IN THE PETITION SCOTTISH MINISTERS FOR A DISCLOSURE ORDER IN RESPECT OF AM
OUTER HOUSE, COURT OF SESSION
[2014] CSOH 131
P584/13
OPINION OF LORD JONES
In the Petition
SCOTTISH MINISTERS
for a disclosure order in respect of AM
Petitioner;
Petitioner: Carmichael; Civil Recovery Unit
Respondent: Moir; Drummond Miller LLP
3 April 2014
Synopsis
(i) The petitioners are the enforcement authority for Scotland for the purposes of part 5 of the Proceeds of Crime Act 2002. They sought, and were granted, a disclosure order in terms of section 391 of that Act, averring that certain property of which the respondent has knowledge was the subject of a civil recovery investigation. The effect of the disclosure order was to require the respondent to answer questions, among other things. The respondent enrolled a motion in which he invited the court to vary the disclosure order.
(ii) The respondent’s argument in support of his motion was that section 391 provides, in terms, that no application for a disclosure order may be made in relation to a money laundering investigation. In their petition, the petitioners accuse the respondent, in effect, of having committed money laundering offences in connection with the property which is the subject of the disclosure order. If the respondent is required to answer questions about that property, so ran the argument, he will be the subject of a money laundering investigation.
(iii) The motion was refused. The petitioners, through the agency of the civil recovery unit, are responsible for recovering property which is or represents property obtained through unlawful conduct. If the court finds any property to be recoverable, it must order its recovery. The property then vests in the trustee for civil recovery. That is a civil remedy, directed against the property. A money laundering investigation is directed to determining whether an offence has been committed and, if so, the identity of the perpetrator. It is not a function of the Scottish Ministers to investigate crime. The application for the disclosure order was not made in relation to a money laundering investigation. It was made in relation to a civil recovery investigation.
Introduction
[1] The petitioners are the enforcement authority for Scotland for the purposes of part 5 of the Proceeds of Crime Act 2002 (“the Act”). The long title of the Act narrates that it makes provision, among other things, to allow recovery of property which is or represents property obtained through unlawful conduct.
[2] The petitioners aver that a number of heritable properties and the proceeds of the sale of certain other heritable properties (“the specified property”) are the subject of a civil recovery investigation. It is also averred that, as part of their civil recovery investigation, the petitioners are seeking to ascertain the full circumstances in which the specified property was obtained.
[3] The definition of “civil recovery investigation” is to be found in section 341 of the Act, which provides that it is an investigation into (a) whether property is recoverable property or associated property, (b) who holds the property, or (c) its extent or whereabouts. (Subsection 2) Two other types of investigation are also mentioned. A “confiscation investigation” is an investigation into (a) whether a person has benefited from his criminal conduct, or (b) the extent or whereabouts of his benefit from his criminal conduct. (Subsection 1) Subsection 4 concerns a “money laundering investigation”, which is an investigation into whether a person has committed a “money laundering offence”.
[4] Section 316 of the Act provides that “recoverable property” is to be read in accordance with sections 304 to 310. Section 304(1) provides that property obtained through unlawful conduct is recoverable property. “Associated property” is defined as property of any of a number of specified descriptions which is not itself the recoverable property. For example, if the recoverable property is part of a larger property, but not a separate part, the remainder of that property is associated property for the purposes of the Act. (Section 245(1))
[5] Shortly after raising these proceedings, the petitioners sought a disclosure order in terms of section 391 of the Act. Section 391 provides as follows:
“(1) The High Court of Justiciary, on an application made to it by the Lord Advocate in relation to confiscation investigations, or the Court of Session, on an application made to it by the Scottish Ministers in relation to civil recovery investigations, may make a disclosure order if it is satisfied that each of the requirements for the making of the order is fulfilled.
(2) No application for a disclosure order may be made in relation to a money laundering investigation.
(3) The application for a disclosure order must state that —
(a) a person specified in the application is subject to a confiscation investigation and the order is sought for the purposes of the investigation, or
(b) property specified in the application is subject to a civil recovery investigation and the order is sought for the purposes of the investigation.
(4) A disclosure order is an order authorising the Lord Advocate or the Scottish Ministers to give to any person the Lord Advocate considers or the Scottish Ministers consider has relevant information, notice in writing requiring him to do, with respect to any matter relevant to the investigation for the purposes of which the order is sought, any or all of the following —
(a) answer questions, either at a time specified in the notice or at once, at a place so specified;
(b) provide information specified in the notice, by a time and in a manner so specified;
(c) produce documents, or documents of a description, specified in the notice, either at or by a time so specified or at once, and in a manner so specified.
(5) Relevant information is information (whether or not contained in a document) which the Lord Advocate considers or the Scottish Ministers consider to be relevant to the investigation.
… "
[6] By interlocutor, dated 19 June 2013, the Lord Ordinary made a disclosure order as sought by the petitioners. Under cover of letter, dated 7 March 2014, the petitioners served on the respondent a certified true copy of the disclosure order, together with a disclosure notice requiring him to attend at the Crown Office on a date and at a time specified, and to answer questions, provide information and produce documents in relation to the civil recovery investigation.
[7] The case came before the court on 3 April 2014 on the respondent’s motion to vary the disclosure order in terms of section 396(4)(b) of the Act, which provides that such an application may be made to a judge of the court which made the order by any person affected by it. According to the terms of the motion, the variation was sought “to prevent the Scottish Ministers from ordering [the respondent] to attend for interview.” The reasons given, which are accurately quoted, were as follows:
“Section 391(2) of the Act states, ‘no application for a disclosure order may be made in relation to a money laundering investigation.’ Section 415 of the Act defines money laundering offence as an offence under Section 327, 328 or 329 of the Act. Section 327(1)(a), (b), (c), and (d) of the Act makes it an offence for a person to conceal criminal property, disguise criminal property, convert criminal property or transfer criminal property. Section 329(1)(a), (b) and (c) of the Act makes it an offence for a person to acquire criminal property, use criminal property or possess criminal property.
On the 19th June 2013 the Scottish Ministers petitioned the Court for and were granted a prohibitory property order under section 255A of the Act. At paragraph 2 of the Petitioner’s stated that, ’The respondent … in an individual who the petitioners think hold, or has interest in the property mentioned in Part II of the schedule to this petition. There is a good arguable case that the property is recoverable property within the meaning of the Act. Reference is made to paragraphs 7 to 34 below.’ The petitioner also referred within the petition to the property at schedule 2 as being property unlawfully obtained. The property referred to at Part II is the same property as referred to in the disclosure order. The disclosure order also referred to the proceeds of the sale of [other properties]. Within the petition the Petitioner avers that [the respondent] has been involved in the supply of controlled drugs, shoplifting, fraud and illegal money lending. At paragraph 32 the petitioner specifically averred that, ‘said property forming items [1] to [4] of the schedule is recoverable property, being property either wholly or partly obtained by the respondent through unlawful conduct. Namely the supply of controlled drugs and mortgage fraud.
The petitioners are investigating offences defined as money laundering and have no lawful authority to order [the respondent] to attend for interview under the terms of the order granted under section 391 of the Act…”
[The assertion that a prohibitory property order was granted under section 255A of the Act on 19 June 2013 is incorrect.]
[8] Having regard to the terms of the motion, the issues for determination are these: (i) whether or not the petitioners are investigating money laundering offences, and, if so, (ii) whether or not the disclosure order was made in relation to a money laundering investigation.
Submissions for the respondent
[9] Mr Moir, who appeared for the respondent, drew attention to sections 327, 328 and 329 of the Act which create what are described in section 415(1) as money laundering offences. They provide that a person commits a money laundering offence in certain circumstances involving criminal property. In terms of section 340(3), property is criminal property if it constitutes a person’s benefit from criminal conduct and the alleged offender knows or suspects that it constitutes such a benefit. Section 329(1) provides, in particular, that a person commits an offence if he acquires criminal property, uses criminal property or has possession of criminal property. In this case, submitted Mr Moir, the petitioners contend that the respondent acquired and has possession of heritable property using funds which were fraudulently obtained. The petitioner’s averments, therefore, amount to an accusation that the respondent has committed money laundering offences. If the petitioners ask the respondent questions about these matters, they will be conducting an investigation into whether he has committed money laundering offences. (Section 341(4)) Section 391(2), however, provides that no application for a disclosure order may be made in relation to a money laundering investigation. In these circumstances, the disclosure order should be varied to the effect that the respondent should not be required to attend for interview or that he should not be required to answer questions that relate to alleged money laundering offences.
Submissions for the petitioners
[10] In response, Miss Carmichael submitted that part 5 of the Act is concerned with the civil recovery of the proceeds of unlawful conduct, and that part 8 makes provision for investigations. For the purposes of part 8, the expressions “recoverable property” “associated property” and “unlawful conduct” have the same meaning as in part 5. (Sections 414 and 416(7A)) Having regard to the terms of section 341, a civil recovery investigation is concerned with the determination of the nature of property, who holds it, and its extent or whereabouts. A money laundering investigation, by contrast, is concerned with the question of whether a person has committed such an offence. In other words, a money laundering investigation is carried out with a view to the bringing of a criminal prosecution, whereas a civil recovery investigation is carried out with a view to recovering property. Section 266 provides that if, in civil recovery proceedings, the court is satisfied that any property is recoverable, it must make a recovery order. It is worthy of note, said Miss Carmichael, that section 391(5) leaves it to the discretion of the Scottish Ministers to determine what information is relevant to the investigation.
[11] Miss Carmichael argued that recoverable property is not limited to property obtained through unlawful conduct. There are tracing provisions (sections 304 and 305). Where a person’s recoverable property is mixed with other property, the portion of the mixed property which is attributable to the recoverable property represents the property obtained through unlawful conduct (section 306). Profits accruing to recoverable property are to be treated as representing the property obtained through unlawful conduct (section 307). One of the purposes of a civil recovery investigation is to identify recoverable property, both where it remains in its original form and where it does not, and to distinguish it from other property. During the course of so doing, money laundering offences may well come to light. If the respondent’s argument were correct, submitted Miss Carmichael, civil recovery investigations could be so hampered as to make them ineffective. In any case where property obtained through unlawful conduct might be followed after disposal, the party into whose hands it may be followed may have committed a money laundering offence (Sections 304 and 305). The same is true where recoverable property is mixed with other property. (Section 306) She gave as an example a house bought partly with funds legitimately obtained and used as a deposit and partly with funds obtained by means of a mortgage fraud. Depending on the purchaser’s state of knowledge at the relevant time, he or she may have committed a money laundering offence. The respondent would argue that no investigation could be carried out in order to determine what proportion of the purchase price was recoverable property and what proportion was not. That result, argued counsel, cannot have been Parliament’s intention. In every civil recovery investigation the whole facts and circumstances have to be explored in order to discover what property is recoverable and what is not, regardless of whether there has been a money laundering offence.
[12] The expression “unlawful conduct”, said Miss Carmichael, is defined in section 241 of the Act. It provides, among other things, that conduct occurring in any part of the United Kingdom is unlawful conduct if it is unlawful under the criminal law of that part. Noticing that money laundering offences are not excluded from the definition of unlawful conduct, counsel submitted that the section provides support for the proposition that the civil recovery regime and associated investigation provisions are not subject to the sort of exception contended for by the respondent. I understood her reasoning to be that a civil recovery investigation is an investigation concerning recoverable property. Recoverable property is property obtained through unlawful conduct. Unlawful conduct includes money laundering. The fact that a person who is in possession of what is suspected to be recoverable property might have committed a money laundering offence does not deprive those conducting a civil recovery investigation of the right to ask questions as to how the property was acquired.
[13] If the respondent’s argument were well founded, argued Miss Carmichael, it would produce absurd results. The Scottish Ministers would be precluded from investigating cases where recoverable property has passed from hand to hand following a change in its nature. She gave as an example the case where controlled drugs are sold and the proceeds are used to buy a house. Notwithstanding that the same person may have sold the drugs and bought the property, with the result that the house was obtained through that person’s own unlawful conduct, no questions could be asked of that person about what became of the proceeds. Such a result, submitted Miss Carmichael, would undermine the whole civil recovery regime.
[14] Counsel referred to a number of authorities in support of her argument: Regina v Southwark Crown Court, Ex party Bowles [1988] AC 641 (“Bowles”); Scottish Ministers v Doig 2009 SC 47 (“Doig”); Serious Organised Crime Agency v The Estate of Edward James Lundon (Deceased) and Others [2010] EWHC 353 QB; and Serious Organised Crime Agency v Azam and Others [2013] EWHC 627 QB. In Doig, recovery proceedings were initiated against an individual after his acquittal on a charge of a contravention of the Misuse of Drugs Act 1971. It was contended on his behalf that the petition should be dismissed because the proceedings were plainly linked to the criminal proceedings, having been raised shortly after his acquittal. It was argued that the Lord Advocate was the person responsible for both the recovery proceedings and the criminal proceedings, albeit in different roles. The averments in the petition amounted to an assertion of guilt, which was incompatible with article 6(2). An Extra Division approved the Lord Ordinary’s view that the petition proceedings were civil in nature. In giving his reasons, his Lordship’s noted that the remedy sought was the transfer of certain property to the trustee for civil recovery and the realisation of that property by the trustee. That, said the Lord Ordinary, is clearly a civil remedy, directed against the property rather than the perpetrator of any criminal conduct. Although, in terms of section 240 of the 2002 Act, it is necessary to demonstrate that conduct unlawful under the criminal law has occurred, it is not necessary to establish the identity of the perpetrator of that conduct, and it is immaterial whether the person against whom the order is sought has been guilty of such conduct. His Lordship concluded by remarking that, since establishing the identity of the perpetrator is an essential element in any criminal prosecution in Scotland, the absence of such requirement in the petition proceedings was a strong pointer towards their being civil in nature.
[15] In Regina v Southwark Crown Court, Ex party Bowles [1988] AC 641 (“Bowles”), the Crown Court granted an application by the police under section 93H of the Criminal Justice Act 1988 for production of certain information which was in the hands of an accountant who held it for the preparation of business accounts. Section 93H provided, among other things, that a constable may apply to a circuit judge for an order for the production of certain material “for the purposes of an investigation into whether any person has benefited from any criminal conduct or into the extent or whereabouts of the proceeds of any criminal conduct”. The Divisional Court made an order of certiorari to quash the production order, on the ground that the predominant reason for the application had been to further a police investigation into the alleged criminality of the owners of the business and that such purpose fell outside the ambit of section 93H.
[16] On appeal to the House of Lords, it was argued on behalf of the Crown that the words “an investigation into whether any person has benefited from any criminal conduct” should be read to mean “an investigation into whether any person has committed a crime which has benefited him”. In the course of his speech, with which Lord Goff of Chieveley, Lord Slynn of Hadley, Lord Steyn and Lord Clyde agreed, Lord Hutton expressed the view that section 93H was concerned with an investigation into the proceeds of crime to assist the authorities to obtain information which may enable an application to be brought for a restraint order or a confiscation order. Consequently, his Lordship said, whilst an investigation could be ordered under section 93H into benefit from criminal conduct or into the extent or whereabouts of the proceeds of such conduct following a conviction, an investigation could not be ordered under section 93H for the purpose of investigating whether further crimes has been committed. Whilst, in the great majority of cases the circuit judge would not be faced with a situation where it appeared that the police were actuated both by the purpose of investigating the proceeds of criminal conduct and by the purpose of investigating the commission of an offence, there may be cases where the issue arises. Lord Hutton’s view was that in such circumstances the circuit judge should decide whether or not to grant the order sought by applying the “dominant purpose test” as it is described by the authors of Wade & Forsyth on Administrative Law, seventh edition (1994) at page 436, in the following words:
"Sometimes an act may serve two or more purposes, some authorised and some not, and it may be a question whether the public authority may kill two birds with one stone. The general rule is that its action will be lawful provided that the permitted purpose is the true and dominant purpose behind the act, even though some secondary or incidental advantage may be gained for some purpose which is outside the authority's powers. There is a clear distinction between this situation and its opposite, where the permitted purpose is a mere pretext and a dominant purpose is ultra vires."
In Lord Hutton’s opinion, if the true and dominant purpose of an application under section 93H was to enable an investigation to be made into the proceeds of criminal conduct, the application should be granted even if an incidental consequence was that the police would obtain evidence relating to the commission of an offence. If, however, the true and dominant purpose of the application was to carry out an investigation into whether a criminal offence had been committed, and to obtain evidence to bring a prosecution, the application should be refused
Decision and reasons
[17] At the conclusion of the hearing on 3 April of this year, I refused the respondent’s motion and said that I would give my reasons in writing in due course.
[18] When passing the Act, Parliament made provision for a number of different types of investigation. (Section 341) As is noted in paragraph [2] of this opinion, they include a civil recovery investigation and a money laundering investigation. I agree with counsel for the petitioners that the former focuses on the nature of property, the identity of who holds it and its extent or whereabouts, whereas the latter is an investigation to determine whether a money laundering offence has been committed and, if so, by whom. The first serves the public interest that property which has been obtained by unlawful conduct should be recovered, whereas the public interest served by the latter is that criminal offences should not go undetected and unpunished. Either the Lord Advocate or the Scottish Ministers may apply for a disclosure order. As provided for in section 391, however, the Lord Advocate may only do so in relation to confiscation investigations, and the Scottish Ministers may only do so in relation to civil recovery investigations. We are not, in this case, concerned with confiscation investigations - they are conducted following a successful prosecution - whilst civil recovery investigations are conducted where there has been no prosecution, or where there has been no conviction on a prosecution.
[19] In my view, the respondent’s motion fell to be determined on the proper construction of section 391, set in its context. As is said in paragraph [8] of this opinion, the issues which fell to be determined were (i) whether or not the petitioners are investigating money laundering offences, and, if so, (ii) whether or not the disclosure order was made in relation to a money laundering investigation. I had no difficulty in answering the first question in the negative.
[20] It is not a function of either the Scottish Ministers or the civil recovery unit to investigate crime. As was explained by the Lord Ordinary in Doig (2007 SLT 313, at paragraph [11]), proceedings under part 5 of the Act are instituted by the civil recovery unit, which is the agency set up to carry out the functions of the petitioners as enforcement authority. References to the civil recovery unit are made by the financial crime unit, which is an operational unit of Crown Office. The financial crime unit is responsible for making applications for confiscation orders under part 3 of the Proceeds of Crime Act. The civil recovery unit is responsible to the Lord Advocate, but only in so far as he exercises the role and function of one of the Scottish Ministers. The unit is not answerable to the Lord Advocate as the person responsible for the investigation and prosecution of crimes in Scotland. The civil recovery unit, in working for the petitioners as enforcement authority under the 2002 Act, performs no prosecutorial function. If the civil recovery unit discovers any matter involving criminality, it is required to refer it to the prosecutor, in the form of the financial crime unit or the procurator fiscal. In the Inner House, the Extra Division endorsed that account and added that the Lord Advocate, and the prosecution service, cannot be equiparated with the Scottish Ministers acting as enforcement authority under part 5 of the 2002 Act.
[21] Given that the Scottish Ministers do not investigate crime and that the purpose of a civil recovery investigation is to enable them to determine the nature of property, etc., there need be no resort to the “dominant purpose” test. In Bowles, the police were the authority empowered by the legislation to apply for production of material, in order to assist them to obtain information which may enable an application to be brought for a restraint order or a confiscation order, all in the context of recovery. They were also the authority empowered to obtain access to material for the purposes of a criminal investigation. Where Parliament has provided that the same authority may apply to the court for disclosure for quite separate purposes, Bowles demonstrates that it may be necessary for the court to determine which is the dominant purpose which underlies the application. Since the Scottish Ministers do not have that dual role, “dominant purpose” does not become a consideration for the court.
Conclusion
[22] Since the petitioners are not investigating money laundering offences, and standing that the court has authorised disclosure in the context of a civil recovery investigation, it necessarily follows that they have authority to require the respondent to attend for interview and to answer any relevant questions.