MCML Ltd (Formerly ED&F Man Capital Markets Ltd) v Southwark Crown Court

Hearing dates: 6, 7 and 8 February 2024

Approved Judgment

This judgment was handed down remotely at 10.30am on 17 April 2024 by circulation to the parties or their representatives by e-mail and by release to the National Archives.

Introduction

This is an application for judicial review of four search warrants issued by HHJ Taylor at Southwark Crown Court on 12 September 2022. The first claimant is ED&F Man Capital Markets Ltd (“ED&F”), a company which forms part of a large global finance group. The second claimant is Victoria Foster, who was at the material time employed by ED&F and was described by the Financial Conduct Authority (“FCA”) as the manager who oversaw the day to day trading of the Equity Finance desk in London during the relevant period. The warrants were issued pursuant to requests for mutual legal assistance (“MLA”) from the Danish State Prosecutor's Office for Serious Economic and International Crime (“SEIC”) and the Public Prosecutor at the Office of Public Prosecutions in Cologne, Germany (“OPPC”) (together, the “Requesting Authorities”). Each claimant was subject to two search warrants, one reflecting the Danish request and one reflecting the German request.

Search warrants were also issued against other former employees of ED&F, also at the request of the Danish and German authorities, namely Mark Whitehead, the previous Global Head of the Equity Finance Department, and Stephen Hawksworth, the previous Chief Executive Officer of Equity Finance and Capital Markets Europe. Neither of them participates in this judicial review.

The named defendant is Southwark Crown Court. It has not participated in this judicial review. HMRC are the Interested Party and the effective defendants. Permission for judicial review was granted by Lavender J on 23 May 2023.

Facts in Outline

The judge described the Danish investigation into ED&F in the following way (there is no challenge to her description):

“4. Danish authorities are investigating ED&F Man, Mark Whitehead, Victoria Foster and Stephen Hawksworth during the period 2012 to 2015 in relation to allegations of 421 instances of fraudulently reclaimed Danish withholding tax (WHT) to the value of DKK 573 million (£66 million). The mechanism of the suspected fraud is set out in detail in the application before the court at Appendix A. I now give a brief summary of the information provided by Miss McColl in relation to the fraud in Appendix A.

5. The investigation began as a result of a police report filed on 3 May 2018 by the Danish customs and tax administration (SKAT) in respect of the suspected fraud involving individuals, reclaim agents, American pension plans, and a custodian bank ED&F Man. The Danish State Prosecutor for Serious and Economic crime (SEIC) subsequently found that ED&F Man was also named in an earlier report by SKAT of 24 ^th August 2016 regarding a suspected tax fraud in respect of the recovery of DKK 573 million.

6. The investigation has shown that the suspects, either themselves or by instructing another provided misleading documentation in the form of dividend credit advice (DCA) forms to the Danish tax agency, which induced them to believe that 36 US/Canadian pension plans were the beneficial owners of the stocks and had had refunds of tax on dividends withheld. No register of ultimate stockholders of Danish stocks exists, and the DCA document issued by ED&F Man contained the name of the Danish company and the amount of tax withheld. The Danish tax agency relied on this documentation to inform them where refunds were due. As a result refunds were paid to ED&F Man when no stock was held.”

She described the German investigation as follows:

“54. The German authorities are investigating a suspected tax evasion in relation to fraud concerning trades of German shares and claims for refunds of German withholding tax between 1 January 2009 and 31 December 2017 in the sum of Eu 586,336,117 equating to roughly £490 million. There are two Applications: firstly an application to give effect to a European Investigation order (the “EIO”) pursuant to Regulation 39 of the Criminal Justice (European Investigation Order Regulations) 2017 “the 2017 Regulations”, and secondly a section 9PACE application.

55. On 20 November 2020 the local Court in Cologne made rulings granting warrants in respect of searches to premises of ED&F Man, Mark Whitehead and Victoria Foster, listing the information which could be sought. That information is the subject of the EIO. Subsequently the Public Prosecutor in Cologne sought further material which fell outside the scope of the EIO, which is now the subject of the section 9PACE application. The Public Prosecutor has provided a letter which is Appendix C to the application which sets out extensively the probative value of documents sought, the documents sought on each premises, and the reasons why it is believed that such documents would be on the premises.

56. The applications made by HMRC are therefore for search warrants in relation to a criminal investigation being carried out by law enforcement authorities in Germany, following a request for mutual legal assistance from the Public Prosecutor at the office of Public prosecutions in Cologne. The application made by Miss McColl is supported by the rulings at the local Court at Cologne dated 20 November 2020 in respect of ED&F Man, Mark Whitehead and Victoria Foster. To a great extent her statement and Annex A to the EIO repeat the findings of the Court.”

The German authorities had started their criminal investigation in 2013. The German investigators noted that MF Global UK Limited (“MF Global”), the company for which Ms Foster and Mr Whitehead had worked until that company went bankrupt in 2011, had also been involved in tax fraud. Ms Foster and Mr Whitehead had moved together from MF Global to work for ED&F.

Quite apart from the two sets of criminal investigations (in Denmark and Germany), various other proceedings and inquiries into the same or related matters have been undertaken or are ongoing:

a. The Financial Conduct Authority has investigated ED&F and Ms Foster (the “FCA investigations”). In the course of these investigations, ED&F had produced two reports, prepared by its solicitors, which were referred to as the “Annex E reports”.

b. Civil proceedings were brought in the courts of England and Wales by SKAT (the Danish customs and tax administration). Those proceedings were issued against a number of defendants including ED&F, alleging negligence. ED&F filed its defence on 6 September 2019 admitting that some of the tax vouchers it issued were inaccurate because in fact no dividend net of withholding tax had been received by ED&F's clients. These inaccurate tax vouchers were referred to by ED&F as the “Annex E Tax Vouchers”. ED&F provided SKAT with the Annex E reports in the course of this litigation. Of the £60m or so claimed by SKAT, ED&F admitted that around £20m was attributable to inaccurate tax vouchers but disputed the remainder of SKAT's claim. (These are the “English civil proceedings”.)

c. After the dismissal of the English civil proceedings by the Court of Appeal in April 2022, SKAT brought a second claim against ED&F alleging fraud. (These are the “second English civil proceedings”.)

d. Civil proceedings brought in the courts of the US against ED&F's US pension fund clients, to which ED&F has been joined (the “US proceedings”).

e. The US and Canadian pension fund clients of ED&F had pursued administrative appeals in Denmark against decisions denying them particular tax treatment in consequence of their suspected involvement in these frauds (the “Danish tax appeals”). ED&F was not a party to the Danish tax appeals.

The search warrants were executed on 28 September 2022, without notice. Material was seized which is currently being held by HMRC, pending the outcome of this judicial review.

Legislative Framework

The Council of Europe Convention on Mutual Assistance in Criminal Matters 1959 (the “Convention”).

The Convention aims to encourage and facilitate MLA between judicial, police and customs authorities on criminal matters and to improve the speed and efficiency of judicial cooperation. The United Kingdom, Denmark and Germany are all signatories.

Crime (International Co-operation) Act 2003 (“CICA”)

CICA is the domestic statute implementing the Convention. Section 13 of CICA provides that the territorial authority for the relevant part of the United Kingdom may direct an application for a search warrant to be made, where the request for assistance is from a court exercising criminal jurisdiction or a prosecuting authority in a country outside of the United Kingdom. The territorial authority for the United Kingdom is the Secretary of State for the Home Department.

Section 16 of CICA contains the dual criminality rule, permitting a search warrant to be applied for in response to a request for MLA where the conduct in question constitutes an offence under the law of a country outside the United Kingdom and would, if it occurred in England and Wales, constitute an indictable offence.

Pursuant to the Crime (International...