Money laundering law declared unconstitutional by court

Money laundering law declared unconstitutional by court

A law under which a garda fraud officer directed a bank to freeze two accounts of a company suspected of involvement in money-laundering was declared unconstitutional by a High Court judge yesterday.

The relevant law has since been repealed under a money-laundering Act introduced earlier this year.

The issue of the right to damages of Vehicle Tech Ltd arising from the finding of unconstitutionality of Section 31.8 of the Criminal Justice Act 1994 was adjourned for mention because a criminal investigation is continuing.

Ms Justice Mary Laffoy said it seemed to her, if the monies in the accounts were, or represented, the proceeds of criminal conduct, the company could not establish any loss or damage as a result of the direction and therefore would have no entitlement to damages.

The issues relating to entitlement to damages had not been argued in any depth at this stage by the parties in the case and should be adjourned, she directed.

It was not possible at this stage, she added, to determine whether the State was correct in claiming, as a matter of public policy, the company had no claim in damages.

The case arose after the Garda Bureau of Fraud Investigation (GBFI) issued a direction to Allied Irish Banks in July 2008 under Section 31.8 of the 1994 Act not to deal in any way, without the consent of a Det Garda, with two accounts of Vehicle Tech held in AIB's Ashbourne branch in which some €152,000 was held.

The direction stated the Bureau was conducting an investigation into suspected criminal activities, including money laundering by the company, and that a Det Garda held the preliminary view the accounts constituted property captured by Section 31, which relates to money-laundering.

The Garda investigation arose as a result of a mutual assistance request received in February 2008 from the Belgian authorities in relation to trucks stolen in Belgium and transported to Ireland where they were sold.

It was suspected the proceeds of sale were laundered here, the judge noted.

The judge said, as a result of the investigation, the GBFI identified an account to which the proceeds of sale of some of the trucks had been lodged which in turn led them to the two accounts of Vehicle Tech.

On the date the direction was issued, searches were carried out by the Bureau at Vehicle Tech's premises and the homes of its directors and certain items were seized.

AIB obeyed the direction of the Bureau after which the company took legal proceedings against AIB, the Garda Commissioner and the State.

In her reserved judgment, the judge declared Section 31.8 unconstitutional on grounds it infringed the property rights of Vehicle Tech Ltd and its right to fair procedures.

The judge said Section 31.8 was invoked in this case on the expectation it would operate in the same way as a freezing order but the measure was silent as to its objective, vague as to its implementation and lacking "to an extraordinary degree" in safeguards as regards the owner or person with rights over the property affected.

The Section was also lacking in safeguards for the financial institution to which a direction is issued in failing to afford it universal immunity from being sued, she added.

When gardaí issued a direction under Section 31.8 to a financial institution, the expected outcome was to have an account frozen indefinitely, she said.

That outcome, and the manner in which it was achieved, differed from other provisions governing the making of freezing orders, including the 1996 Proceeds of Crime Act, as no court application was necessary meaning there was no requirement to support the case for freezing the account by sworn testimony or indeed any evidence.

There was also no requirement to inform the account holder of the intention to freeze the account or to give them any opportunity to address the claims the money in the account was property referred to in Section 31.8.

Ms Justice Laffoy observed her findings on unconstitutionality were "largely redundant" as Section 31 has since been repealed in its entirety by Section 4 of the Criminal Justice Money Laundering Act 2010.

She adjourned the case for two weeks to allow the sides consider her judgment and any other orders which may be sought as a consequence of her findings.

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