UK: UK Directors in the US Dock

The Extradition Act 2003 was introduced primarily as a counter-terrorism measure. That said, in respect of more than 40 applications for extradition that have been made since the Act came into force, over half relate to white collar crime.

Amongst these, there have been some high profile cases in which British nationals have been fighting attempts to extradite them to the United States. Examples include the NatWest 3, former executives of NatWest Bank who are accused of conspiring with Enron executives to defraud NatWest Bank of US$7.3 million and who have now been extradited. It is, however, the facts of a much less well known case involving Mr Nigel Potter, the former managing director of the UK leisure group, Wembley Plc which provide a more salutary illustration of quite how easily directors in this country can find themselves in serious trouble. In 2000 and 2001, Mr Potter was engaged in discussions with colleagues based in the United States in connection with a proposal for the licensing and introduction of additional gaming machines in Lincoln Park on Rhode Island. At one stage in these discussions, the general manager of Lincoln Park (a Mr Bucci) proposed that Wembley should pay a "bonus" to a third party to gain State approval for the installation of the new machines. Mr Potter neither approved nor sanctioned the proposed payment. Instead he said he would consider it with his board. Then, having consulted lawyers, auditors and Wembley’s board, Mr Potter decided not to proceed with the payment. In the event, the "bonus" was neither offered nor paid.

Mr Potter then heard that Federal Prosecutors in the United States were investigating the proposed payment as a conspiracy to pay a bribe and that the role of Mr Bucci and of Mr Potter himself in the affair were also under examination. In connection with these investigations, the United States applied for extradition of Mr Potter. They did so after the then Home Secretary David Blunkett had signed the Extradition Treaty with the United States on 31 March 2003. As a result, Mr Potter was advised that if he fought extradition, not only was he likely to fail but also he would be seen to have been unwilling to go to the US and would therefore have not been allowed bail in the UK pending his trial. In any event, he did not believe he had done anything wrong and decided to fly to the United States in order to cooperate with the US authorities.

In September 2003, he nevertheless found himself indicted on a number of counts and after two trials finishing in August 2005, he found himself convicted on three charges of wire-fraud. He is currently serving a three year prison sentence at Ellenwood Low Security Prison in Pennsylvania.¹

The facts of Mr Potter’s case highlight a number of disturbing features which should be of general concern to any directors or officers who have dealings with the United States:

• The Act applies to all requests for extradition from the United States made after 1 January 2004 irrespective of when the alleged criminal activity is said to have taken place.

• Mr Potter was advised that his prospects of fighting extradition to the States were not good. Although we are not privy to any non-publicly available information in respect of the Potter case, we suspect that such advice may have been based on provisions of the Extradition Act which make it clear that any prosecuting authority seeking extradition does not have to establish a prima facie or good arguable case against a Defendant where such request emanates from the United States of America.² Instead, it is sufficient if the relevant authority can produce hearsay evidence against the defendant. In other words, provided the authority can secure a statement from someone saying that in his or her view, based on allegations or evidence of others, some type of criminal activity occurred, that could well be sufficient to found a valid request.

• The original intention behind the Treaty with the United States had always been that there be reciprocal arrangements with the United States under which the UK would be able to make similar requests of the US. In fact, the US Congress has so far expressly refused to ratify the Extradition Treaty on the basis that it does not contain adequate protection under the US Constitution for US citizens. It shows no sign of changing its position on this any time soon.

• It should not be assumed that the Human Rights Act will afford any substantive protection against an Extradition Act request. It is true that a judge in dealing with an Extradition Act request must consider whether it is compatible with that person’s human rights. But the Act was unsuccessfully relied upon at first instance by Ian Norris, the former CEO of Morgan Crucible, another individual currently facing extradition to the United States in relation to alleged price fixing activities in respect of carbon products in the US.

The compass of the Extradition Act is extremely broad. It applies to any activity which is a crime both under English law and in the country in which a defendant has been indicted that is punishable in both countries by a sentence of at least 12 months. Thus it applies to any fraud related charges and to insider dealing, tax evasion, bribery and health and safety offences which lead to fatal accidents. Indeed, it covers the broad spectrum of corporate and commercial crimes of which directors may find themselves accused. The very low threshold which foreign prosecutors have to meet, coupled with the aggressive way in which the United States asserts jurisdiction in cases where the connection with the United States is very slight, should be of concern to all directors in the UK with business dealings with the United States.

Whether and to what extent a D&O liability insurance policy will provide sufficient legal defence costs protection in the event that extradition proceedings are instituted is something to which directors and their legal advisers would do well to turn their attention. A key question they will wish to consider is whether an extradition request constitutes a "claim" so as to trigger cover.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.