Far away, yet so close: extended jurisdiction in the DOJ and SFO FX investigations

Earlier this year, it was announced that three FX traders had been indicted in the United States with a single count of conspiracy for manipulating the price of US dollars and Euros in the FX Spot Market.  The fact that all three traders were British nationals, working in the comfort of their respective employers’ London offices at the time that the alleged offences were committed, has attracted criticism. Moreover, the traders had already been subject to a UK Serious Fraud Office “thorough and independent investigation” lasting over one and half years, and involving in excess of half a million documents, but which ultimately failed to result in a prosecution in England.

However, none of this has deterred the US Department of Justice (”DOJ”) from forging ahead with its own prosecution. Although the alleged actions in “fixing, stabilising, maintaining, increasing, and decreasing the price of, and rigging bids and offers for EUR/USD” took place in England, the DOJ has jurisdiction because the three defendants “purchased, sold and caused the transfer of Euros and U.S Dollars” (a) in the United States and (b) to counterparties based in the United States.  The Grand Jury Indictment also relies on the fact that a number of relevant transactions were settled through a third party settlement bank that was headquartered in New York, and that held its USD account at the Federal Reserve Bank of New York.

This raises an interesting question – could the converse occur? In a scenario where the SFO believed that individuals committed fraud offences, but at the time the acts/omissions that formed the alleged offending occurred, they were all US nationals, working in the New York offices of their banks. Could English jurisdiction extend sufficiently far to allow a trial of them in the English criminal courts?

For the purposes of this article, it is assumed that the SFO would be considering three potential offences: a substantive offence contrary to the Fraud Act 2006; a conspiracy to commit an offence contrary to the Fraud Act 2006; and the common law offence of conspiracy to defraud.

The general rule

In England, the general rule of law is that jurisdiction is a territorial matter and local in its effect.   The majority of offences can only be tried if they took place within the confines of England’s territorial boundaries.  However, there are several exceptions to this rule. One exception is where there exists “clear and specific words to the contrary”. That is, where statutes creating certain offences expressly allow for extraterritorial jurisdiction.

One such example of “clear and specific words” which extends jurisdiction can be found in Part I of the Criminal Justice Act 1993 (“the CJA”).  The CJA provides the English courts with jurisdiction to try a number of specified fraud and dishonesty offences in circumstances where, even though the majority of offending occurs abroad, a “relevant event” occurs in England and Wales[1].

The specified offences that fall within the scope of the CJA are divided into two separate groups:   Group A and Group B. If an offence is not specifically listed in either of the two Groups, it does not fall under the remit of the CJA and so cannot benefit from the jurisdictional extension that the CJA provides.

Group A contains substantive offences and includes offences under the Theft Act 1968, Fraud Act 2006, Forgery and Counterfeiting Act 1981, Identity Documents Act 2010 and the common law offence of cheating the revenue.

Group B contains inchoate offences including (amongst others) both conspiracy to commit a Group A offence and conspiracy to defraud.

All three offences in our scenario therefore fall within the ambit of the CJA. The substantive offence contrary to the Fraud Act 2006 is a Group A offence. Conspiracy to commit an offence contrary to the Fraud Act 2006 and conspiracy to defraud are both Group B offences.

In circumstances where a person is believed to have committed a Group A or Group B offence, the CJA is not concerned with the nationality or whereabouts of that person when determining jurisdiction. Rather, it is concerned with the nexus to England of the acts/omissions that formed the alleged offending. This means that, under the CJA, a person may be tried, and ultimately found guilty in an English court, regardless of whether or not they were a British citizen at any material time, or indeed whether or not they were in England and Wales at any relevant time.

Group A offences

Let us return to the scenario and consider the Group A offence (the substantive offence contrary to the Fraud Act 2006).

In order for the English courts to be able to exercise jurisdiction in respect of this offence, a “relevant event” relating to the offence has to have occurred in England[2].   But what is a relevant event?

The term is defined at section 2(1) CJA as “any act or omission or other event (including any result of one or more acts or omissions) proof of which is required for conviction of the offence.”

This wording is restrictive and captures only acts or omissions.  It does not allow for any of the following to fall within the definition of relevant event: mere facts; events that can be proved (but which are not elements of the offence or else do not need to be proved in order to secure conviction); and states of mind.

However, in respect of the principal offences created under section 1 Fraud Act 2006, and only in respect of these offences, the CJA provides a further extension to the definition of relevant events.

Section 2(1A) CJA provides that, in circumstances where a fraud either (a) involves an intention to make a gain, and that gain occurred, or (b) involved an intention to cause a loss, or to expose another to a risk of a loss, and that loss occurred, the making of the actual gain or loss can amount to a “relevant event”.

The impact of section 2(1A) CJA on our scenario is two-fold.

First, it would provide jurisdiction for the English courts to try a US national, carrying out fraudulent acts in the USA, but who intended to make a gain/cause a loss/expose another to the risk of a loss in England, and who succeeded in making the relevant gain or causing the relevant loss in England.

Secondly, it would provide jurisdiction in circumstances identical to the first, but where the intention was that the gain/loss/risk of loss would be made in some other place, yet the gain or loss was actually made in England.

If, however, no loss was actually caused or no gain was actually made, section 2(1A) CJA does not apply.   In these circumstances, the SFO would have to prove that a relevant event under section 2(1) CJA (i.e. an act or omission proof of which is required for the commission of the offence) occurred in England. If the individuals in our scenario worked exclusively in New York during the period of the alleged offending, proving this requirement might well be very difficult.

Group B offences

Now let us turn to the two Group B conspiracy offences in our scenario – conspiracy to commit an offence contrary to the Fraud Act 2006 and the common law offence of conspiracy to defraud.

In respect of both offences the CJA is unconcerned as to where the agreement was entered into or indeed whether any act, omission or event ever occurred in England. [3] Part 1 of the CJA grants jurisdiction to the English courts to try a conspiracy entered into abroad, provided the agreed course of conduct, if carried out in accordance with the conspirators’ intentions, would have been indictable here.

Therefore a conspiracy to commit an offence contrary to the Fraud Act 2006 may fall within the jurisdiction of the English courts provided a “relevant event”[4] of the underlying fraud (if it had been carried out) would have occurred in England.  A conspiracy to defraud would similarly fall within the jurisdiction of the English courts provided its aim was to defraud in England.

In addition, section 5(3) CJA extends jurisdiction in conspiracy to defraud offences where the defrauding the conspirators agreed upon was not intended to take place in England, but did in fact occur here.  However, this is only in the limited circumstances that (a) the conduct would involve an act, omission, or the happening of some other event, which would constitute an offence in the place where it was intended to occur, and (b) the conspirator or his agent either joined the conspiracy, did something in relation to the agreement before its formation, or did or omitted something in pursuance of the agreement, whilst in England.

Section 5(3) does not apply to conspiracy to commit a fraud as the requirement to prove a “relevant event” produces a similar effect.  Even in circumstances where no act or omission occurred in England, section 2(1A) would still extend jurisdiction to the English courts if an actual gain or loss was made in England, regardless of where the conspirators had intended the gain or loss to occur.

In the context of our scenario, the result is that jurisdiction could therefore be extended to allow for the prosecution of the US nationals for either of the two Group B conspiracy offences, regardless of where the conspiracy was entered into, where it was intended to take place or indeed whether the course of conduct was ever pursued in England.

Conclusions

It may come as a surprise to some that an English criminal court has jurisdiction to prosecute US nationals whose allegedly fraudulent conduct occurred entirely in the USA, just as, in the FX Spot Fixing case, the US has jurisdiction to prosecute UK nationals whose allegedly fraudulent conduct occurred entirely in the England. But that is effect of the extended jurisdiction available under the CJA for fraud and conspiracy offences. In this respect, there is less imbalance between the jurisdictional reach of UK and US criminal laws than is commonly perceived.

What makes the FX Spot Market case so egregious is less the question of jurisdiction, and more the question of why the DOJ has effectively ignored the SFO’s decision that there was insufficient evidence to provide for a realistic prospect of conviction.

Whether the SFO would have the same resolve in reverse circumstances remains to be seen.  What is clear though is that it wouldn’t be jurisdiction holding them back.

[1] Section 2(3) CJA

[2] Section 2(1) CJA

[3] Section 3(2) CJA

[4] As per section 2 CJA.