On 12 February 2025, the Supreme Court handed down its decision in an appeal from the Court of Appeal, which concerns the definition of an "extradition offence" and the operation of the "double criminality" rule in section 137 of the Extradition Act 2003 (EA 2003). In El-Khouri v USA [2025] UKSC 3, the Supreme Court ordered the discharge of Mr El-Khouri and quashed the order for his extradition to the United States. In doing so, the Court provided important clarification on the definition of an extradition offence and the double criminality rule. This decision represents a significant setback for the United States Department of Justice (DOJ) and its prosecution of the seven individuals who allegedly participated in an international insider-trading scheme.
Background
In 2019, the DOJ charged seven defendants in the United States, Europe, and Thailand with participating in an "insider tipping ring" that the DOJ claimed made tens of millions of dollars in illegal profits. El-Khouri is alleged to have made substantial payments to a middleman to obtain confidential inside information about prospective mergers and acquisitions of companies listed on US stock exchanges and then used this information to trade contracts for difference and make large profits [4]. The middleman was to have obtained the information from two analysts (CC1 and CC2), each working in the London office of an investment bank.
El-Khouri allegedly paid the middleman in cash and benefits, including payment for a yacht in Greece, a chalet in France and on two occasions a hotel room in New York. He is alleged to have entered into the contracts for difference with a broker in the United Kingdom. Although their value was tied to movements in the prices of shares in US companies, those contracts did not involve ownership of the underlying shares and were not traded in the United States.
The UK Financial Conduct Authority (FCA) conducted an investigation between November 2016 and January 2018 into El-Khouri and the alleged conduct and concluded that there was insufficient evidence to prosecute El-Khouri.
On 9 September 2019 a warrant for El-Khouri's arrest was issued by the US District Court for the Southern District of New York in respect of seventeen charges reflecting the alleged conduct referred to above. The DOJ then submitted a request for El-Khouri's extradition to the United Kingdom.
Extradition hearing
At his extradition hearing, El-Khouri argued that the alleged conduct did not constitute an offence for which he could be extradited because it failed to satisfy the requirement of double criminality in section 137 EA 2003.
The double criminality rule in section 137 EA 2003 essentially requires the conduct alleged in the extradition request to constitute a crime under the law of both the requesting and the requested state, depending on whether the conduct took place in or outside the requesting state. The District Judge rejected El-Khouri's argument, finding that the double criminality test in section 137(3)(b) was satisfied. The High Court dismissed El-Khouri's subsequent appeal but certified the following point of law of general public importance: "Was the High Court's approach to whether the Appellant's alleged conduct constituted an 'extradition offence' correct, having regard to the requirements of section 137(3)(b) of the Extradition Act 2003?" Mr El-Khouri appealed to the Supreme Court.
Double trouble
Section 137 EA 2003 contains, the Supreme Court said, "two fundamentally different versions or conceptions of the double criminality rule" and courts must choose to apply one or the other when determining whether a person's conduct constitutes an extradition offence. The relevant sub-section depends on whether the conduct occurs in the requesting state's territory (section 137(3)) or outside the requesting state's territory (section 137(4)). The Court noted that this binary distinction clearly indicated that sections 137(3) and 137(4) are intended to be mutually exclusive categories [23]-[24], [83].
Under section 137(2), conduct constitutes an extradition offence in relation to the category 2 territory (the requesting territory) if the conditions in subsection (3), (4) or (5) Section 137(5) (makes special provision for international offences of genocide, crimes against humanity and war crimes and is not relevant to this case.) are satisfied. Section 137(3) applies where (a) the conduct occurred in the category 2 territory, (b) the conduct would constitute an offence in the UK (the offence, if it occurred in the UK, should be one that is punishable with imprisonment or another form of detention for a term of 12 months or a greater punishment if it occurred in that part of the United Kingdom), and (c) the conduct is punishable under the law of the category 2 territory. Section 137(4) applies where (a) the conduct occurs outside the category 2 territory, (b) in corresponding circumstances equivalent conduct would constitute an extra-territorial offence and (c) the conduct is punishable under the law of the category 2 territory.
The House of Lords (predecessor to the Supreme Court) had previously held in Office of the King's Prosecutor, Brussels v Cando Armas ([2005] UKHL 67) that, where the conduct alleged in the extradition request occurs across national borders, in relation to a provision materially identical to section 137(3)(a), it is not a requirement that the relevant conduct occur exclusively in the territory of the requesting state [25]-[28], [83]. In that case, Lord Hope, obiter dicta, stated that conduct occurs "in" the requesting state even if the person is not physically present in the territory, provided that effects of their conduct are intentionally felt there.
Traditional notions of fair play and substantial justice
Relying on Lord Hope's observations in Cando Armas, the United States argued in El-Khouri that, as effects of El-Khouri's actions were likely to have been felt on US markets, the alleged conduct occurred "in" the United States and therefore came within section 137(3). The lower courts accepted that premise and found that the test of double criminality in section 137(3)(b) (which asks whether the conduct specified in the extradition request would constitute an offence under UK law, if it had occurred in the United Kingdom) was satisfied [34-36]. In other words, the lower courts were required to assume that all the alleged acts took place in the United Kingdom and consider whether, in that situation, there would be an offence under domestic law.
Schrödinger's Criminality
However, the Supreme Court found that, in fact, the alleged criminal conduct, as opposed to its effects, occurred outside the United States [32]. On that basis, it said that "it might be thought obvious that the conduct occurred 'outside' the United States, so that the relevant test of double criminality is that set out in section 137(4) [33]." The United States had relied on section 137(3)(a), arguing that the conduct specified in the extradition request occurred in the United States because its intended effects were felt within the territory of the requesting state. The US then argued that consequently, the correct approach was to ask whether conduct which did in fact occur in the United Kingdom would constitute an offence under UK law, adapting section 137(3)(b) [38].
Counsel for El Khouri, instead of challenging the US's application of section 137(3)(a), argued that it was paradoxical to extradite a person to a foreign state on the basis that the person had allegedly committed an offence in the United Kingdom, as the fact that the conduct occurred in the United Kingdom should instead weigh in favour of holding criminal proceedings in the United Kingdom. Counsel for El Khouri submitted that subsection (3)(b) does not just require conduct alleged to have occurred in the territory of the requesting state to be treated as having occurred in the United Kingdom: it should be interpreted as also requiring conduct alleged to have occurred outside the territory of the requesting state to be treated as having occurred outside the United Kingdom [39]. In other words:
- the Court should apply section 137(3)(a) (accepting the US's argument that the conduct's intended effects were felt in the US so it should be categorised as if it had physically occurred in the US); but
- the Court should then interpret section 137(3)(b) as if it had the same statutory language as section 137(4)(b) and consider whether the conduct would have constituted an extraterritorial offence in UK law in 'corresponding circumstances' (on which more below).
Counsel for El Khouri, as the Court observed, having "boxed themselves in" by accepting the US's argument that the conduct essentially occurred in the US, "attempted to escape its consequences by arguing that subsection (3)(b) has the same meaning and effect as subsection (4)(b), even though the wording is materially different and clearly not intended to operate in the same way." [49].
The Supreme Court rejected this argument, stating that the different language used in subsections 137(3)(b) and (4)(b) demonstrates that they were intended to have different effect [42]. Per the Court, the correct reading of the binary categories in sections 137(3) and 137(4) follows the normal and natural meaning of the word "conduct", which is concerned solely with where the physical acts were done and not with where any effects of those acts (intended or otherwise) were felt [56]. Consequently, the only applicable statutory provision in El Khouri was section 137(4) because the conduct physically occurred in the UK (not the US). The Court stated that the United States' submission (and the obiter dicta comments by Lord Hope in Cando Armas) created a paradox where the same physical acts were classified as simultaneously occurring both "outside" the territory of the requesting state (because they are done outside it) and "in" that territory (because their intended effect was to bring about harm within the territory) – "a paradox comparable to the fate of Schrödinger's cat." [52].
In this case, the physical acts engaged in by Mr El-Khouri occurred in the United Kingdom, and the only act which allegedly occurred in the United States was payment for the middleman's hotel room in New York, but "the places where the various benefits were enjoyed are purely incidental details [in the context of an allegation of insider dealing] [66]." Therefore, per the Court, the applicable section was section 137(4) [67].
Mirror image
This made a material difference to the determination as to whether El-Khouri's conduct constituted an extradition offence. In contrast with the test of double criminality in section 137(3)(b), the language of "corresponding circumstances" in section 137(4)(b) does require transposition in both directions, that is, the conduct which occurred in the United Kingdom must be transposed outside the United Kingdom to construct a "mirror image" of what is said to have occurred and in those circumstances must amount to an extra-territorial offence prosecutable in the UK [41].
The Supreme Court held that in El-Khouri's case, the "mirror image" assumption required by subsection (4)(b) was that all the conduct of Mr El-Khouri and other relevant events alleged in the extradition request took place outside the UK [69]. Accordingly, although both parties to the appeal agreed that the conduct alleged against El-Khouri, had it taken place in the UK, could amount to insider dealing contrary to section 52 of the Criminal Justice Act 1993 (CJA 1993) the conduct did not constitute the offence of insider dealing under the CJA 1993, as under section 62(1) CJA 1993, an individual is not guilty of an offence of insider dealing under section 52(1) unless the dealing, the regulated market on which the dealing occurs or the intermediary were within the United Kingdom – none of which applied in this case.
POCA and extraterritorial scope
The US argued in the alternative that an offence under section 329 of the Proceeds of Crime Act 2002 (POCA) carries extraterritorial jurisdiction, relying on R v Rogers [2014] EWCA Crim 168. The Court of Appeal in Rogers applied the definition of money laundering at section 340(11) POCA (which was intended to relate to the failure to disclose offences under sections 330 to 332) to sections 327-329 POCA, holding that those sections also had extraterritorial effect. However, the Supreme Court in El-Khouri noted that "to come within the territorial scope of section 329, however, the acquisition, use or possession of the proceeds of the criminal conduct must itself occur in the United Kingdom" and held that Rogers had been wrongly decided. The Court further pointed out that in Rogers, the Court of Appeal had not recognised that section 340(11)(d) POCA "merely defines 'money laundering' and does not either create an offence itself or extend the territorial scope of the offences created by sections 327, 328 and 329 to acts done abroad" [81].
Consequences
The decision in El-Khouri will have been a definite blow to the DOJ in its battle to prosecute the other members of the insider trading ring and will inevitably act as a check on certain kinds of US extradition requests to the UK. The Supreme Court's ruling will prevent the US from arguing that conduct which does not physically occur in the US will be classed as such provided that the effects are felt there. This will force the US to focus on cases where physical acts clearly occurred in the US or where the offence is properly characterised as an extra-territorial offence under UK criminal law.
The more salient point to arise from this decision is that the Extradition Act appears inapposite to accommodate international crimes. The Supreme Court observed that sections 137(3) and (4) were "clearly intended to be mutually exclusive" and offer a "binary choice". El Khouri has exposed the fact that the statute does not easily accommodate a situation where the conduct alleged comprises various acts, some of which occurred within and some of which occurred outside the territory. As the Court noted, this is particularly problematic for cases concerning international criminality occurring in more than one state. The Extradition Act not only creates a binary distinction but also fails to specify how courts should deal with cases where the alleged criminality occurred in more than one state. Barring a change in the legislation, this issue will ultimately have to be considered once again by the courts.
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.
