US court lifts prosecution risk for City firm holding disputed funds

Clyde & Co: Firm wanted to be discharged from its role

City law firm Clyde & Co has been given permission to pay into court $325m it is holding in an escrow account, after an American judge removed the risk of it being prosecuted for doing so.

The funds were the subject of an international arbitration and Clyde also held them on trust for its client, PetroSaudi Oil Services (Venezuela) Ltd (POS), but it has been alleged that they represent proceeds of the massive 1MDB fraud in Malaysia.

In September 2020, the District Court for the Central District of California acceded to an application from the US Department of Justice (DOJ) to issue an in rem forfeiture warrant over the funds.

The warrant directed US law enforcement officers to arrest and seize the funds.

It was served on Clyde in London and the DOJ contended that this gave the Californian court forfeiture jurisdiction over the funds. It threatened Clyde with prosecution if it transferred them, a risk that Mr Justice Miles heard in February was real, if not high.

As a result, at that point he declined to accede to POS’s request for the money to be paid into court, which it wanted so that monthly payments could be made to unpaid creditors and for legal fees.

In his latest ruling, Miles J said there had since been “a crucial change in the factual landscape” – the California court granting POS’s motion to recall the warrant.

POS renewed its application in the High Court, on which Clyde took a neutral stance.

The judge recounted: “[Clyde] does not object to the order being made and indeed wishes, other things being equal, to be discharged from its position as trustee and escrow agent.

“It does, though, rely on its rights of indemnity and retention and those are catered for in the draft order that was put before me today.”

There is also a Malaysian court order to freeze the funds, but the judge noted that it has not been “domesticated” in England and Wales, nor has the National Crime Agency (NCA) made any application in respect of it.

Further, in previous hearings the NCA indicated that it would not object to the proposed monthly payments, which the Malaysian order itself also allowed for.

Making the order, Miles J said: “I do not see the existence of the Malaysian order as constituting any reason for this court refusing to make an order either for the payment of the monies into the English court or for the payment of periodic sums out of court.

“It has not been domesticated and has no effect in this jurisdiction.

“Counsel for the claimant explained that the claimant is not seeking payment in full from the monies in court at this stage as a voluntary decision to respect the order of the Malaysian court without in any way accepting that that order is applicable or enforceable.

“That is a decision for the claimant.”

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