The Potential Imbalance Between US And UK Criminal Jurisdictional Reach

07 Apr 2021, 24 mins ago

The extradition to the United States (“US”) of a trader accused of insider dealing was recently ordered by a Judge at the Westminster Magistrates’ Court.

Interestingly, the US had requested extradition when according to the US indictment the trader was

At all relevant times to this Indictment …… a citizen of the United Kingdom, residing in London, England

and in circumstances where the UK agency (in this case the Financial Conduct Authority) had dropped its own investigation.

This is not the first time the US has established jurisdiction over a UK citizen for conduct in the UK and against the backdrop of a closed UK investigation. In 2017 three FX traders were indicted in the US for conspiracy to manipulate the Spot Market. All three were UK citizens and in the UK at all material times. Similarly, they had all previously been subject to an UK agency investigation (this time by the Serious Fraud Office) which had been closed.

This blog considers the differing UK and US jurisdiction reach for financial crime offences, against the backdrop of how jurisdiction is decided in cases where two or more countries have concurrent jurisdiction.

US/UK jurisdiction for financial crime offences

Around the time of the 2017 FX trader case some questioned the imbalance between the US and the UK’s criminal law jurisdictional reach by considering whether, in converse circumstances, the UK could exercise jurisdiction for fraud offences over US nationals acting solely in the US.

It’s a complex area but the conclusion was that in converse circumstances UK legislation could indeed give jurisdiction. This comes via Part 1 of the Criminal Justice Act 1993 (the “1993 Act”) which provides extraterritorial jurisdiction for Group A offences (which include fraud) provided that (and this is a simplification) fraudulent conduct committed outside the UK caused a gain or loss to occur in the UK.[1] Jurisdiction under UK law for conspiracy offences[2] could also separately be obtained in some circumstances against US citizens operating fraudulently in the US.

The general conclusion was that there was perhaps less imbalance than commonly perceived. However, is this the case for all financial crime offences?

We now pose the same question but in relation to an insider dealing case. Namely – in a scenario where the UK agency believed that an individual committed insider dealing offences, but was at the time a US national based in the US, could English jurisdiction under the 1993 Act extend sufficiently to allow that individual’s trial in the English criminal courts?[3] In fact, in this scenario the UK would have jurisdictional reach under the 1993 Act only in limited circumstances, those being when an individual (outside the UK) with insider information discloses that information to, or encourages to deal, a person who must themselves be in the UK at the time.

In contrast, the permissible context in which jurisdiction is obtained over extra-territorial conduct under US law for securities fraud is arguably broader and depends on whether there is (put very broadly) a foreseeable substantial effect in the US. This is in fact more akin to the UK extraterritorial provisions in relation to fraud offences under the 1993 Act (as detailed above).

It can therefore be said that in terms of jurisdictional reach, the specific UK insider dealing legislation under the 1993 Act is in fact arguably more jurisdictionally restrictive than US securities fraud legislation (and indeed more restrictive than for UK fraud offences under the 1993 Act).

Jurisdiction for insider dealing offences

Section 52 of the 1993 Act governs insider dealing offences. Under the 1993 Act there are three ways of committing an offence, namely if an individual with inside information:

  • deals in price-affected securities in relation to that information; or
  • encourages another to deal in that information; or
  • discloses that information.

In relation to jurisdiction, Section 62 of the 1993 Act provides that an individual is not guilty of the first offence above unless he was within the UK when dealing.[4]  Further, in relation to the second and third offences, an individual is not guilty unless he was within the UK when alleged to have disclosed the information or encouraged the dealing, or – and this is significant – the alleged recipient was in the UK at the time he was encouraged to deal or received the inside information.[5]

In short, the UK courts would only have jurisdiction against an individual outside the UK when that individual discloses inside information to, or encourages to deal, a person who must themselves be in the UK at the time.

It is worth noting that jurisdictional constraints have been imposed on offences of dishonest concealment and misleading impressions under the Financial Services Act 2012.[6]

Group A offences and insider dealing

Interestingly, and as noted above, the 1993 Act does provide extra-territorial jurisdiction for a list of Group A offences (including fraud offences) and related conspiracies. However, Parliament did not include insider dealing offences on this list.

Generally, extra-territorial jurisdiction is provided for Group A offences by breaking down the constituent parts of the offence and deeming that as long as one “relevant event” happens in the UK (i.e. there is a UK nexus), then jurisdiction is granted.

However, the 1993 Act does not include insider dealing in the Group A list and therefore does not extend this arguably broader extra-territorial provisions to insider dealing offences (nor insider dealing conspiracies). As such, the UK’s extraterritorial reach against fraud offences is arguably broader as it enables jurisdiction when fraud outside the UK causes some gain or loss to occur in the UK (and in certain circumstances relating to conspiracies).  Regarding insider dealing, the legislation is arguably more specific and only enables jurisdiction when inside information is disclosed from outside the UK to an individual who is in the UK at the time.

Insider dealing in the US

In cases of transactional securities fraud, it would appear that the US has jurisdiction, so long as conduct occurring outside the US has a foreseeable substantial effect within the US.

This is ultimately where it can be argued that any UK and US imbalance lies. The US legislation arguably provides a broader US nexus to enable jurisdiction. Again, the UK legislation under the 1993 Act arguably prescribes a more narrow and specific UK nexus to enable jurisdiction.

Insider dealing and fraud

Insider dealing is of course ultimately a fraud on the market (and hence comes under the umbrella of securities fraud in US law). However, in the UK, Parliament has enacted specific and separate insider dealing legislation. Were the UK agency to also be able to charge any part of the conduct as a fraud (and if they were able to show a gain or loss in the UK) then they would arguably also have jurisdiction in the converse scenario – i.e. conduct and individuals exclusively in the US. Charging as a fraud would also enable jurisdiction in some circumstances for a conspiracy to defraud formed outside the UK.[7]

Concurrent jurisdiction

Leaving aside the interesting question of why the US has again asserted jurisdiction in circumstances concerning a UK national and conduct in the UK (and with the backdrop of a closed UK investigation) let’s turn to general concurrent jurisdiction. In circumstances where two of more jurisdictions share jurisdiction over conduct (i.e. jurisdiction is not mutually exclusive) then there will be careful consideration and discussions of the appropriate jurisdiction to prosecute, and one will ultimately have to concede.

More generally, US-UK relations have recently come under scrutiny in an employment law case in which, according to the Guardian, the Judge found that “A senior prosecutor was unfairly sacked by the Serious Fraud Office after the US Department of Justice filed complaints against him in an attempt to sabotage his position at the agency”.

The SFO has responded that “We are carefully considering the judgment and all our options”.[8]

If you have any questions about a current or potential extradition case please do not hesitate to contact us, send us an e-mail, or alternatively, follow us on TwitterLinkedIn, or Facebook to stay up-to-date.

The information in this blog is for general information purposes only and does not purport to be comprehensive or to provide legal advice. Whilst every effort is made to ensure the information and law is current as of the date of publication it should be stressed that, due to the passage of time, this does not necessarily reflect the present legal position. Gherson accepts no responsibility for loss which may arise from accessing or reliance on information contained in this blog. For formal advice on the current law please don’t hesitate to contact Gherson. Legal advice is only provided pursuant to a written agreement, identified as such, and signed by the client and by or on behalf of Gherson.

©Gherson 2021

[1] Criminal Justice Act 1993, Section 2. (1)(A)

[2] Criminal Justice Act 1993, Section 3. (2)

[3] This blog specifically and exclusively considers Insider Dealing offences under the Criminal Justice Act 1993 (i.e. not under the civil regime)

[4] Criminal Justice Act 1993, Section 62. (1)

[5] Criminal Justice Act 1993, Section 62. (2) (b)

[6] Financial Services Act 2012, Section 89. (4) and Section 90. (10)

[7] Criminal Justice Act 1993, Section 3. (2)

[8] Ibid.