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02 SMay 2007 | UMBS Online Ltd v Serious Organised Crime Agency | Back to News List

UMBS Online Ltd vs Serious Organised Crime

At 10.00am today, the Court of Appeal handed down its judgment in the case of a judicial review brought by UMBS Online Limited (“UMBS”) against the Serious Organised Crime Agency (“SOCA”). This is the latest of a line of damaging decisions for SOCA, which was set up in 2005 to replace NCIS.
The Court’s judgment highlights a number of important legal and constitutional issues, namely:

1.The enormous and quite unprecedented power that SOCA enjoys under the Proceeds of Crime Act 2002 (“POCA”).

2. The highly intrusive and damaging effect that the exercise of those powers can have on individuals and business.

3. The secrecy/lack of transparency in this country’s money laundering regime.

4. The very great difficulty that individuals and businesses face in trying to challenge the exercise of SOCA’s powers.

Their Lordships were highly critical of SOCA’s actions and the POCA as a whole. Sedley LJ summarized those concerns very neatly at paragraph 58
as follows:

“In setting up the Serious Organised Crime Agency, the state has set out to create an Alsatia – a region of executive action free of judicial oversight. Although the statutory powers can intrude heavily, and sometimes ruinously, into civil rights and obligations, the supervisory role which the court would otherwise have is limited by its primary obligation to give effect to Parliament’s clearly expressed intentions. But, except where the statute prevents it, the scheme must also accommodate what Byles J in Cooper v Wandsworth Board of Works (1863) 14 C.B.N.S. 180 called the justice of the common law. That is the duality we have sought to recognise in deciding this case.”

Brief background to case
UMBS is a New Zealand company that provides money transmitting services
to registered customers over the Internet. Its online facility enables customers to make almost instantaneous transfers 24 hours a day, 365 days a week, thereby cutting across the usual banking delays. This is obviously a huge advantage to customers, particularly in fast moving markets.

The POCA 2002 makes it a criminal offence (amongst other matters) for a party such as a Bank to become involved in an “arrangement” which it “knows or suspects” to facilitate the acquisition, retention or use or control of criminal property. “Suspicion” is very loosely defined in English law as something which is “more than just fanciful”. Under the Act, a Bank harbouring suspicions must make a disclosure report to SOCA and seek SOCA’s consent to make the transaction(s) in question. If a report is filed, SOCA has seven days to grant
or refuse consent. In the event of a refusal by SOCA, the customer’s account is effectively frozen for 31 days to enable SOCA to investigate the matter further and decide whether to obtain a restraint order over the funds.

On 6 February 2007, UMBS discovered that its client trust accounts in the UK had been frozen. It transpired that UMBS’ contracting partner, Currency Solutions Limited (“CS”), which held accounts on UMBS’ behalf, had made a disclosure request to SOCA on the basis of information received from UMBS’ bankers, and had asked SOCA to confirm that it could process transactions on UMBS’ behalf.

On 14 February 2007, SOCA granted permission to Currency Solutions to process UMBS’ transactions. However, on 21 February 2007, and pursuant to
a seemingly identical disclosure request, SOCA refused consent to UMBS’ bank to make the same payments. As a result, UMBS’ client trust accounts were frozen for a further 31 days.

On 26 February 2007, UMBS’ solicitors, Malletts, wrote to SOCA to ask them to reconsider their position in view of the contradictory responses to CS and the bank. SOCA refused to entertain that request, stating that they would not do so in the absence of a request from UMBS’ bank and a change of circumstances.

The Court’s decision
On 15 March 2007, the Court of Appeal held that SOCA’s refusal was unlawful. There was nothing in the Act that required a request to come from the Bank. Their refusal to deal with Malletts was erroneous on a point of law.

Comment
“The Proceeds of Crime Act is a truly frightening and draconian piece of legislation where the rights of the individual come a distant second to those
of the State. The test for “suspicion” of money laundering is very low such
that, in practice, Banks and other parties will tend to err on the side of caution when making disclosure reports to SOCA. However, in the event of a disclosure, a party’s funds can be frozen for up to 38 days, during which time any underlying transaction, such as a property purchase or a sale of goods, can fall though, with no realistic possibility of compensation. Moreover, during a disclosure window, the affected party must suffer in silence. The bank can’t say anything for fear of “tipping off” - itself a criminal offence - and SOCA will stay silent for fear of prejudicing any future enquiries. There are no real safeguards for the individual under the Act or any published materials setting out how SOCA should conduct itself. As matters stand, the only remedy is judicial review, but that is a hollow tool unless – as we did - you can point to evidence of abuse. In my view, Parliament urgently needs to look again at this piece of legislation.”

02 May 2007

UMBS Online Ltd
v Serious Organised
Crime Agency

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