Challenging cross-border requests

In our webinar on Responding to cross-border financial services investigations last week, one of our questioners asked whether there had been any legal challenges to requests from overseas regulators.

Yes we said.  In the UK, in FSA & Ors v ABN International SA and Ors [2009] EWHC 2242 (Admin), the respondents had raised a challenge in respect of the FSA's decision to accede to a request by the US Securities Exchange Commission (SEC) for the FSA's assistance in obtaining documents held by a UK based accounting firm that the SEC said were relevant to a civil claim it was pursuing against a US regulated company and individual.  After discussion with the SEC, the FSA had agreed to appoint investigators in order to obtain the documents.  That decision was challenged in judicial review proceedings on two bases: (i) the decision to appoint investigators was unlawful; and (ii) the document requirement was too wide and unspecific and beyond the scope of the FSA's powers. 

In that case, the Court of Appeal had concluded that there was no good reason why Parliament should have required the FSA to second-guess a foreign regulator as to its own laws and procedures, or as to the genuineness or validity of its requirement for information or documents.  None of the matters set out in section 169(4) of the Financial Services and Markets Act 2000 (FSMA), that the FSA may take into account when deciding whether to exercise its investigative power at the request of a foreign regulator, suggests that the FSA is required to form a judgment as to the necessity or desirability, from the point of view of the foreign regulator, of its obtaining the information or documents it seeks. 

Whilst the FSA is not bound to comply with a foreign regulator's request, the FSA  must, and did, consider the request when deciding whether to exercise its discretion under section 169 by the exercise of its investigative powers.  In that case, the FSA had asked the SEC various pertinent questions, received sensible answers, and decided to exercise its investigative power having considered the matters listed in section 169(4).  As the first instance judge had accepted, the  FSA  is not "required to satisfy itself of the correctness of what they are being asked to investigate or the basis upon which the investigation was asked for".  

The Court of Appeal's decision in that case was very closely tied to  the statutory framework set out in FSMA, and indeed, the Court of Appeal took the view it was immaterial whether or not the SEC had complied with the provisions in its bilateral MoU with the FSA dated 25 September 1991 or in the IOSCO MoU of May 2002.

Turning to criminal proceedings, however, the Administrative Court handed down its judgment in JP Morgan Chase Bank National Association & Ors v The Director of the Serious Fraud Office and the Secretary of State for the Home Department 
 [2012] EWHC 1674 (Admin) last week.  That case related not to a request by a regulator, but to a letter of request issued by the Public  Prosecutor of Milan to the secretary of state, pursuant to the Council of Europe Convention on Mutual Assistance in Criminal Matters 1959 ("the Convention") and the First and Second Protocols thereto. 

Based on the analysis advanced by the Prosecutor's legal expert and the text of the Letter of Request, the Court found that the letter of request was issued outside the scope of the Prosecutor's authority and was unlawful as a matter of Italian law.  In consequence, a decision by the secretary of state to refer the request, under section 15(2) of the Crime (International Co-operation) Act 2003, to the Serious Fraud Office, and the Serious Fraud Office's decision to issue notices under section 2 of the Criminal Justice Act 1987, was quashed.

In giving judgment, the Administrative Court stressed its expectation that requests for mutual assistance would be acted upon, expeditiously, in the overwhelming majority of cases, unless there are compelling reasons for not doing so.  The Secretary of State is not required to conduct a criminal trial on paper or decide disputed points of foreign law.   The Court was not opening the floodgates:

"In 99% of cases the SSHD could properly proceed on the assumption that the LOR was issued with authority. Exceptionally, here, she could not do so."

It would clearly be wrong to exercise a discretion in favour of answering a request when it is obviously unlawful (whether or not it was made in bad faith).  Mutual assistance is not a blank cheque.

Nevertheless, if the system of mutual assistance is to fulfil its purpose, refusals to accede to a request are likely to remain rare or exceptional, given the public policy interest in fighting crime and the United Kingdom's international obligations.