Civil Fraud Asset Recovery

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Charles Bott QC at Carmelite Chambers considers the issues raised in the judgement USA v Abacha.

This article was first published on Lexis®PSL Corporate Crime on 23 April 2014. 

What is the scope of the court's jurisdiction and powers in asset recovery cases?

Corporate Crime: Examining the judgment in USA v Abacha, Charles Bott QC at Carmelite Chambers considers the issues raised by the case and the significance of the decision.
Original news
United States of America v Abacha [2014] EWHC 993 (Comm), [2014] All ER (D) 56 (Apr)
The claimant, the United States of America, had successfully obtained a freezing injunction in relation to corrupt activities allegedly carried out by the defendants, which had entailed money laundering within the jurisdiction of the USA in relation to Nigeria. The claimant sought to extend the injunction. The Commercial Court, in allowing the application, held that unquestionably expedient for the court to render the assistance sought by the claimant in aid of the claimant's claim.
What is the significance of this decision?
This is an interesting example of the flexible approach of the UK courts to orders which facilitate asset recovery in a case with jurisdictional and limitation period problems.
Relevant assets were held by banks and financial institutions within the jurisdiction. They could be traced to alleged acts of grotesque corruption perpetrated by the former president of Nigeria, General Abacha, who died in 1998, and his family and associates. Abacha was said to have used his influence to requisition more than $2bn held by the Central Bank of Nigeria under the pretence that the money was required for emergency security purposes (the security votes fraud) and to have extorted $97m from a French civil engineering company in return for contract payments (the Gomez extortion).
The US authorities, acting under the US Kleptocracy Asset Recovery Initiative and responding to a request from the Nigerian Government, asserted a claim for forfeiture based upon acts of money laundering conducted in the USA. Such a claim is similar in nature to civil recovery proceedings in the UK under the Proceeds of Crime Act 2002, Pt 5 (POCA 2002) and requires proof of an underlying criminal offence. Under the Proceeds of Crime Act 2002 (External Requests and Orders) Order 2005, SI 2005/3181 (the 2005 Order), an interim freezing order could have been made if the primary claim was not statute barred--but the UK authorities refused the claimant's request to proceed in that way because of the operation of the 12-year limitation period. This period has now been extended to 20 years by the Police and Crime Act 2009 but without retrospective effect so that a claim that was statute barred at the time of the amendment remains so. (Some argued at the time of the amendment that there should be no limitation period.)
The claimant was accordingly obliged to proceed under the Civil Jurisdiction and Judgments Act 1982, s 25 (CJJA 1982)--which applies to civil proceedings brought outside the jurisdiction and imposes an 'expediency' test which has been the subject of some discussion. The test can operate to defeat applications where there might be cross-jurisdictional confusion or problems of enforceability. It did not do so here.
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The most striking aspects of the judgment are:
o the easy rejection of the suggestion that the US proceedings were criminal in nature and so fell
outside the scope of CJJA 1982, s 25 (this mirrors the failure of arguments relating to the
provisions of POCA 2002, Pt 5--notably those relating to the applicable standard of proof)
o the court's flexible approach to the 'expediency' test
o the general spirit of the judgment--which emphasises the need for cooperation between
different jurisdictions in cases of corruption and is robustly dismissive of more technical
How did the court approach the issue of a freezing injunction in this case?
The court looked at the four basic requirements for a freezing order under CJJA 1982, s 25:

o civil proceedings outside the jurisdiction
o a good arguable case
o a real risk of dissipation
o it is 'not inexpedient' to make an order
There was no issue as to (ii) and (iii). The argument that these were not civil proceedings because they
required proof of an underlying criminal offence failed for familiar reasons--the proceedings did not require
the prosecution or sentencing of any individual in a criminal court. A civil claim for the recovery of property is
vested in the US Government just as a civil claim under POCA 2002, Pt 5 vests in a UK law enforcement
In Motorola Credit Corp v Uzan [2003] EWCA Civ 752, [2003] All ER (D) 150 (Jun) (at para [115]) the Court
of Appeal set out the five considerations to which the court should have regard in deciding whether it is
inexpedient to make an order. Applying these criteria the main obstacles to an order are, in summary--
inconsistency with an order in the primary court or the policy of the primary jurisdiction, a risk of
cross-jurisdictional confusion or conflict or problems of enforcement.
It was argued here that the 'expediency' test was not satisfied because:
o there were problems of enforceability at common law
o the machinery of Part 5 of the 2005 Order was not enough to satisfy the requirement of
expediency because it depends upon the co-operation of the UK authorities and does not make
a judgment independently enforceable by a foreign sovereign
o an earlier settlement agreement related to identical assets
Field J rejected each of these arguments. He proceeded on the assumption that the arguments about
common law enforceability were right but concluded that the application was not to enforce a foreign
judgment but to continue an order designed to 'hold the ring' until a judgment made in the US claim can be
lawfully enforced under the 2005 Order. The fact that the application was made in the exercise of sovereign
authority rather than under the 2005 Order did not make it inexpedient to continue the order. There were
compelling policy reasons for the courts of different jurisdictions to cooperate in cases involving this type of
corruption. The court should also not pre-empt the decision of the US court as to whether the earlier
settlement (to which the claimant was not a party) operated as defence or was in any other way relevant.
Are there any grey areas in the freezing injunction regime?
Yes. This is a huge subject--and although this case shows how the 'expediency' test might operate where
there is concerted international effort at government level, there are other cases, particularly those brought
by private claimants, where its application will be unpredictable and fact specific.
How did the court deal with the jurisdictional complexities in the case?
The court proceeded on the assumption that any eventual recovery would result in the release of the
proceeds from the UK to the government of the USA and then to the Federal Republic of Nigeria, whose Page 3

citizens were the ostensible victims of the offences alleged. The section 25 jurisdiction is conferred where there is a foreign claim (before 1997 it required proceedings to have been commenced in a Brussels or Lugano contracting state). In some ways, the judgment here sidesteps the enforceability issues by focusing on the need to preserve the assets in the short term.
Could this have implications for future cases? What should lawyers take from the case?
The most flexible approach to the court's jurisdiction and powers in asset recovery is sometimes found in cases of apparently blatant corruption by unelected heads of state. Students of this subject will recall Republic of Haiti v Duvalier [1990] 1 QB 202, [1989] 1 All ER 456 where jurisdiction was founded on instructions given to firm of English solicitors. Staughton LJ said: 'This case demands international co-operation between all nations'. There are clear echoes of that here when Field J says (at para [48]):
'Corruption, like other types of fraud, is a global problem and it and its consequences are only going to be dealt with effectively if there is co-operation and assistance not only between the governments of states but also between the courts of different national jurisdictions.'
Private claimants may not find things quite so easy.
Charles Bott QC is an acknowledged authority on financial crime and all subjects relating to civil and criminal fraud. In the course of his career, he has undertaken a wide range of civil advisory work and litigation (both QBD and Chancery), specialising recently in the areas of financial regulation, money laundering and asset recovery. He has a particular interest in the developing processes of civil recovery and has recently drafted asset recovery legislation for use in overseas territories and advised regulatory authorities in other jurisdictions.
Interviewed by Kate Beaumont.
The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.


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Date: 30/04/2014

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