England and Wales High Court (Administrative Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT

		Royal Courts of Justice Strand London WC2A 2LL
		30th April 2008

1. MR JUSTICE CRANSTON: The Proceeds of Crime Act 2002, supplemented by the Serious Crime Act 2007, provide a detailed framework for addressing the fruits of criminal wrongdoing. The subject matter is vast and complex. As might be expected, one aspect of these legislative provisions is the provision of machinery for the conduct of investigations into criminal proceeds. Thus it is possible for the authorities to obtain production orders against banks, for it is banks which will often have the best audit trail for investigators to determine whether what is at issue are criminal proceeds, what is their derivation and where those proceeds have gone. Production orders under this legislation run parallel to those under the familiar statutory provisions contained in the Bankers' Books Evidence Act 1879, but are available in situations where orders under the latter legislation are not available; as the name suggests the Bankers' Books Evidence Act only applies in the case of bankers' books. Production orders also avoid the difficulties associated with obtaining evidence by means of a witness summons. In broad terms, the issue before the court is whether a production order should be granted under the 2002 Act once the investigation has reached a particular stage. The legislation does not give an explicit answer, but consideration of the relevant statutory provision in its context gives a clear steer.

Background

2. On 21st February 2007 a Mr Sanjit Bhalla was stopped outside a branch of Barclays Bank Plc ("Barclays Bank") at Hatton Cross, and £90,000 in cash was seized from him under section 294 of the 2002 Act. It was subsequently detained under section 295 of that Act by order of the Uxbridge Magistrates' Court. There was then an application in September 2007 for a forfeiture order, and proceedings in that regard are listed to be heard next month. By letter to the Uxbridge Magistrates' Court in November, Mr Bhalla stated that he did not wish to participate with any matters involving the seizure of the £90,000. He said that, as far as he was aware, those monies were the property of a Mr Ganesharajah. Mr Ganesharajah has sought to be joined to the proceedings in the magistrates' court. The issue before the magistrates' court will be whether that money is property derived directly or indirectly from unlawful conduct, or whether it was intended for use in unlawful conduct.
3. Mr Bhalla is the director of a company called Lanoss Ltd. He says that the cash was withdrawn by him from an account held in the name of that company at Barclays Bank, Kingston Branch, and he has produced certain pages purporting to be an Internet printout of activity on that account. That printout shows a credit from Mr Ganesharajah of £180,000 on 12th February, but no balance or withdrawal on 21st February 2007. That printout is an "all money in" printout and, in any event, contains the warning that all transactions may not be shown.
4. Various explanations have been given for the origin of the £180,000 transferred into the account of Lanoss Ltd with Barclays. The funds came, not directly from Mr Ganesharajah, but from a firm of solicitors called White Rose. Those solicitors have given two written explanations as to why the money was advanced and on whose behalf. In the first explanation they said that the money was part of a bridging loan from the company towards a property purchase, which then became available for alternate use. In a subsequent explanation they said that the money came from another company called Preferred Mortgages, a lender from whom funds had been obtained to repay a part of a bridging loan, but they say that Mr Ganesharajah then sought to divert £190,000 for a new purpose. On the solicitors' second explanation they understood that the money was now to be used to fulfil requirements made by a person representing a Portuguese bank, the idea being that by deposit of this money in turn a much larger lending facility would become available to Mr Ganesharajah. The solicitors maintain that on the strength of the understanding they believed they had from the bank, they complied with Mr Ganesharajah's wishes and paid the £190,000 into his account on 9th February 2007. Three days later Mr Ganesharajah paid £180,000 into the account of Lanoss Ltd, and they say that Mr Ganesharajah's explanation of this transaction was that the Portuguese bank had told him that this action would be treated as equivalent to depositing the funds with them.
5. Mr Bhalla himself has put forward a complicated explanation for having the £90,000 in cash. On his account, it was because he was returning it to Mr Ganesharajah, following an abortive transaction in which Lanoss was proposing to sell furniture to Mr Ganesharajah for a total of £180,000. Mr Bhalla has also asserted that he did in fact repay from the Lanoss account a further sum of £89,900 to Mr Ganesharajah in early April 2007, and has produced a Barclays' instruction mandate to this effect.
6. In short, the enquiry which has resulted from the seizure of the £90,000 is one of some complexity. The investigators believe that the money is recoverable property, in the terms that that phrase is used in the Act, or was intended for use in unlawful conduct. They point to the history just outlined and the contradictory explanations given. In their belief, the production of copies of the Barclays Bank account for a period — and they have limited the period from 1st February 2007 until 4th April 2007 — will enable them to trace the dates and facts of credits and debits of the sums referred to in that particular time period. In their view, they will be able to see whether there are other transactions at around the same time which cast any light or any doubt upon them. For example, it will enable them to see whether there are any transactions which support the notion that the money was to be used for the supply of furniture.
7. In the view of the investigators, they have grounds for suspecting that the £90,000 is recoverable property or was intended for use in unlawful conduct. Thus they seek a production order against Barclays to require it to produce bank statements and ledgers for the particular account held by them in the name of Lanoss Ltd for the period identified. The production order sought is as follows:

"Bank statements and ledger entries for account number 40530360 held in the name of Lanoss Limited at Barclays Bank, Kingston Branch sort-code 20-42-73 relating to the period 1st February 2007 to 4th April 2007."

The Lanoss account is targeted given the origins of the funds that were seized from Mr Bhalla and the explanations from both him and Mr Ganesharajah. The production order is not opposed by Barclays, and before me today there is no objection by Lanoss Ltd or anyone else.

The legislative framework and the production order

8. The power to make production orders is set out in the Proceeds of Crime Act 2002. The original provisions were amended by the Serious Crime Act 2007. The amendments are identifiable by the contorted numbering of the subsections and came into effect on 6th April this year (see the Serious Crime Act 2007 (Commencement No 2 and Transitional and Transitory Provisions and Savings) Order, SI 755). The production order sought in this case is under section 345(4)(a), which reads:

"(a) requiring the person the application for the order specifies as appearing to be in possession or control of material to produce it to an appropriate officer for him to take away, ..."

9. Section 345 permits the High Court to make a production order if certain statutory requirements are fulfilled. Section 345(2) provides:

"(2) The application for a production order must state that —

(a) a person specified in the application is subject to a confiscation investigation or a money laundering investigation, or

(b) property specified in the application is subject to a civil recovery investigation or a detained cash investigation."

In addition, the application must also state, under section 345(3), that:

"(a) the order is sought for the purposes of the investigation;

(b) the order is sought in relation to material, or material of a description, specified in the application;

(c) a person specified in the application appears to be in possession or control of the material."

Section 346 sets out the requirements for the making of a production order. These are specified in subsections (2)-(7), which read in part:

"(2) There must be reasonable grounds for suspecting that —

...

(ba) in the case of a detained cash investigation into the derivation of cash, the property the application for the order specifies as being subject to the investigation, or part of it, is recoverable property;

(bb) in the case of a detained cash investigation into the intended use of cash, the property the application for the order specifies as being subject to the investigation, or a part of it, is intended by any person to be used in unlawful conduct;

...

(3) There must be reasonable grounds for believing that the person the application specifies as appearing to be in possession or control of the material so specified is in possession or control of it.

(4) There must be reasonable grounds for believing that the material is likely to be of substantial value (whether or not by itself) to the investigation for the purposes of which the order is sought.

(5) There must be reasonable grounds for believing that it is in the public interest for the material to be produced or for access to it to be given, having regard to —

(a) the benefit likely to accrue to the investigation if the material is obtained;

(b) the circumstances under which the person the application specifies as appearing to be in possession or control of the material holds it."

10. In other words, it is possible, as a result of the amendments to the 2002 Act by the Serious Crime Act 2007, to make a production order where property specified in the application is subject to a detained cash investigation. On the back of that, the application in this case is to make such a production order requiring Barclays to produce material in relation to the account for the period set out earlier. I am satisfied, as I am required to be under section 346, that the various prerequisites laid down in that section are met. In particular I am satisfied that the material sought is likely to be of substantial benefit to the investigation, in that it ought to demonstrate the immediate provenance of the £90,000 and ought to throw light on the veracity of the accounts given in relation to its derivation. I am also satisfied that it is in the public interest for the material to be produced, since it will assist in coming to the truth. The proposed order, in my view, covering as it does only a limited period, is also proportionate, in that it minimises any intrusion into the workings of the bank. Given that only limited information has been produced so far by Mr Bhalla or Lanoss Ltd, then in my view the production order is necessary. The application for the production order has been made on notice to Lanoss Ltd as the account holder and to Mr Ganesharajah. I have read the witness statement of Ms Boxall, an officer of HM Revenue and Customs, in reaching my conclusion.

The issue: is the detained cash investigation ongoing?

11. However, there is one snag in making this production order. It concerns a narrow point of construction as to whether the property in this case, in other words the £90,000 cash, is still subject to a detained cash investigation as defined in the 2002 Act, amended by the Serious Crime Act 2007. In section 341(3A) of the Act, a detained cash investigation is defined as follows:

"(3A) For the purposes of this Part a detained cash investigation is —

(a) an investigation for the purposes of Chapter 3 of Part 5 into the derivation of cash detained under section 295 or a part of such cash, or

(b) an investigation for the purposes of Chapter 3 of Part 5 into whether cash detained under section 295, or a part of such cash, is intended by any person to be used in unlawful conduct."

So a detained cash investigation turns on whether there is "cash detained under section 295".

12. As outlined, the £90,000 cash was originally seized under section 294 of the 2002 Act, and was subsequently detained under section 295 of that Act as a result of orders of the Uxbridge Magistrates' Court. However, as also mentioned, in September last year an application was made for a forfeiture order. As a result of that application, made under section 298 of the Act, section 298(4) provides:

"(4) Where an application for the forfeiture of any cash is made under this section, the cash is to be detained (and may not be released under any power conferred by this Chapter) until any proceedings in pursuance of the application (including any proceedings on appeal) are concluded."

In other words, since the cash is currently subject to an application for a forfeiture order, can it be said to be still detained under section 295 or, alternatively, is it now detained under this statutory provision, section 298(4)? If the latter a production order cannot be made.

13. In his helpful arguments, Mr Bird for HM Revenue and Customs contends that when section 341(3A) uses the expression "cash detained under section 295", it means cash which is or has been detained under section 295 and it is not restricted to cash which at the particular moment of the application for a production order is detained under section 295. Simply because a forfeiture application has been made does not mean that there is no longer a detained cash investigation. In my judgment the phrase "cash detained under section 295" can be so interpreted.
14. A literal approach to the definition in section 341(3A) might be to adopt the narrow approach. In other words, it might be said that the investigative power, such as the production order applied for in this case, is available during the section 295 detention phase, but ceases to be available once the application for forfeiture is lodged. A production order would not be available after this point. The literal approach would mean that the Parliamentary intention would be taken to be that a distinction must be drawn between a preliminary phase, when investigations take place, and a litigation phase, in this case the forfeiture proceedings, when compulsory investigation powers are no longer available. That seems to me to be contrary to the whole thrust of the legislation and, in as much as it is possible to speak of a Parliamentary intention, at first blush inconsistent with it. The preamble to the legislation is one indicator of the wide ambit intended.
15. No great assistance is provided by looking at the Parliamentary materials. The explanatory notes, to which Mr Bird has directed me, read in relation to the relevant amendments in the Serious Crime Act 2007, provide as follows:

"Section 75: Use of production orders for detained cash investigations

265. This section enables the production order provisions under Part 8 of POCA to be used for investigating the provenance or intended destination of cash seized under Chapter 3 of Part 5 of POCA (which provides for the recovery of cash in summary proceedings). The amendments made by this section create a new type of investigation, namely a detained cash investigation. This is additional to the existing types of investigation, namely a confiscation investigation, civil recovery investigation and money laundering investigation. These new investigation powers will assist in the preparation of a case for forfeiting the cash before the magistrates' court in England and Wales and Northern Ireland or the Sheriff in Scotland.

Section 76: Use of search warrants etc. for detained cash investigations

266. Similar to section 75, section 76 allows for the search and seizure provisions under Part 8 of POCA to be used for investigating the provenance or intended destination of cash seized under Chapter 3 of Part 5 of POCA ('a detained cash investigation'). The existing safeguards for warrants will apply equally to those sought for a detained cash investigation."

As Mr Bird correctly suggests, the writer of those explanatory notes appears to be under a misapprehension that the existence of a detained cash investigation is determined by whether the cash is seized under section 294, rather than whether it is or has been detained under section 295. In my view, he correctly submits that the explanatory notes are of little or no help in the construction of section 341(3A). The purpose of the amendments was to assist in the preparation of a case for forfeiting the cash before the magistrates' court, as said by the explanatory notes, which would favour the construction that he advances. But it would not assist much if the power could not be used in cases, such as the present, where an application for a forfeiture has been made.

16. In my judgment, with a little creativity it is possible to interpret the definition of "detained cash investigation" in the way which I have suggested. Looking at the statutory context, it is possible to analogise and contrast section 341(3A) to other species of investigations under the Act. For example, the confiscation investigation provided for in section 341(1) is not limited by reference to anything procedural. Thus it would appear to extend up to the making of the confiscation order and possibly beyond, for the purposes of enforcement of the confiscation order. Similarly, a money laundering investigation under section 341(4) is not limited by reference to whether proceedings for an offence have been started. So the power could be used up to trial and, if necessary, beyond. By contrast with those two provisions, a civil recovery investigation under section 341(2) and (3) is expressly limited, so that it ceases once the litigation phase has been started or the same property is detained under section 295. Section 341(3) reads:

"(3) But an investigation is not a civil recovery investigation if —

(a) proceedings for a recovery order have been started in respect of the property in question,

(b) an interim receiving order applies to the property in question,

(c) an interim administration order applies to the property in question, or

(d) the property in question is detained under section 295."

17. In my view, if Parliament had intended to restrict section 341(3A) to cases where a section 295 order was current, it would have made that intention clear, either by use of the present tense, "cash which is currently detained" or, as in the civil recovery investigation provision, section 341(3), by expressly restricting the scope of such an investigation.
18. When the detained cash investigation subsections were inserted in section 341 as a result of the 2007 Act, Parliamentary counsel must be taken to have known of the ambit of the investigations already provided there. Not confining a detained cash investigation in the manner of a civil recovery investigation must have been for a purpose. The contrast in the legislative language can therefore be taken to indicate that a detained cash investigation continues in some respects even when the litigation phase has been initiated. Moreover, there is not the dichotomy drawn in subsection 341(3)(d) between an investigation on the one hand and property detained under section 295 on the other. So despite the fact that forfeiture proceedings have begun, in my view a detained cash investigation does not cease in its effectiveness for the purposes of obtaining a production order.

Conclusion

19. In conclusion, in my view, on a proper construction of the legislation, a detained cash investigation continues at least until the conclusion of proceedings for forfeiture, including any appeal. In my view, such an interpretation makes sense. It enables an investigator to continue to use the investigative powers provided under the 2002 Act in the run-up to a forfeiture hearing, as well as at the earlier stage. As Mr Bird has submitted, a respondent may well not disclose his case until after directions are given in advance of a forfeiture hearing, and so the relevance of particular material may not always be apparent. In my view, the construction I have adopted does no violence to the legislative language. The days are long past when courts should adopt a literal approach, criticising the Parliamentary draftsman for not foreseeing the future, especially in an area as complex as the subject matter dealt with by this legislation. What is necessary is a constructive partnership between Parliament and the courts, involving a pragmatic approach to legislative material. It takes the language, but places it in its context to overcome any literal shortcomings. In my view, therefore, all statutory pre-conditions for the grant of a production order have been satisfied. I will make the order.
20. Mr Bird, we are going to have to tidy that up a bit, but there you are.
21. MR BIRD: I think the first time my Lord referred to it you called it a "detained cash inquiry".
22. MR JUSTICE CRANSTON: Yes, I did.
23. MR BIRD: There should be a draft order with the court. If your Lordship would sign it, we will ask the associate to get it sealed.
24. MR JUSTICE CRANSTON: Yes. There was one in your file, was there?
25. MR BIRD: It is attached to the application notice.
26. MR JUSTICE CRANSTON: Ah! Thanks very much then, and thanks for your help.