Faerman v Director of the Serious Fraud Office

Factual and Procedural Background

This opinion concerns an application by the Respondent to discharge a Disclosure Order originally made by Judge Supperstone on 29th January 2019 and later amended by Judge Martin Spencer on 29th March 2019 under section 357 of the Proceeds of Crime Act 2002 ("POCA"). The Disclosure Order was made alongside a Property Freezing Order concerning property located at 8 Tasker Lodge, Thornwood Gardens, London, W8.

The Respondent is a Brazilian national who has admitted to criminal conduct involving bribery in Brazil and is subject to a cooperation agreement with Brazilian authorities following a payment of US$54 million. The Serious Fraud Office ("SFO") commenced a civil recovery investigation in June 2015, focusing mainly on the property at 8 Tasker Lodge, which it alleges was purchased with corruptly obtained funds linked to the Respondent's unlawful conduct as an agent for a Dutch company in Brazil.

The SFO has investigated various bank accounts, including Swiss accounts linked through offshore companies, believed to hold proceeds of the Respondent’s criminal activity. The property’s equity is estimated to exceed £5 million. In January 2019, the SFO applied for the Property Freezing Order and Disclosure Order to obtain information tracing the origins of the funds used to purchase the property and to identify other recoverable property held by the Respondent.

The Disclosure Order was granted following an oral hearing without notice. The SFO subsequently served the Disclosure Order and an Information Notice on the Respondent's English solicitors. However, the Respondent’s solicitors challenged the service on the basis that the Respondent was outside the jurisdiction and the SFO had no authority to issue such notices to foreign persons. The SFO withdrew the Information Notice and replaced it with a voluntary request for information, which was not complied with.

The Respondent applied to discharge the Disclosure Order, arguing that it was invalid and defective, relying heavily on the Supreme Court judgment in Serious Organised Crime Agency v Perry [2012] UKSC 35.

Legal Issues Presented

1. Whether the Disclosure Order made under section 357 of POCA was valid and within the court’s jurisdiction, particularly given that the Respondent was resident outside the United Kingdom.
2. Whether the failure by the SFO to disclose the Supreme Court judgment in Serious Organised Crime Agency v Perry to the court constituted material non-disclosure warranting discharge of the Disclosure Order.
3. Whether the service of an Information Notice under the Disclosure Order on a person outside the jurisdiction was lawful and enforceable.
4. The proper scope and effect of the penal notice included in the Disclosure Order, especially in relation to persons outside the jurisdiction.

Arguments of the Parties

Respondent's Arguments

• The Disclosure Order was invalid because it named only the Respondent, who was outside the jurisdiction, and section 357 of POCA does not authorize issuing information notices to persons abroad.
• The SFO’s failure to disclose the Supreme Court judgment in Perry to the court was material non-disclosure, misleading the court and warranting discharge of the order.
• The Disclosure Order was defective as it contained a penal notice addressed to the Respondent, who was outside the jurisdiction and thus not subject to criminal sanctions under the order.
• The SFO’s service of the Disclosure Order and Information Notice on the Respondent’s solicitors with the penal notice redacted was misleading and improper.
• The SFO should have sought the information via mutual legal assistance rather than relying on the Disclosure Order to obtain information from the Respondent abroad.
• The SFO’s application was essentially aimed at obtaining information solely from the Respondent overseas, which is impermissible under the legal framework.

SFO's Arguments

• The ratio of the Supreme Court judgment in Perry is that information notices cannot be served on persons outside the jurisdiction, but this does not invalidate the Disclosure Order itself.
• The Disclosure Order confers authority on an appropriate officer to serve notices on any person believed to have relevant information, not limited to named respondents.
• The fact that the Respondent was the sole named respondent does not limit the SFO’s ability to serve notices on others within the jurisdiction.
• The SFO did not act in bad faith by failing to disclose the Perry judgment; it was an unintentional oversight, and had it been disclosed, the order would likely still have been made with clarification regarding service outside the jurisdiction.
• The SFO complied with the judgment in Perry by redacting the penal notice when serving the Disclosure Order, effectively making the notice a voluntary request for information.
• There is a strong public interest in maintaining the Disclosure Order to support the ongoing civil recovery investigation.
• The SFO’s use of multiple investigative tools, including production orders and disclosure notices served on persons within the jurisdiction, has provided valuable information.

Table of Precedents Cited

Court's Reasoning and Analysis

The court first acknowledged that the requirements for making a Disclosure Order under s.358 of POCA were met, including reasonable grounds to suspect the Respondent held recoverable property and that information obtained would be of substantial value to the investigation. The SFO’s application identified multiple purposes for the order, including tracing funds used to purchase the property and identifying other recoverable assets, with intended recipients of notices including financial institutions and professional advisors.

The court examined the Supreme Court judgment in Perry and concluded that the ratio limits the authority under s.357 POCA to issue information notices to persons within the jurisdiction only. However, the judgment does not invalidate the Disclosure Order itself, only the service of information notices outside the jurisdiction.

The court found no evidential basis that the Disclosure Order was intended solely to obtain information from the Respondent abroad. The SFO had served multiple notices on persons within the jurisdiction, which had assisted the investigation. The fact that the Respondent was the only named respondent on the order did not limit the SFO's ability to serve notices on others within the jurisdiction.

The court accepted that the SFO should have disclosed the Perry judgment to the court at the time of the application but found that this omission did not amount to bad faith nor materially affect the court’s decision to grant the order. Had the judgment been disclosed, the court would likely have granted the order with the clarification that information notices could not be served on the Respondent outside the UK.

Regarding the service of the Disclosure Order and Information Notice with the penal notice redacted on the Respondent’s solicitors, the court found this was improper and did not comply with Perry. The power to issue an enforceable information notice arises solely from s.357 and is supported by criminal sanctions under s.359, which cannot be enforced extraterritorially. The redacted notice was ineffective and misleading, and the SFO’s subsequent withdrawal and replacement with a voluntary request was appropriate.

The court emphasized that no enforceable information notice could be served on the Respondent while he remained outside the jurisdiction and that the penal notice in the Disclosure Order did not invalidate the order itself. The court also noted that the public interest in maintaining the order was clear, given the ongoing investigation and the Respondent’s non-compliance with voluntary requests for information.

Finally, the court applied principles of material non-disclosure, referencing established case law, and exercised its discretion not to discharge the order despite the SFO’s failure to disclose the Perry judgment, balancing the public interest against any prejudice to the Respondent.

Holding and Implications

The Disclosure Order is upheld and the application to discharge it is dismissed.

The court held that the Disclosure Order made by Judge Supperstone and amended by Judge Martin Spencer was valid and within the court’s jurisdiction, notwithstanding the Respondent’s residence outside the UK. The Supreme Court judgment in Perry restricts the service of enforceable information notices under the order to persons within the jurisdiction but does not invalidate the order itself.

The failure by the SFO to disclose the Perry judgment at the time of application was a material non-disclosure but did not warrant discharge of the order, as the omission was not in bad faith and did not prejudice the Respondent. The improper service of a redacted Disclosure Order and Information Notice on the Respondent’s solicitors was acknowledged but remedied by withdrawal and replacement with a voluntary request for information.

The direct effect of this decision is that the Disclosure Order remains in force, but no enforceable information notices may be served on the Respondent while he remains outside the jurisdiction. The decision does not establish new precedent but clarifies the application of existing law regarding the territorial limits of disclosure orders and information notices under POCA.