England and Wales Court of Appeal (Criminal Division) Decisions

IN THE COURT OF APPEAL
CRIMINAL DIVISION

		Royal Courts of Justice The Strand London WC2A 2LL
		14 February 2008

Thursday 14 February 2008

LORD JUSTICE HUGHES:

1. This appellant challenges the part of the sentence imposed on him which disqualified him from acting as a company director for a period of seven years. He had pleaded guilty, after receiving a Goodyear indication, to an offence of money laundering. The offence was assisting in the retention of the proceeds of criminal conduct of others, suspecting them to be such. The substantive part of his sentence was eighteen months' imprisonment which the judge suspended on the exceptional grounds of the appellant's very seriously poor health. As we have said, the complaint here is confined to the disqualification order.
2. When he fell to be sentenced the appellant was 68 years of age. He was a solicitor who had been in private practice in London until the early part of 1998. The offence to which he pleaded guilty was committed over a period of several months between the summer of 1997 and February 1998. It arose in this way. The appellant had a number of clients who were engaged in a substantial fraud. They operated it through a number of share brokerage companies. In simple terms the swindle consisted of obtaining money dishonestly from investors all over the world by offering for sale shares in companies which had been set up for the purpose, which shares were not worth the price for which they were being marketed. A number of company vehicles were used in the course of the fraud. There were the worthless companies whose shares were marketed. There were also a number of companies which carried on the business of marketing them and there were other companies, including one called Pentagon Securities which were in effect subsequent channels for the handling of the money. Pentagon Securities was incorporated early in 1995. It was in fact incorporated by the appellant in his capacity as solicitor, but it must be observed that that was before the period of his offence, which was June 1997 until February 1998.
3. In due course Pentagon became the repository for a large part of the dishonestly obtained funds. The precise mechanics by which it did so do not need elaboration here. Significantly Pentagon had no bank account. Instead it used its account with the appellant solicitor, and thus his client account, as a repository to receive the funds which Pentagon acquired and subsequently from which to disperse them. Over £4 million went through the appellant's client account between May 1995 and February 1998.
4. The appellant was originally charged with the substantive fraud along with those who operated the brokerages. It is critical to remind ourselves that he did not plead guilty to the fraud and the Crown accepted that he was not a party to it. A verdict of not guilty was entered on the count of fraud upon his pleading guilty to the money laundering count.
5. The money laundering count to which the appellant pleaded guilty did not run throughout the period during which he handled Pentagon's criminal money. The period of the money laundering count and his plea to it was confined to the last eight months or so, from June 1997 to February 1998. Accordingly, the sum which he criminally assisted the fraudsters to retain was not the £4 million, which in total he had handled, but the sum of £916,750. It was not suggested that he had retained any of that money for himself, except to the extent no doubt that he had been paid fees for his legal work. It was not only suggested but admitted that, suspecting that that very large sum was the proceeds of criminal conduct, he had made his client account available to serve in effect as a private bank for Pentagon. It takes little imagination to realise that a company which is handling very substantial proceeds of fraud would very much prefer not to have a bank account because of the obligation imposed upon bankers by the money laundering legislation to make periodic reports of suspicious transactions.
6. The appellant had no previous convictions in this country. However, in November 2002 he had been convicted in New York of an offence described as conspiracy to defraud and another of falsifying business records. As explained to the judge, that involved a cover-up of offences which had been committed by others via an unregistered share-dealing business. What the appellant had done was to arrange for forged and fraudulent documents to be prepared and signed which purported to show that the company had an exemption from registration to which it was not in fact entitled.
7. The appellant was aged 68. He had by now retired as a solicitor. He has the misfortune to suffer from myeloid leukaemia. The judge was asked to, and did, give a Goodyear indication as to sentence. In particular he was asked to say whether in the exceptional circumstances of the appellant's very serious medical condition it would be possible for the inevitable sentence of imprisonment to be suspended. In due course the judge determined that the sentence could be suspended, and that was the sentence which was passed.
8. In the course of the request made on behalf of the appellant for the judge to consider giving a Goodyear indication, leading counsel provided the judge with a written memorandum in which through him the appellant told the judge this:

"As to any indication in relation to Company Director Disqualification, the [appellant] has no wish to become the director of any company in the future -- indeed he would undertake not to do so. The [appellant's] concern is as to whether he is to be disqualified from the small number of directorships that he currently holds in the companies that control his assets, and thus his ability to meet any sum ordered to be paid in confiscation proceedings ....."

That indication by the appellant through leading counsel was endorsed in the course of the discussions between the judge and counsel when the Goodyear indication was requested. Counsel made it clear both then and subsequently that he confined his submission as to potential company director disqualification to a request for the judge to qualify the inevitable disqualification by permitting the appellant to remain a director of his private companies, which controlled his assets, to the extent that that was necessary in order to enable him to meet the inevitable claim for confiscation. In giving his Goodyear indication His Judge Rivlin QC said this:

"It is also clear that he must be disqualified as a Director in the usual terms .... as to the present length I am not at all sure that it matters much but I should spell this out .... I do believe that in the absence of his obligations to deal with the confiscation that [the appellant] must also not act as a Director without the prior consent of this court."

9. It was after that indication given to the judge of the appellant's position and that very clear expression of the judge's position that the appellant determined that he should plead guilty. In due course the judge made the disqualification order for a period of seven years. He permitted the qualification for which the appellant had asked, namely that he should be permitted to continue to operate his own private companies until the confiscation proceedings had been concluded.
10. Notwithstanding that very clear history, the appellant now submits (through counsel who did not appear in the court below) that the judge had no power to make a company director's disqualification order. Alternatively, he submits either that as a matter of discretion, even if the power existed, it should not have been exercised or in the further alternative, that if it was to be exercised the term imposed was too long.
11. The power of the court to make an order disqualifying a defendant from acting as a director of a company following conviction on indictment is to be found in section 2(1) of the Company Director's Disqualification Act 1986 which, so far as relevant, provides:

"The court may make a disqualification order against a person where he is convicted of an indictable offence (whether on indictment or summarily) in connection with the .... management .... of a company."

12. Mr Krolick submits that this offence of assisting the retention of criminal property through the client account was not an offence in connection with the management of a company. He says that the appellant was not the manager of the company; he was not convicted of operating either that company or any other company for the purpose of the fraud; he has done no more than to receive sums of money and to shelter them, and that it was immaterial to that offence whether he received them from a company or from an individual criminal.
13. The meaning of section 2(1) was carefully considered by this court in R v Goodman (1993) 14 Cr App R(S) 147. In the judgment given by Staughton LJ this court said this:

"There are three possible ways of looking at the test to be applied. The first might be to say that the indictable offence referred to in the 1986 Act must be an offence of breaking some rule of law as to what must be done in the management of a company or must not be done. Examples might be keeping accounts or filing returns and such matters. It is clear from the authorities that the section is not limited in that way .... Another view might be that the indictable offence must be committed in the course of managing the company. That would cover cases such as Georgiou, Corbin and Austen. What the defendants in all those cases were doing was managing the company so that it carried out unlawful transactions.

The third view would be that the indictable offence must have some relevant factual connection with the management of the company. That, in our judgment, is the correct answer. It is perhaps wider than the test applied in the three cases we have mentioned, because in those cases there was no need for the court to go wider than in fact it did. But we can see no ground for supposing that Parliament wished to apply any stricter test...."

The precise facts of that case are not greatly analogous with the present. The appellant in that case, who was the chairman of a company, used his knowledge of its affairs to commit an offence of insider trading, but it is to be observed that the offence which he committed was, at least arguably, and in our view plainly, not an offence committed via the management of the company but it nevertheless had a relevant factual connection with the management of the company.

14. The question in the present case is whether this sheltering of criminal property by the appellant had a relevant factual connection with the management of Pentagon Securities. It seems to us that it did. What were being sheltered were the criminal proceeds of fraud obtained through the vehicle of the company. Moreover, the relevant factual connection was with the financial management of Pentagon. The appellant made available his client account as a private banking facility for the assets of Pentagon so that those who managed it could manage its affairs by placing its funds there rather than in the bank. The assets were in fact criminal proceeds. He suspected that they were and he received them in circumstances in which no further disbursement of them could be made by those who managed Pentagon's criminal affairs without his participation. That as it seems to us is quite sufficient relevant factual connection between the financial management of Pentagon and the offence which the appellant committed. It is not, as Goodman makes clear, necessary that the offence be committed by the defendant himself using the company as a vehicle for fraud, though that of course is another situation in which a disqualification order is appropriate.
15. It follows that our conclusion is that the judge was entitled to disqualify. Mr Krolick alternatively submits that he should not have done so, or not for so long. The appellant is a man of not inconsiderable assets, even after a confiscation order of a little over £1 million has been satisfied. Those assets are held, as we understand it, by various private companies controlled and managed by him. The assets are no doubt substantially property and the properties are managed through the companies. Mr Krolick submits that the public do not need any protection from the appellant in the management of those companies. There has never been any criticism of criminal conduct in the course of the management of them. He reminds us of the observations of Potter LJ in R v Edwards [1998] 2 Cr App R(S) 213, BAILII: [1998] EWCA Crim 4 , at 215, namely:

"The rationale behind the power to disqualify is the protection of the public from the activities of persons who, whether for reasons of dishonesty, or of naivety or incompetence in conjunction with the dishonesty of others, may use or abuse their role and status as a director of a limited company to the detriment of the public."

16. It seems to us that the judge was perfectly entitled to say that the appellant fell within that category. It may well be true that there is no criticism of his management of his private companies, but there is every reason to criticise him for other company related offences. First, the serious money laundering of nearly £1 million; and secondly, the offences in New York.
17. As to the length of disqualification, the authorities suggest that a period of more than ten years should be reserved for the most serious cases (which this is not) and that a period of between five and ten years is appropriate for serious cases not in that category. This is, as it sees to us, a serious case not in the highest category and the period of seven years is perfectly proper. We do not overlook the personal difficulties which the order may impose upon the appellant. But it seems to us, first, that any period of disqualification, however short, will have the same consequences in relation to the management of the appellant's private companies. Secondly, if the consequence of the disqualification order is that the appellant has to manage his primary assets personally, without the benefit of limited liability, that is one of the purposes of the disqualification order. Thirdly, we remind ourselves that there is the power to apply for leave if there be fresh reason for doing so.
18. In all those circumstances it seems to us that the order which the judge made was one which was (a) within his powers, and (b) perfectly properly within the bracket of the terms available to him. In those circumstances this appeal is dismissed.

MR KROLICK: My Lord, I may be asked to put a matter before your Lordships. I would ask your Lordships to certify that -- it is the passage your Lordship indicated: the question is whether the sheltering of the property of the company shows some factual connection with the management of the company. That is the heart of the argument and it is my request that your Lordships should certify it. We would have to see a transcript of your Lordships' judgment to be able to get the precise words. I would ask your Lordships to indicate --

LORD JUSTICE HUGHES: Whether in principle we would be prepared to certify or not, subject to your reducing the question into writing.

MR KROLICK: My Lord, yes.

LORD JUSTICE HUGHES: We will just think about that.

(The court conferred)

LORD JUSTICE HUGHES: I am afraid we are not minded to certify, Mr Krolick. Thank you both very much.