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High Court clarifies limits on collateral use of documents obtained by the FCA pursuant to a request for mutual legal assistance: FCA v (1) Papadimitrakopoulos (2) Gryparis [2022] EWHC 2792 (Ch)

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Arasa Tharshini Rasadurai

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London

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Zoe Jensen

Senior PSL

London

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19 January 2023

In a strike out application, the High Court has reaffirmed that materials obtained through a formal request for mutual legal assistance (MLA) can only be used for the purpose stated within the request, absent express consent from the requested overseas authority.  In this case, concerning a dual-track investigation, the Financial Conduct Authority’s (FCA) “blended” approach to gathering and managing evidence caused it to fall foul of the prohibition on collateral use of evidence gathered under the Crime (International Co-Operation) Act 2003 (the Act). 

Background

The FCA alleges that the defendants in this case engaged in market abuse, in relation to which the FCA opened a dual-track investigation. The FCA initially pursued criminal proceedings against the defendants but, when it was unable to extradite them from Greece, switched to pursuing civil action.  

In investigating, building and formulating the civil claim, the FCA made use of material it had obtained through MLA requests made in connection with the criminal proceedings, without first obtaining the consent of the overseas regulator also to use them in the civil proceedings. 

The defendants applied to the High Court to strike out the FCA’s civil claim against them on the basis the FCA had breached the absolute prohibition against collateral use of MLA material, contained in s9(2) of the Act. 

Scope of the prohibition on collateral use of MLA material

The Act gives UK prosecuting authorities the power to request legal assistance from overseas authorities in respect of criminal investigations and proceedings. Section 9(2) of the Act prohibits collateral use of the information shared, stating “the evidence may not without the consent of the appropriate overseas authority be used for any purpose other than that specified in the request”. 

The FCA contended that the MLA material could be used to inform pleadings, questions posed in investigative interview or to seek further documents in an investigation, without falling foul of the collateral use prohibition. The FCA argued that the word “used” in section 9(2) should be limited to deploying the MLA material in evidence.

The court rejected this narrow construction and held that the underlying purpose of the Act, and relevant authorities, supported a broad construction of the word ”used”, consistent with its natural meaning and not restricted to deployment in evidence only. It highlighted that the restrictions in section 9(2) of the Act were implemented to comply with the UK’s long standing international law obligations and considered that adopting the FCA’s narrow interpretation of the word “used” would undermine the object of mutual legal assistance that the Act was intended to promote. Without the restrictions, a requested state would not have any control over the evidence it provided, which may have been obtained by the exercise of powers of compulsion or may comprise sensitive or confidential information.  

A problem for dual-track “blended” investigations

The court held that, in running its investigation as a dual-track investigation, “the FCA chose to blend its criminal and civil investigations, using MLA material to inform it as to further investigations…” and in doing so, breach the prohibition on collateral use.  

This breach could have been avoided if the FCA had erected an information barrier or obtained consent for such use from the requested authority. In reality, the FCA would have to go down the route of seeking the requested authority’s consent as it is very unlikely that the FCA could implement an information barrier in dual-track investigations, which rely on a single FCA investigation team to conduct the criminal and civil investigations concurrently. 

The court considered that the standard wording used by the FCA its MLA requests was insufficient to provide consent to collateral use of the MLA material in civil proceedings. It noted, however, that the wording used in the FCA’s IOSCO request included reference to the possibility of using materials in investigations and subsequent proceedings including civil proceedings, which it said would have been sufficient. 

Abuse but strike out is disproportionate

The court accepted that the FCA had acted in good faith on an apparently misconceived interpretation of section 9(2) of the Act, but held that the FCA’s conduct amounted to an abuse of the process of the court.

The finding of abuse of process did not, however, automatically mandate a strike out order from the court, which it said would be a disproportionate response to the FCA's conduct. The court ruled that any MLA material that had been used without consent would be inadmissible in the ongoing proceedings. To the extent any MLA materials are not separated from the documents in the civil proceedings, they must be retained for the sole purpose of future criminal proceedings or returned to the relevant authorities.

The judge indicated that the FCA should seek retrospective consent from the relevant authorities for the continued use of the MLA material.

In reaching this balance, the court attached significant weight to the fact that the market abuse proceedings against the defendants were plainly brought in the public interest and that striking out these proceedings might strike out a claim with “overwhelming merit”

Comment

The FCA is unlikely to be in a position to “unblend” its dual-track investigations process. This decision should give subjects of dual-track investigations confidence to challenge the FCA’s use and management of evidence where it appears evidence gathered under criminal powers is being deployed for a collateral purpose. However, the FCA should be able to avoid the negative effects of the decision if it seeks sufficiently broad consent from the requested authority for the alternative use of requested material.

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