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The long arm of the law: chasing the proceeds of (alleged) crime

13 February 2017. Published by Davina Given, Partner

The English Court has upheld a freezing order over the proceeds of a sale of shares alleged to be Canadian bribes to a Chadian diplomat's wife in the US.

Allegations of corruption can frequently be difficult to investigate when numerous jurisdictions are involved.  It can be equally difficult to align the differing approaches of those jurisdictions to investigation, prosecution and punishment of potential wrongdoers.  The recent Court of Appeal judgment in Saleh v Director of the Serious Fraud Office [2017] EWCA Civ 18 saw the court seeking to balance the approach in Canada and in England.

What’s the story?

In August 2009, a Canadian company (then called Griffiths) agreed to pay a Maryland company called Ambassade du Tchad LLC ("Embassy of Chad") US$2m if Griffiths were awarded certain oil concessions in Chad.  Ambassade du Tchad was owned by the Chadian ambassador to the US.  In September 2009, that agreement was replaced by another, in the same terms, with a Nevada company, called Chad Oil Consultants LLC.  This company was owned by the wife of the Chadian ambassador.  On the same day, Mrs Saleh, who was the wife of another senior Chadian diplomat in the US, the ambassador's wife and a former religious teacher of the ambassador's children subscribed for 4 million shares in Griffiths at a cost of C$800.

In January 2011, Griffiths was awarded two oil concessions in Chad.  Shortly before the contracts were signed in February 2011, the agreed sum of US$2m was paid to Chad Oil Consultants. 

In July 2011, Griffiths, then under new management, started investigating the payment to Chad Oil Consultants.  It reported itself to the Canadian authorities and in January 2013, it pleaded guilty in Canada to corruption and was fined C$10.4m.

The Canadian authorities then planned to seek forfeiture of the shares issued to Mrs Saleh, the ambassador's wife and the former religious teacher of the ambassador's children on the basis that the shares were bribes.  However, in April 2014, the Canadian authorities dropped the case for reasons unknown and the Canadian court issued an order which included the statements:

  • "it…appear[s] that [Mrs Saleh] is innocent of any complicity in any indictable offence that resulted in the…seizure of her shares in [Griffiths]…" (in a recital); and

  • the order was to be "construed as a judgment in rem, in that the…shares issued…[to Mrs Saleh]…are neither crime related proceeds nor offence related property, but were at all times from the date those shares were issued to her, continuously and beyond the date of this Order/Judgment, her property lawfully acquired by her" (as part of the order).

    Why would the UK Serious Fraud Office get involved?

    In the meantime, Griffiths was floated on the London Stock Exchange and then acquired by Glencore plc in July 2014.  The amount paid for Mrs Saleh's shares was £4.4m.  However, after Glencore had paid the purchase price to Griffiths' registrars based in England, but before it was paid on to Mrs Saleh, the SFO obtained a property freezing order over the purchase price.  This was on the basis that the money was recoverable property for the purposes of the Proceeds of Crime Act 2002 (POCA), ie, property obtained through conduct that was a crime in the UK, or would be a crime if it occurred here.  In this case, the alleged unlawful conduct was the events in 2011 in the US and Canada which the SFO alleged amounted to a series of corrupt transactions. 

    Mrs Saleh applied to discharge the order, on the basis that the order of the Canadian court precluded treating the money as recoverable property under POCA.

    Did the Canadian order trump the property freezing order?

    No, said Mrs Justice Andrews at first instance (Saleh v Director of the Serious Fraud Office [2015] EWHC 2119 (QB)), and now the Court of Appeal has agreed with her.  The Court of Appeal saw the two issues as:

  • Was the Canadian order final and conclusive on the merits?

  • Was the Canadian order a judgment in rem so as to bind the SFO (rather than a judgment in personam, which would bind only Mrs Saleh and the Canadian prosecutor)?

    "On the proper analysis, it was in fact neither" found the Court of Appeal.  It relied on the fact that the Canadian judge had not heard any evidence on the facts or submissions on the relevant law and the Canadian prosecutor had not agreed the order (although he had not opposed the granting of it).  Further, even if the order was a judgment in rem, it established only that Mrs Saleh had good title to the shares and could confer good title on a sale – it did not prevent the SFO from making arguments as to the circumstances in which that title was acquired and therefore whether the proceeds from the sale of the shares were recoverable property under POCA.

    The next instalment

The SFO now intends to seek civil recovery of the money (see here), but the US is now also seeking to forfeit it in connection with alleged breaches of the US Foreign Corrupt Practices Act (see here).  Mrs Saleh contests that claim (see here), but the Government of Chad has also waded in (see here).  The story is far from over...

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