Matter of a Warrant to Search a Certain E-Mail Account Controlled and Maintained by Microsoft Corporation’.  The question presented to the US Supreme Court is:

Whether a United States provider of email services must comply with a probable-cause-based warrant issued under 18 U.S.C. 2703 (the Stored Communications Act) by making disclosure in the United States of electronic communications within that provider’s control, even if the provider has decided to store that material abroad’.

Microsoft is a US corporation, incorporated in Washington and with its headquarters there too.  The web-based email services it operates include MSN, Hotmail and Outlook.  Microsoft stores the contents of users’ emails – along with various other information associated with users’ email accounts, such as IP addresses and lists of contacts – on a network of approximately one million servers.  Those servers are housed in around 100 data centres located in 40 countries. One of those centres is in Dublin, Ireland.  The account information stored anywhere in Microsoft’s global network can, however, be accessed by Microsoft’s Global Criminal Compliance team from its offices within the United States.

In December 2013, the US government applied for a warrant requiring Microsoft to disclose email information for a particular email account.  The government’s application established probable cause to believe that the account was being used to further illegal drug activity in, or drug manufacturing for importation into, the United States.  The emails in question were stored in the data centre in Dublin.  A federal magistrate judge issued the requested warrant, with which Microsoft did not comply.  Microsoft successfully appealed against the decision to issue the warrant, a panel of the court of appeals ruling that enforcing the warrant as to information stored abroad would constitute an impermissible extraterritorial application of the statute.  The US government is appealing against those decisions to the Supreme Court.

The case has attracted significant attention internationally because of its ramifications in countries with very different systems and data privacy laws.  For business crime practitioners advising clients in England and Wales, the case is important not only when considering whether the production of data stored in this jurisdiction may be compelled by the US authorities, but also because a similar question arises in respect of the jurisdictional reach of the Serious Fraud Office’s powers under section 2 of the Criminal Justice Act 1987.

Of particular note in this regard is the fact that, amongst the many amicus curiae briefs submitted to the US Supreme Court, there is a brief submitted by the Government of the United Kingdom of Great Britain and Northern Ireland, ‘in support of neither party’.  Although the UK states that it ‘does not take a position on the proper interpretation of the Stored Communications Act’, it does contend that ‘the UK does not believe that the geographic storage location of data should be the determining factor for whether or not a nation may gain access to such communications … The UK also contends that a request for electronic communications stored overseas by a Provider but accessible within the requesting country does not involve an exercise of extraterritorial jurisdiction’.

Although the point is yet to be tested, it seems we can anticipate the position the SFO would take were the extraterritorial effect of a section 2 notice to come before the Courts of England and Wales.

While arguments remain that the scope of the section 2 power is more limited than that for which the UK government contends, the strength or weakness of these arguments is likely to be affected by the US Supreme Court’s decision in the Microsoft case.  To that end, further posts on this site will consider the decision – and its effects – once judgment has been given.

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An overview of the Criminal Justice (European Investigation Order) Regulations 2017

The Government has published the Criminal Justice (European Investigation Order) Regulations 2017 (‘the Regulations’) which will come into force on 31 July 2017. The Regulations significantly enhance the ability of law enforcement agencies to obtain mutual legal assistance within the European Union.

The background to the Regulations: the European Investigation Order Directive

The Regulations have been introduced to give effect to the European Investigation Order Directive (‘the Directive’). The Directive replaces most of the existing EU mutual legal assistance measures in relation to the transfer of evidence with a single instrument, the European Investigation Order, based on principles of mutual recognition.

A European Investigation Order (‘EIO’) is a mechanism by which investigators and prosecutors can obtain a wide range of MLA measures, including freezing assets; obtaining and transferring evidence; and hearing witnesses. The Directive streamlines previous MLA procedures into a single process under which there are limited grounds of refusal and tight time limits.

European Investigation Orders issued in the UK

There are two routes by which an EIO can be issued in the UK: (i) on application to a judicial body; or (ii) EIOs made or validated by a designated public prosecutor.

EIOs issued by a judicial body

Under Regulation 6, an application for an EIO can be made to a judicial authority by (i) a prosecuting authority; (ii) a police officer acting with the consent of a prosecuting authority; or (iii) a party to proceedings relating to an offence. This latter category includes Defendants. In England and Wales, a judicial authority is defined as including “any judge or justice of the peace”.

EIOs made or validated by a designated public prosecutor

Under Regulation 7, a designated public prosecutor may make an EIO herself, or validate an order at the request of a designated investigating authority. The definition of designated public prosecutor includes the Director of Public Prosecutions; any Crown Prosecutor; the Director of the SFO; and the Financial Conduct Authority. Designated investigators include chief officers for all police areas in England and Wales, as well as the Chief Constable of the PSNI. In validating EIOs made by investigators, the public prosecutor is taking on a quasi-judicial role.

Public prosecutors and investigators may obtain an EIO under both Regulations 6 and 7. In an Explanatory Memorandum, the Home Office explained that “Where there is currently no need for court involvement in domestic cases, European Investigation Orders will normally be made or validated by a designated public prosecutor…Where a court would normally be involved in a domestic case (for instance when issuing a search warrant), only a court will be able to make a European investigation order.”

The test for obtaining an EIO

In both types of EIO, the issuing body must apply a two-part threshold test, and then satisfy itself in relation to conditions of necessity; proportionality; equivalent domestic legality; and additional conditions in relation to certain measures.

The two part threshold test is: (i) that an offence has been committed, or there are reasonable grounds for suspecting that an offence has been committed; and (ii) that proceedings in respect of the offence have been instituted or it is being investigated.

The second stage test requires the issuing authority to satisfy itself as to the following conditions:

  • It is necessary and proportionate to make the order for the purposes of the investigation or proceedings in question;
  • The investigative measures specified in the order could lawfully have been ordered or undertaken under the same conditions in a similar domestic case;
  • Any additional requirements specified in Chapter 2 of the Regulations has been met. Chapter 2 of the Regulations imposes additional requirements in relation to certain types of measures, including: videoconference and telephone hearings; banking and financial information; real-time evidence gathering (such as monitoring bank accounts); provisional measures; and interception measures where technical assistance is required.

Defence rights

Although the Regulations embed a number of defence rights into the process for obtaining an EIO, the extent to which these rights will give rise to an effective legal remedy will depend, in many cases, on whether the affected person is aware of the fact that an EIO has been made.

The rights of the defence include the requirements of the threshold and second-stage tests considered above (Regulations 6 and 7); the additional procedural protections in relation to the measures specified in Chapter 2 (Regulations 13-18); formal requirements for the making of an EIO, including an obligation to provide accurate information (Regulation 8); and limitations on the use that can made of evidence obtained under an EIO (Regulation 12).

European Investigation Orders executed in the UK

Part 3 of the Regulations provides for an EIO to be sent to the UK central authority which must take a decision on the recognition and execution of the Order. In England and Wales the central authority is the Home Secretary.

Regulations 32 and 33 make specific provision for HMRC cases under which the Revenue Commissioners can perform certain of the functions of the Home Secretary for the purpose of recognising an EIO.

Under Regulation 51, the central authority may refer the execution of the EIO to “an executing authority” if they are likely to be able to give effect to the order, and it is expedient to do so. Executing authorities include the police; the Crown Prosecution Service; the Serious Fraud Office; the Financial Conduct Authority; the Health and Safety Executive; HMRC; and others.

Grounds for refusal

Regulation 28 provides that the central authority may only refuse to recognise and execute an EIO if:

  • one or more of the grounds for refusal applies;
  • the investigative measure sought does not exist, or would not be available in an equivalent domestic case, and cannot be replaced with another that would achieve the same result;
  • the dual criminality test is not met;
  • lack of consent (video-conference hearings and temporary transfer);
  • The measure may prolong imprisonment (temporary transfer).

The central authority may also refuse to recognise an EIO on certain grounds where the measures relate to covert investigations; real time evidence gathering; or interception.

Certain of the grounds for refusal are disapplied if the EIO relates to one of the types of evidence or measures specified in Regulation 28(2), including evidence already in the possession of the central authority (or other executing authority in the UK) where the evidence could lawfully have been obtained; evidence in databases that is directly accessible by the central authority (or other executing authority) in the framework of a criminal investigation or criminal proceedings; the hearing of a witness; non-coercive measures; or subscriber information.

The grounds for refusal are set out in Schedule 4 and include:

  • Immunity or privilege;
  • National security;
  • Lack of equivalent domestic legality;
  • Double jeopardy;
  • Territoriality;
  • Human rights;
  • Discrimination/extraneous considerations.

Challenging an EIO

 Regulation 10 provides that the judicial authority or designated public prosecutor that made or validated an EIO may vary or revoke it. In the case of judicial authorities, this can be done on application by the person who applied for the order; a prosecuting authority; or “any person… affected by the order”. This latter category plainly includes the defendant(s) in the proceedings in which the EIO was obtained, but would also appear to encompass a wider category of persons, including the owner or controller of the evidence.

There is no appeal against the making or validation of an EIO by a public prosecutor, or a decision to recognise and execute an EIO by a UK authority. In these cases, the only route of challenge will be by way of judicial review.

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