Applicants for search warrants must make full and frank disclosure to the court

The following is taken from an article by Adam Craggs, originally published in Tax Journal on 31 October 2014.

Introduction

Readers may recall that in September 2010, the Chief Secretary to the Treasury, Danny Alexander, announced plans to tackle non-compliance in the tax system over the Spending Review period (April 2011 to April 2015).[1] The Chief Secretary said, amongst other things, that funding would be available for a more robust criminal deterrent against tax evasion and that HMRC would increase the number of criminal prosecutions fivefold over this period.

Given such pronouncements, HMRC are clearly under a great deal of pressure to increase the number of prosecutions for tax evasion, and it is perhaps not surprising therefore that the Financial Times recently reported that the number of criminal prosecutions for tax evasion had increased by 29 per cent between 2012-13 and 2013-14.[2]

Not every person suspected of tax evasion by HMRC is guilty of tax evasion. With the number of prosecutions for tax evasion on the increase, it is important that HMRC comply fully with their legal obligations when invoking their criminal powers. This is particularly so, in the context of search warrants.

There have been a number of recent examples where this has not been the case and HMRC have been criticised by the judiciary as a consequence (see, for example, R (on the application of Robin Lees & Others) v HMRC[3]).

The latest case in which this important issue has been considered is R (on the application of Golfrate Property Management Ltd and Adam) v Southwark Crown Court[4]. In this case the Metropolitan Police Service ('MPS') was criticised by the court for failing to make proper disclosure to the issuing judge when it applied for the issue of search and seizure warrants. The decision is of general relevance to all applicants seeking the issue of search warrants.

Background

The MPS applied to a Crown Court judge for the issue of search and seizure warrants under section 352(1) and (6)(b), Proceeds of Crime Act 2002 ('POCA').

The application followed a money laundering investigation which was directed at the breach of sanctions imposed by the EU in 2002 against members of ZANU-PF, the ruling party in Zimbabwe.

It was alleged that Dr Adam and his associates were laundering money in breach of the sanctions regime and that criminal property had been obtained from members of ZANU-PF and invested in the London property market, and the rent thus obtained then passed back to the ZANU-PF members.

The hearing before the judge lasted 16 minutes. The judge was presented with a 14 page Information which had been prepared by a police officer who gave evidence on oath to confirm the accuracy of the Information.

The judge granted the warrants and the premises of Golfrate Property Management Ltd ('GPM') and Dr Adam were searched and a large amount of documentation seized. GPM and Dr Adam brought judicial review proceedings to set aside the warrants.

Judgment

The claimants relied upon a number of grounds, including the following:

Non-disclosure

It was claimed that material information was not supplied to the judge.   In particular, MPS failed to disclose that there was evidence of the compulsory seizure of a sizeable estate belonging to members of Dr Adam's family by the ZANU-PF Government. This demonstrated that Dr Adam, or those closely associated with him, were not immune from expropriation by the ZANU-PF regime.

In addition, a company associated with Dr Adam was in correspondence with the Zimbabwean Government regarding the programme implemented by the ZANU-PF regime to ensure that at least 51% of shares in businesses were owned by indigenous Zimbabweans. It was complying in a "dilatory and unenthusiastic manner".

Misrepresentations

In addition, a number of positive misrepresentations were found to be contained in the Information. For example, Dr Adam maintained that his property portfolio was worth $40 million in January 2007, but the MPS believed the actual figure to be over ten times that amount. At the relevant time, UBS recorded the value of the portfolio as £40 million.

Other grounds considered by the court

The third ground raised was that the warrants did not comply with section 353(5) POCA, which requires that there must also be reasonable grounds for believing there to be material on the premises specified which relates to the person named on the application and their commission of the relevant offence, and that it is likely that material will be of substantial value to the investigation. Given the non-disclosure and misrepresentations which had been made by the MPS, the court said that it was difficult to see how these conditions could be met in the instant case.

Redactions

A separate issue commented on by the court was that before a copy of the Information was provided to GPM and Dr Adam, extensive redactions were made to it, to such an extent that they could have no real idea of the case against them. The court considered it to be impermissible to withhold material in such an intrusive process, and said it would only be appropriate to redact any part of the Information, on an application to the court on proper grounds supported by appropriate evidence from a very senior officer.

Conclusion

The court concluded that the approach which had been adopted by the MPS was unacceptable. The obligation to effect proper disclosure was long-standing, and had been confirmed in Rawlinson & Hunter [2012] EWHC 2254.[5]

The court confirmed that once an issuing judge has been supplied with all of the material relevant to his decision, including that presented by the applicant authority which militates against the issue of a warrant, the judge is then required to bring his own critical and analytical scrutiny to the material and information before him to personally satisfy himself that there are reasonable grounds for suspicion justifying the grant of the warrants sought.

In this case, the material said to give rise to reasonable grounds for suspicion could not withstand analytical scrutiny. The warrants should not have been granted and the warrants were set aside.

Comment

This case confirms that applicants for search warrants must not only put before the court all of the information necessary to enable the judge to satisfy himself that the statutory conditions for the issue of the warrant are fulfilled, they must go further and provide full and complete disclosure of anything which might count against the grant of the warrant. There is also a significant personal obligation on the judge concerned to scrutinise the material placed before him in order to satisfy himself that there are reasonable grounds for suspicion justifying the grant of the warrants sought.

As the number of prosecutions for tax evasion continues to increase, it is likely that more search warrants will be executed by HMRC. The execution of search warrants is extremely intrusive and as they will be applied for without notice, it is important that they are granted only after full and proper disclosure by the applicant authority has been made to the court and the judge has satisfied himself that all the appropriate statutory conditions for the issue of the warrant have been met. Where there is reason to believe that this has not occurred, recipients of search warrants should give careful consideration to whether it is appropriate to challenge the granting of the warrants by way of judicial review.

[1] See HM Treasury press release published on 20 September 2010.

[2] 13 October 2014.

[3] [2013] EWHC 3779 (Admin).

[4] [2014] EWHC 840 (Admin).

[5] Judgment in Rawlinson & Hunter had been handed down shortly after the application for search warrants had been made in this case.