UK Court Upholds Disclosure Order on Corruption-Based Asset Forfeiture

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Thursday, July 30, 2020
Bruce Zagaris

                On July 10, 2020, Mrs. Justice Johannah Cutts DBE upheld a disclosure order sent to a Brazilian businessman allegedly using “corrupt funds” connected to the multibillion dollar Petrobras “Operation Carwash” money laundering scandal.[1]

                Julio Faerman worked for the Dutch oil and gas services company SMB Offshore. He pled guilty to bribery in Brazil. He concluded a cooperation agreement with the prosecuting authorities after he paid them $54 million. Before that, the Brazilian authorities requested the assistance of the Serious Fraud Office (SFO) in the recovery and identity of Faerman’s assets in the U.K. The request was withdrawn after the agreement.

                In June 2015, the SFO started its own civil recovery investigation. It focused primarily on the property at 8 Tasker Lodge in London. The SFO claims that the funds used to buy the property were linked to corrupt funds obtained by Mr. Faerman during his work as an agent for a Dutch company to enable it to further its business in Brazil with Petrobras, the Brazilian national oil and gas company. The SFO believes that some offshore accounts received a portion of the proceeds of Faerman’s criminal activities.

                In January 2019, the SFO applied to the High Court for a Property Freezing Order and Disclosure Order. The latter was likely intended to enable the SFO to obtain information that would identify the ultimate source of the funds used to purchase 8 Tasker Lodge and determine whether the funds could be traced to the known repositories of the proceeds of Faerman’s unlawful conduct. 

                When the first Disclosure Order was issued on January 29, 2019, the SFO did not bring to the court’s attention the Perry case, which precludes a notice of criminal penalties to Faerman for non-compliance, insofar as Faerman is outside the U.K.

                Eventually on November 5, 2019, the SFO wrote to Faerman’s solicitors admitting they could not force compliance with the Information Notice, which was why they had removed the penal notice. They said that they were requesting the information on a voluntary basis.

                Subsequently, the SFO agreed to withdraw the Information Notice and to write a letter to Faerman in its place, requesting the information sought on a voluntary basis. Faerman did not provide the information on request.

                Justice Cutts refused to discharge the disclosure order. She determined that the SFO did not act in bad faith, and Faerman has not suffered prejudice. Likewise, she stated that a clear and compelling public interest exists in maintaining the disclosure order.  She pointed out that Faerman does not challenge the merits of the SFO’s suspicion concerning the legality of the funds used to buy the property.  Hence, the disclosure order is valid.

                As a result of the order, the SFO is able to seize the Kensington property linked to Faerman, and Faerman will have to comply.  Although the order concerns a procedural matter over the extraterritorial application of the disclosure order and notice required, the SFO can continue to pursue Faerman for the information it seeks with respect to its efforts to ascertain whether proceeds of crime were used to buy the luxury London apartment.

[1]    Julio Faerman v. Director of the Serious Fraud Office, [2020] EWHC 1849 (Admin) Case No.: CO/288/2019, High Court of Justice, Queen’s Bench Div., Administrative Court, Oct. 7, 2020.