Developments in POCA disclosure orders

Grey book and pen

Speed read: Anita Clifford considers the recent case of Faerman v SFO [2020] EWHC 1849 (Admin) which reinforced the jurisdictional limits of disclosure orders and need for careful scrutiny of orders made.

In a decision handed down over the summer, the High Court declined to discharge a proceeds of crime investigative order despite being satisfied that there had been non-disclosure by the SFO. Although the case is an example of what will not be considered a material matter going to the heart of an application, it reinforces the need for careful scrutiny of investigative orders once made and room for challenge.

Disclosure orders

A disclosure order authorises select authorities to serve ‘information notices’ on any person compelling them to disclose information considered relevant to a proceeds of crime investigation. Pursuant to section 357 POCA 2002, the order arises only in confiscation, civil recovery, money laundering and exploitation proceeds investigations. The order is granted at the discretion of the court which must be satisfied that there are reasonable grounds to believe that information provided ‘is likely to be of substantial value’ and that the provision of such information is in the public interest: see sections 358(3),(4) POCA 2002. Nothing in POCA requires the order to identify the persons proposed to be served with an information notice but the target of the civil recovery investigation, either the individual or the property, must be named.

Faerman v SFO [2020] EWHC 1849 (Admin)

In 2019 the SFO obtained a disclosure order in furtherance of a civil recovery investigation against a non-UK national. The target, Mr Faerman, was in custody in Brazil on Petrobras-related corruption matters. Having identified him as the owner of a luxury London flat, the SFO was interested in his links to other property. The disclosure order named Mr Faerman as the respondent and included a penal notice expressly warning him ‘or any person served with a notice under this order’ of criminal sanctions for non-compliance. Subsequently, the order and a corresponding information notice was served on Mr Faerman through his English solicitors. Although the penal notice was redacted, the order and covering letter from the SFO made clear that he was obliged to comply. However, when pressed by Mr Faerman’s representatives, the SFO acknowledged that as Mr Faerman was outside of the jurisdiction he could not be compelled to provide information. The information notice served on Mr Faerman was later withdrawn. In SOCA v Perry [2013] 1 AC 182 the Supreme Court had considered that it would be a ‘startling breach of international law’ if powers afforded to UK public authorities pursuant to a disclosure order could be exercised on persons outside of the jurisdiction given that non-compliance risks criminal penalty.

The question for the Court was whether the fact that Mr Faerman could not be compelled to provide information meant that one of the conditions for the making of the order – that the information contemplated is likely to be of substantial value – had simply not been met. An ancillary issue was whether the SFO’s failure to draw the decision of Perry to the judge’s attention when seeking the disclosure order was a material non-disclosure affecting validity. It was common ground that there had been an oversight but that there was no bad faith on the part of the SFO.

Notably, even though Mr Faerman was the only respondent named on the disclosure order and a contemplated recipient of an information notice the Court stood by the merits of the disclosure order application. The Court noted that the SFO had made plain on the ex parte hearing that it also wished to seek information from ‘financial institutions’, associates and professionals such as accountants and solicitors. Even if it had been made clear to the judge that Mr Faerman could not be served with an information notice due to the decision of Perry, it was thought that the disclosure order would still have been made. It follows that although the Court was satisfied that there had been non-disclosure by the SFO it was not material.

This aside, the Court reserved some criticism for the SFO. It had been argued that in sending the information notice to Mr Faerman with the penal notice redacted the SFO was merely requesting information as opposed to formally serving a notice which it had recognised it did not have power to do. The Court rejected this submission, noting that the documents had a ‘veneer of enforceability whilst having no capacity for enforcement. They risked misunderstanding, confusion, and the purporting of a power that did not exist’: paragraph 73.

The Court considered it lucky that those representing Mr Faerman had challenged the notice robustly.

Analysis

The case reinforces the clear territorial limits to disclosure orders and that such limits may not be immediately recognised. The short point is that if an individual or firm is outside of the jurisdiction an information notice cannot be served on them. Further, the correspondence sent to Mr Faerman which, the Court observed, was ‘couched in mandatory terms’ despite lacking enforceability highlights sharp practice on the part of public authorities in civil recovery investigations. Rigorous scrutiny of the terms of any order and correspondence is essential.

The outcome is also an example of the latitude currently given to the authorities investigating proceeds of crime. In this particular case, the SFO clearly wanted to obtain information from Mr Faerman under the order, as evidenced by Mr Faerman being the only individual named in the penal notice appearing on its face and attempt to give him an information notice. The fact that it could not legally do so was not enough to shake the foundations of the disclosure order. Some might find this surprising. A general intention to approach ‘financial institutions’, ‘associates’ and professional firms to further the civil recovery investigation instead justified the order. However vague the intention may have been, it insulated the order from discharge. Presumably, if no such intention had been expressed on the application and the judge had understood that the purpose of the order was to issue a notice on Mr Faerman the outcome would have been different. An argument that the disclosure order was expected to yield information of ‘substantial value’ when the main contemplated recipient could not be served would have been harder to sustain. In the end, that a public authority tried to use a power it simply did not have against a person outside of the jurisdiction was little more than a wrinkle.

Where do the limits lie?

In these circumstances, challenges to disclosure orders are all the more important to assess where the limits of the regime lie. The disclosure order regime is evolving, as reflected by the orders only being available in money laundering investigations since 2018. There is ample scope for judicial consideration. Separately, one issue recently met in practice is the issuance of multiple information notices on the same person, each one probing a slightly different area. There is an argument that use of the powers pursuant to a disclosure order in this way is oppressive. It follows that a lot remains to be worked out on how investigative powers under POCA are intended to operate.