Liquidators of Eurofed Bank Ltd ((in Liquidation)) v Supervisory Authority

• Jurisdiction: Antigua and Barbuda
• Judge: Rawlins, C.J.
• Judgment Date: 21 November 2011
• Neutral Citation: AG 2011 CA 4
• Docket Number: Civil Appeal No. 51 of 2010
• Court: Court of Appeal (Antigua and Barbuda)
• Date: 21 November 2011

Court of Appeal

Rawlins, C.J.; Pereira, J.A.; Baptiste, J.A.

Civil Appeal No. 51 of 2010

Liquidators of Eurofed Bank Limited

(In Liquidation)

and

Supervisory Authority

Appearances:

Mr. Anthony Astaphan SC, with him Mr. Nicholas Fuller for the appellant

Mr. Justin Simon QC, Attorney General, for the respondent

Criminal practice and procedure - Appeal — Registration of foreign restraint order — Whether the restraint order was rendered non-registerable — Whether court erred in ordering the registration of the order.

Eurofed Bank is in liquidation under a winding up order made on 3rd December 1999 by the High Court in Antigua and Barbuda. The Bank is insolvent and was in receivership prior to the winding up order. In October 1999, while the Bank was in receivership and under the control of Receiver-Managers, a judge of the High Court in Antigua and Barbuda issued a restraint order against Pavlo Lazarenko and his associated entities prohibiting them from removing any of their assets from Antigua and Barbuda or from disposing of any of their assets there, including the funds which they held in Eurofed Bank. The funds or assets are allegedly the proceeds of criminal activity. Pavlo Lazarenko was convicted in the United States on 3rd June 2005 on indictment on 29 counts including conspiracy to launder the proceeds of foreign extortion. After the order of October 1999, other orders were made by the High Court further restraining the removal and disposal of the funds which Pavlo Lazarenko and his associated entities held in Eurofed Bank. On 8th July 2005 a judge in the US District Court for the District of Columbia issued a restraint order in aid of forfeiture proceedings which resulted from the conviction of Lazarenko and others for financial criminal activity. The respondent Supervisory Authority applied to register the order in Antigua and Barbuda pursuant to Mutual Legal Assistance legislation and Treaty between the Governments of Antigua and Barbuda and the United States of America. The appellant liquidators objected to the registration of the order, and, in particular, that aspect of it which provides for the continuation of the credit of interests to the said fund, on the ground that interests do not accrue to funds in liquidation after winding up commences. A judge of the High Court in Antigua and Barbuda ordered the registration of the order. The liquidators appealed.

Held: dismissing the appeal and affirming the decision of the trial judge, with no order as to costs either in the High Court or in this Court:–

The trial judge did not err when he ordered the registration of the US restraint order issued by the District Court of Washington DC in Antigua and Barbuda without severing the interest element in the order, notwithstanding that he accepted the submissions on behalf of the liquidators that, generally, interest payments do not accrue to funds invested in an insolvent company after the commencement of the liquidation of that company. Where, as in the present case, funds that are allegedly the proceeds of crime invested in a company which is subsequently put into liquidation, the principal as well as any interest thereon could be the proceeds of crime. The interest element cannot be alienated from the principal to make the interest a part of funds available to liquidators because the interest is as much a part of the alleged proceeds of crime as the principal sum. They are all subject to tracing, and such principal and interests thereon that are proved, at the enforcement stage, to be the proceeds of criminal activity, are subject to be forfeited. Additionally, as a matter of public policy, permitting an entity or creditors therein to benefit from interest on proceeds of criminal activity is contrary to the object and purpose of combating money laundering. The restraint order thus takes precedent over the winding up order and the principal as well as the interest remains frozen together pending the outcome of forfeiture proceedings. Accordingly, the judge did not err when he ordered the registration of the US restraint order, including the interest element therein, nor when he held, further, that, ultimately, at the forfeiture proceedings, all issues, including the legal status of the accrued interest can be ventilated and resolved according to law.

Rawlins, C.J.

1 Stated briefly, the issue in this appeal is whether a foreign restraint order freezing funds which are allegedly the proceeds of crime, is rendered non-registrable in Antigua and Barbuda because it contains provisions which would freeze and attach not only the principal sums in those funds in a local bank that is in liquidation, but, more particularly, would also freeze and attach to interest accruing on those funds.

2 The restraint order was made on 8th July 2005 by a judge in the US District Court for the District of Columbia. It was made; inter alia, against assets held in Eurofed Bank (In Liquidation) in Antigua and Barbuda. The funds were the subject of US forfeiture proceedings. They were described by prosecutors in the US proceedings to be the proceeds of money laundering offences committed by Pavlo Lazarenko, a former Ukrainian Prime Minister. The appellants in the present appeal, the liquidators of Eurofed Bank, are the controllers of funds on deposit in that Bank, which funds are either owned or controlled by or on behalf of Pavlo Lazarenko, as well as funds of one Alexander Milchenko, deceased.

3 Pavlo Lazarenko was convicted in the United States on 3rd June 2005 on indictment on 29 counts including conspiracy to launder proceeds of foreign extortion.

4 It is common ground that the bank is insolvent. Due to its insolvency, the liquidators have only been able to pay a dividend of approximately 81% to creditors who proved their claims within the stipulated time frame prescribed by the liquidators.

PROCEEDINGS IN THE US COURT

5 The US restraint order of 8th July 2005 was issued in aid of forfeiture proceedings which resulted from the conviction of Lazarenko and others for financial criminal activity. The Supervisory Authority for such offences under the laws of Antigua and Barbuda applied to register the order in the Antigua and Barbuda High Court. Provision is made for the registration of such foreign judgments and orders under the Mutual Assistance in Criminal Matters Act 1993 and pursuant to the Mutual Legal Assistance in Criminal Matters (The Government of Antigua and Barbuda, and the Government of the United States of America) Ratification Act 2000. The applicable provisions are Article 1 sections 1 and 2(h) of this latter Act.

6 Article 1 sections 1 and 2 state:–

1

The Contracting Parties shall provide mutual assistance, in accordance with the provisions of this Treaty, in connection with the investigation, prosecution, and prevention of criminal offenses and in proceedings related to criminal matters. 2. Assistance shall include:– (a) taking the testimony or statements of persons; (b) providing documents, records, and articles of evidence; (c) locating or identifying persons; (d) serving documents; (e) transferring persons in custody for testimony or other purposes; (f) executing requests for searches and seizures; (g) Assisting in proceedings related to immobilization and forfeiture of assets; restitution; collection of fines; and (h) Any other form of assistance not prohibited by the laws of the requested state. [Emphasis added]

7 It is seen that Article 1 section 1 speaks to the scope of mutual assistance which the contracting parties can provide in connection with the investigation, prosecution and prevention of criminal offenses and in proceedings related to criminal matters. Section 2 lists the type of assistance which can be provided and subsections (g) & (h) provide for any form of assistance not prohibited by the laws of the Requested State.

8 The effect of the registration and subsequent enforcement of the US order would freeze the subject funds in the liquidation in Antigua and Barbuda, whether they constitute principal or “any interest accrued” thereon.

BACKGROUND TO THE ANTIGUA PROCEEDINGS

9 Litigation affecting Euro Bank (in liquidation) has been ongoing for some time in the court of Antigua and Barbuda.

10 On 28th October 1999, while the Bank was in receivership and under the control of Receiver-Managers, Henry Moe, J. issued a restraint order against Pavlo Lazarenko and his associated entities prohibiting them from removing any of their assets from Antigua and Barbuda or from disposing of any of their assets there. The prohibition specifically included any accounts that they held in Eurofed Bank. This order was made on an application by the Supervisory Authority, the Office of National Drug and Money Laundering Control Policy, pursuant to the Money Laundering (Prevention) Act 1996 as amended (By the Money Laundering (Prevention) (Amendment) Act, 1999). On 3rd December 1999, the said court made the order winding up the Bank on the application of the Receiver-Managers.

11 On 14th July 2000, Satrohan Singh, J.A. granted a stay of execution against the Supervisory Authority pending an appeal by Pavlo Lazarenko and the other defendants to the restraint proceedings pending the determination of the appeal. He ordered that the funds that were the subject of that order were to be paid into an interest bearing account at the Bank of Nova Scotia in St. John's until the determination of the appeal and that the restraint order be maintained until further order. He further ordered that the order transferring the funds to the Bank of Nova Scotia in the name of the Registrar of the High Court was to be complied with by 18th July 2000.

12 On 5th November 2003, on an application by the joint liquidators, Donald Ward and Charles Walwyn, Mitchell, J. made an order to divide the funds in Antigua and Barbuda which were subject to the liquidation....