On Jan. 15, 2016, Justice Courtney Abel of the Supreme Court of Belize handed down a decision which should be read across Caribbean IFCs, especially by regulators and law enforcement agencies from common law jurisdictions. The court found that the manner of the execution of a search warrant on the private offices of a licensed entity was unconstitutional and gave a multimillion-dollar award in damages.
The decision is extremely pertinent to the work of Financial Intelligence/Investigation Units (FIUs) which are present in most if not all IFCs. This article seeks to explain the decision and offer brief comments as to its potential effect on regional jurisprudence. Belize no longer has the Privy Council (PC) as its final court as most Caribbean IFCs do, but instead has the Caribbean Court of Justice (CCJ). However, the fact is that given the similarity in legislation, this decision will impact the wider Caribbean as lawyers and judges look to the region’s other common law legal systems for guidance on statutory interpretation and the application of these laws in practice.
Background
On Sept. 8, 2014, a 22-page indictment was unsealed in the U.S. (the Indictment) which charged Titan International Securities Inc. (Titan) and Kelvin Leach (the president of Titan) with being involved in a conspiracy and implicated in a fraudulent scheme with Robert Bandfield and his related companies, along with other persons in the U.S., to evade taxes.
They were also charged with being involved in securities fraud, money laundering, and other offenses. As a consequence, on the same day the U.S. Department of Justice (DOJ) made a Request for Assistance (the Request) under section 18 of the Mutual Legal Assistance and International Cooperation Act No. 18 of 2014 (MLAT) of the Laws of Belize to the Attorney General (AG) of Belize to have Titan’s offices searched “as quickly as possible to prevent the destruction of evidence” and alleged that “a substantial amount of client information is held on hard copy files and on computers” in Titan’s office. The DOJ also asked that the Request be kept confidential.
The Request expressly stated that the documents needed included “any and all documents or other evidence (in copy or original) seized during the execution of search warrants.” The AG agreed and worked through the Belize police to secure the warrant from a local magistrate to effectuate the search. The AG also requested the assistance of the Belize FIU. The magistrate issued the search warrant on the strength of the Request to a superintendent “and to all and every Police Constable and Peace Officers of Belize and to the Officers of the Financial Intelligence Unit of Belize.”
Details of the search
To understand the decision by the court, it is important to detail pertinent facts about the execution of the search warrant.
- The search took place the same day between 1:45/2 p.m. and 9 p.m.
- A copy of the search warrant was read to Mr. Leach but a copy was not given to or left with him.
- The police led the search, but a police officer attached or seconded to the FIU was present throughout, along with a Crown counsel in the AG’s Ministry in observance. Another attorney from the FIU joined the search around 6 p.m.
- Photographs were taken of Titan’s office in the course of the search and a large quantity of items were seized.
- Titan’s office was effectively gutted and computers were not turned on to determine what was relevant because “it was not feasible at the moment.”
- Items seized included items that “couldn’t conceivably assist in proving or disproving financial crimes.” These were items belonging to non-U.S. persons for tax purposes and thus could not possibly be part of the remit of the warrant.
- An inventory of items seized was not left with Mr. Leach and he is unable to account for all of Titan’s items seized.
- Titan’s attorneys were denied entrance to Titan’s office during the search; it was claimed inadvertently.
- The seized items were taken away from Titan’s office and housed at the AG’s office and the FIU’s office.
- Titan’s license was suspended the same day by email, followed up by formal confirmation by letter from the International Financial Services Commission dated Sept. 17, 2014, which prevented Titan from carrying on its “trading in financial and commodity-based derivative instruments and other securities.” At the time of the court action, the suspension had not been lifted.
- The FIU, by letter dated Oct. 3, 2014, required the AG to produce to them in the following terms “all records seized on September 9th, 2014 pursuant to MLAT of that date.”
- Items taken during the search and seizure were eventually returned on Jan. 20, 2015.
Legal issues
For purposes of this article, the two legal issues I will discuss are:
- Whether section 18 of the MLAT and the MLAT itself were constitutional.
- Was the search and seizure conducted lawfully?
The constitutionality of the MLAT and section 18 specifically
Many legal scholars have long questioned the constitutionality of many of the pieces of legislation enacted in Caribbean IFCs to fight international crime, tax evasion, and facilitate exchange of information along with the Intergovernmental Agreements to implement U.S. law into domestic statute. The MLATs have also come in for legal scrutiny. Titan argued that section 18 breached sections 9 and 14 of the Belize Constitution. Section 9 deals with the prohibition against unreasonable search of a person or his property or the entry of others on his premises, while section 14 deals with the prohibition against arbitrary or unlawful interference with his privacy, family, home, or correspondence and the prohibition against unlawful attacks on his honor and reputation.
The court started its analysis by noting that section 9(2) of the Constitution contains the traditional savings clause: “Nothing contained in or done under the authority of any law shall be held to be inconsistent with or in contravention of this section to the extent that the law in question makes provision that is required in the interests of defence, public safety, public order, public morality….” This clause is referenced in section 14(2) nearly verbatim. Thus, as the court said at paragraph 50 of its decision that “The right to protection from arbitrary searches, unlawful and/or interference with his privacy is obviously not an absolute right and any law which makes reasonable provision for search and seizure, that satisfies the limitations contained in the provisions of section 9(2)(a) of the Constitution, is obviously protected from being struck down.”
The court then went on to examine section 18(1) and (2) which made it clear that the power to search is predicated on there being criminal proceedings against a person in a foreign state or the person has been arrested in the course of a criminal investigation. Section 18(1) also provides that there needs to be reasonable grounds for suspecting that the evidence is located on premises in Belize, while section 18(2) states that the power to search is only to the extent that it is reasonably required for the purpose of discovering the evidence.
The court held that as a result of the presence of section 18(1) and (2), which introduce limitations and safeguards, any search and seizure carried out under warrant issued under section 18, would be both reasonable and proportionate in a democratic society and provides in the court’s view, adequate legal safeguards to protect and safeguard the public interest from the risk of excessiveness or arbitrariness in any search, as well as against the unlawful invasion of privacy. The court went on to say that all these limitations and reasonable safeguards would preserve the constitutionality of section 18 even without resort to the presumption of constitutionality which exists in relation to any constitutional challenge of provisions in any legislation.
It is hard to argue with this interpretation and legal analysis granted that the test is one of reasonable safeguards and limitations on the right to search and seizure. In his judgment, Justice Abel referenced the Canadian case of Thanh Long Vu v Her Majesty The Queen and AG of Ontario et al [2013] 3 R.C.S. 657 as illustrative of two ways by which the balance between protecting the interests of the individual, the individual’s right against arbitrary search and the interest of the public in law enforcement. Justice Abel quoted that “First, the police must obtain judicial authorization for the search before they conduct it, usually in the form of a search warrant. The prior authorization requirement ensures that, before a search is conducted, a judicial officer is satisfied that the public’s interest in being left alone by government must give way to the government’s interest in intruding on the individual’s privacy in order to advance he goals of law enforcement.”
Justice Abel went on to quote: “Second, an authorized search must be conducted in a reasonable manner. This ensures that the search is no more intrusive than is reasonably necessary to achieve its objective. In short, prior authorization prevents unjustified intrusions while the requirement that the search be conducted reasonably limits potential abuse of the authorization to search.”
It is obvious then that the court found the safeguards and limitations in section 18 satisfactory and in line with the judicial thinking in the aforementioned case to ground its determination that the MLAT is constitutional under the laws of Belize.
The legality of the search and seizure operation
Justice Abel, after reviewing the facts, concluded that the search was executed in an unreasonable and excessive but not necessarily oppressive manner. He ruled that the actual search and subsequent events abused the authorization granted to search the premises and seize items in Titan’s premises in the manner and way in which it was executed and as a consequence was a breach of Titan’s constitutional rights against arbitrary or unlawful interference with its privacy. The court held that the defendants ought to have been more careful about the manner in which it conducted the search and seizure and ought to have:
- Provided a copy of the search warrant to Mr. Leach which would have eliminated the appearance of high-handedness and given an air of legality and respectfulness to the whole operation and possibly put Titan at ease.
- The officers ought not to have denied Titan’s lawyer entry into the premises to witness the search and seizure unless there was good reason to deny his entry, and none was provided to the court. Again, this would have been done much to clothe the operations with propriety, transparency and demonstrate a desire not to exceed legal authority.
- The officers took pictures which were not disclosed, and the court expressed the view that there was no excuse for Titan not to have been provided with copies of photographs as part of the disclosure process in the proceedings before the court.
- A director of Titan was prevented from witnessing the search and seizure, and the court expressed the view that this would have eliminated the appearance of high-handedness and leant an air of legality.
- Police and other officers of the AG and FIU ought to have taken measures or at least taken some steps not to remove Titan’s files, records, computers, computer servers and electronically stored information, unrelated to the warrant, rather than the indiscriminate removal of such items.
- The court found that it was inexcusable that no inventory was prepared of the items seized and no attempt made to obtain from a representative of Titan some form of confirmation of what items were removed. In the absence of such inventory and of any detailed inventory being produced to date, the result is that the defendants have to take full responsibility of the risk, thereby being accused of not returning all items which has now resulted.
- The court stated that the defendants ought to have taken every possible step to minimize the disruption of Titan’s business, and even if a shutdown were inevitable, to minimize the period of shutdown by reason of the search and seizure, and make a concerted and ostensible effort to ensure that any disruption was not done to persons other than my disruption, which was not done to persons other than those named on the warrant.
As a consequence, the court granted to Titan the declaration it sought that the indiscriminate removal of all files, records, computers of Titan and the effective shutdown of Titan’s office was disproportionate and in excess of any statutory authority to search and seizure evidence in possession of Titan and in aid of foreign court proceedings in the U.S.
Damages awarded
Justice Abel did a thorough, though in my opinion an unnecessary, analysis of the law with regards to the awarding of damages for a constitutional breach. His starting point was of course the Constitution, specifically section 20 which speaks of redress in favor of applicants who have alleged a breach of any of the provisions in sections 3 to 19. He then referenced the Privy Council’s decision in Maharaj v The Attorney General of Trinidad and Tobago (No. 2) (1978) 2 All ER 670 which established the principle that damages can be granted as redress for breach of constitutional rights. This principle has been followed in several cases, but for Belize’s purposes it was definitively upheld by the CCJ in the case of The Maya Leaders Alliance et al v The Attorney General of Belize [2015] CCJ 15 (AJ).
The court noted, however, that damages are at its discretion and are not awarded as of right especially where a declaration alone would serve to vindicate the constitutional right that has been infringed. Further, damages had to be proved. Justice Abel added that the purpose of an award is not only to compensate Titan for the wrong suffered, but may also be to reflect public feelings at the state’s violation of such an important right and to vindicate the constitutional right which has been contravened. He explained that the measure of damages should, depending on the circumstance of the case, reflect any additional dimension, gravity or outrage (as the case may be) which breach of a constitutional right adds to any other common-law measure of damage and to deter further breaches. The Justice went on to note that the court must seek and be ready to fashion a remedy to grant an appropriate and effective relief for a contravention of a protected right and if that is by way of a mandatory order for the payment of a money sum by the State, the court is both empowered and in appropriate cases, obliged to do so.
Titan argued that the fundamental object of an award of damages is to award just compensation for loss suffered, and the measure of compensation is to put it in the position as if the constitutional right had not been infringed. It also argued that the court is obliged to conduct the assessment of damages as at the date the cause of action occurred. In making its claim for damages of US$22,273,700, Titan focused on the magnitude of the harm that was done to it, the manifest breach of the terms of the Request and search warrant, the period over which the wrongs persisted, the alleged aggravating conduct accompanying the wrongdoing and the government’s conduct in relation to Titan’s property.
The court held, however, that even if the value of Titan were as claimed above at the date of the search, a large part of the estimate attributable to the future profitability and viability of Titan was greatly compromised because of the indictment and other bad publicity about Titan’s activities in Belize and elsewhere. The court was of the view that Titan would not be able to attract future business. Finally, and most importantly from the court’s perspective, Titan’s trading license was suspended, which affected its status and ability to trade.
Justice Abel thus discounted Titan’s claim by 80 percent and awarded compensatory damages for the constitutional breach in the amount of US$4.460 million. While vindicatory damages were not awarded, legal costs in favor of Titan were.
Conclusion
This case was interesting in many ways in that it addressed from a legal perspective many concerns that those of us in the industry have had for years with regard to MLATs and the work of FIUs. In Belize, at least several things have now been settled subject to an appeal which, as of the time of my writing, no evidence had been adduced that one has been so lodged. Firstly, the court held that a FIU cannot participate in a search under a warrant issued to the police under section 18 of the MLAT. Section 18 of the MLAT gives the search power to the police and not the FIU, and the police officer who was assigned to the FIU was ruled by the court to have been there in her capacity as an employee of the FIU and not as a police officer. This made the warrant defective and in excess of the powers that the magistrate has to issue warrants. However, the court severed the bad part and upheld the warrant and thus the lawfulness of the warrant itself. Secondly, the court upheld the constitutionality of the MLAT itself, which is important and clarificatory for Belizeans in general. Thirdly, the court held that the police breached the extent of the search warrant by taking items that were unrelated to U.S. persons and which were outside the ambit of the warrant itself. Fourthly, it held that the indiscriminate removal of all Titan’s files and documents was a breach of Titan’s constitutional protections.
FIUs, the police and regulatory bodies should, in my view, take heed and note that they must exercise caution when conducting searches, especially with such haste under implicit pressure from U.S. authorities. It is worth noting that U.S. agents were present in Belize at the time of the search, although they did not take part in it. The court noted, however, that they took images of all documents which the Belizean authorities took from Titan’s office.
My one major criticism of the decision, however, is the refusal, at least based on my understanding since that section of the judgment was awkwardly worded in my opinion, by the court to grant an injunction to Titan barring the use by U.S. officials of the non-U.S. related client information based on an undertaking between the defendants and a limitation that the defendants were to give to the U.S. along the same lines. I am not sure how effective such an undertaking and limitation would be in practice and question the wisdom of this, but I shall defer to Justice Abel on that point as I must.
Irrespective, the court in Belize has done a good job of defending privacy, property rights, due process, upholding constitutional principles and holding the State to account for rushing to destroy a business based on legal matters in the U.S.
It remains to be seen whether the region as a whole will follow Belize’s lead in ensuring that the rights of the citizens are not trampled upon to satisfy the U.S. in its fight against international crime to which most IFCs, including Belize, are committed.