RESTRAINT ORDERS: Is Complexity of Financial Structures an Indicator of Dishonesty?

Solicitors dealing with complex fraud, money-laundering and corruption cases are very well used to having clients who are particularly vexed about their assets being restrained by a law-enforcement agency at a without notice hearing, the application perhaps being made without a charging decision even being in sight.  This article focuses on the reliance, arguably the over-reliance by investigators and prosecutors, of complex financial arrangements uncovered by the financial investigators which are then labelled as, e.g. a ‘complex web’, ‘designed to obfuscate’ or to keep the world in the dark about true beneficial ownership etc.  In a challenge to the Restraint Order are these complex arrangements a difficult hurdle to clear for defenders?

Proceeds Of Crime Act 2002; Risk of Dissipation

Though a risk of dissipation is not a requirement for a Restrain Order under the Act itself, case law firmly establishes that it is; indeed that there is not just a risk, but there needs to be ‘real risk’, as opposed to a ‘merely fanciful’ risk; Re AJ & DJ (unrep, December 9, 1992, CA). 

In cases of dishonesty, which in reality will be most Restraint Order cases, it might be argued that the risk of dissipation ‘speaks for itself’, per Laws LJ Jennings v CPS [2005] 4 ALL ER 391,55 – though the real risk still needs to be established.  That ‘real risk’ is much less likely where the suspect has been aware of the investigation and yet made no attempt to dissipate his/her assets; per Re B [2008] EWCA 1374. 

In pre-charge applications for Restraint Orders, there are two hurdles for the prosecution to address; first that a criminal investigation has been started and secondly, that there are ‘reasonable grounds to suspect that the alleged offender has benefited from his criminal conduct.’  There is sometimes a conflation between the ‘reasonable suspicion’ test and the un-stated test of ‘real risk of dissipation’ in cases where there is a complex financial structure, e.g. use of off-shore accounts and corporations etc. 

Whenever a without notice application is made for an investigatory order, such as a search warrant or a Restraint Order, then there exists a high duty on the applicant to put before the Judge not just the material to satisfy the Court that the statutory conditions are met, but there must be full and complete disclosure, including disclosure of anything that might militate against the granting of the application.  This duty requires counsel appearing in the application to, as Hughes LJ memorably put it, to:

"put on his defence hat and ask himself, what, if he was representing the defendant or a party with a relevant interest, he would be saying to the judge."

As will be seen this obligation to present a cased fully and fairly may be especially important where reliance is made on the complexity of financial arrangements. 

Does the existence of a ‘complex’ web’ in a financial/ corporate structure provide evidence of a risk of dissipation?  The answer is ‘no’ – at least not on its own. 

In challenging the making of a Restraint Order made in the criminal courts, it is sometimes useful to borrow from the civil courts’ jurisprudence on freezing injunctions.  In Holyoake v Candy [2017] EWCA Civ 92, the Court of Appeal considered a case that involved the Claimant’s (H) proposed purchase of a £43M property in London and the loan to him for that purpose from the Defendant (C).  The Defendant was then subject to an unlawful means conspiracy claim after H claimed that the agreement was tainted by later intimidation by C.  H secured a world-wide freezing injunction against C.  In granting the injunction the High Court had found that there was a good arguable case on the underlying merits and that there was a risk of dissipation.  In relation to the dissipation issue the Judge accepted that the mere fact that there was a large number of off-shore companies in the structure in issue, by itself was not evidence of a risk of dissipation, but it was a factor that could “legitimately be taken into account” (para 20).

The Court of Appeal rejected that logic.  Gloster LJ found that there had to be a real risk, judged objectively, that any future judgment would not be met because of the risk of an unjustifiable dissipation of assets.  If such a risk had been made out then; “the link to complex and offshore corporate structures and the potential to transfer value rapidly and invisibly through corporate reorganisation could contribute to that risk”.  However, the “mere possibility of a party using a complex corporate structure …. does not equate to a risk of dissipation”; paragraph 50. 

Where the investigator has in the without notice application relied on the use of e.g. BVI corporations and off-shore accounts etc to suggest underlying criminality, as opposed to just the risk of dissipation, then that too may be challenged. 

The case of R (Rawlinson and Hunter) v Serious Fraud Office [2013] 1 WLR 1634 was a search warrant case but concerned the same duty of full and frank disclosure that is required that is required in any without notice application.  Allegations of misrepresentation and non-disclosure were made against the SFO and in the subsequent Judicial Review the warrants were quashed. The SFO had specifically relied upon a particularly complex transaction as evidence of criminality. The High Court noted that; “like many very wealthy businessmen, RT operated the business in which he had an interest through a complex structure based in an offshore location for fiscal reasons” (para 5).  The very complexity required the SFO to explain to the Judge that in fact the suspects had received advice from two pre-eminent international law firms about the transaction in issue.  The SFO had failed to do so – a fair picture was not painted, the defence hat was not put on. 

The Holyoake v Candy case was followed by the High Court in National Crime Agency v Baker [2020] Crim LR 976.  The Holyoake principle now being applied to proof of the underlying allegation and not just proof of the risk of dissipation.  The Court discharged three Unexplained Wealth Orders (UWOs) and interim freezing orders which had been granted ex parte in respect of three London properties.  Unreliable assumptions had been made by the NCA regarding the source of the funds used to purchase the properties.  The need for caution in treating complexity of property holding through corporate structures as grounds for suspicion, as recognised in Holyoake v Candy  in the context of the risk of dissipation of assets in civil proceedings, applied equally in the context of UWOs.  Further, the NCA had relied on the case of R v Anwoir [2208] EWCA Crim 1354 to suggest that the manner in which one of the properties had been purchased led to an; “irresistible inference” that the funds could only have derived from crime – Lady Justice Lang DBE rejected that notion (para 99). 

Much depends on the issues.  It may be stated that the very structure itself is part of the means of a conducting a fraud e.g. a pension or tax fraud allegation when the prosecution will have other evidence of dishonesty.  On the other hand the client may be indicating that in fact the assets are not his/hers as alleged or, more usually, that there is an interest in the trusts/ accounts etc but the complex arrangements in place are there for good, and legitimate, reasons.

It is worth going back to basics from time to time. In R v Windsor and others [2011] 1 WLR 1519, Hooper LJ noted that certainty was not required at the preliminary stage of an investigation but that uncertainly was not in itself a reason for making a Restraint Order (para 53), and, furthermore, that a Judge cannot rely on “broad and unsupported statements to find reasonable cause” (para 87). 

It may well be the case that every suspicion that a financial investigator has, turns out to be well-founded.  But he/she could be wrong.  There does still seem to exist a failure to reign in the temptation to overplay the existence of complicated financial/ corporate structures in statements to the Judge ruling on the application.  So far as that attitude exists it is really no more than making assumptions and then putting those assumptions forward as ‘broad and unsupported statements’.  So long as prosecutors or financial investigators rely on the impermissible logic of complexity equals evidence, then solicitors can challenge Restraint Orders, search warrants, Production Orders etc and the Courts have provided defenders with the ammunition to do so.

Jonathan Lennon KC is a barrister at Doughty Street Chambers (Crime Set of the Year, 2023).  In 2023 he was recognised as one of the top 10 financial crime barristers in London by Business Today magazine.  He is ranked as Tier 1 in both the Legal 500’s POCA and Crime Fraud rankings.