Vol 12 (2015) - Issue 3

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Tackling Laundering: The Implications of Relfo Limited (in liquidation) v Varsani

The decision of the Court of Appeal in Relfo Limited (in liquidation) v Varsani contains an important review of the principles of tracing and unjust enrichment and may well become a seminal authority. It is of great significance for claims arising out of misappropriation and professional laundering of assets. The court (Arden; Gloster; Floyd LJJ) unanimously found that it was possible to trace Relfo’s misappropriated funds into the hands of the defendant recipient even though there was no evidence of a clear chain of payments. Further, it unanimously held that, even if it were not possible to trace, the defendant had been unjustly enriched at Relfo’s expense. In policy terms, it is a welcome authority that shows the Court of Appeal ready to develop existing doctrines in the face of attempts by organised launders to obscure the misapplication of money by means of sophisticated techniques across multiple jurisdictions.

Facts
The salient facts may be simply stated. In order to avoid Relfo having to pay an outstanding tax liability, its director, Mr Gorecia, paid away from the company’s bank account the sum of GBP 500,000 with the intention of it being paid to an account in Singapore in the name of the defendant, who was the son of Mr Gorecia’s long standing business associate. (Largely unrelated to Relfo’s affairs, at his instigation, Mr Gorecia and the Varsani family had conducted various investments in the Ukraine that had gone badly wrong. The judge at first instance, Sales J, held that Mr Gorecia had intended the GBP 500,000 payment of Relfo’s money to be an attempt at some recompense for the Varsani family’s losses.) It was a clear misapplication of Relfo’s money and a breach of his fiduciary duty.
The GBP 500,000 sum was not paid directly to the defendant but was laundered through bank accounts of two intermediate entities. The payment was made from Relfo’s account to the account of a BVI company known as Mirren Limited held at Rietumu Bank in Latvia. The following day a second intermediate entity, a Wisconsin company known as Intertrade, made payment of an almost identical sum (the USD equivalent of GBP 500,000 less deduction of exactly 1.3%) from its account at U - kio Bankas in Lithuania into the defendant’s Singapore account. What made the case of particular interest was (1) there was no evidence of any flow of payments from Mirren to Intertade; (2) given timing differences it was not possible for Mirren to have paid Intertrade before the latter paid out to the Singapore account; (3) the payment that was made by Intertrade was not from anything it had received from Mirren; (4) there was no evidence of Mirren subsequently reimbursing Intertrade for the payment the latter had made; (5) the bank statements for Mirren’s account into which Relfo’s money had been paid showed that the entire sum was over the following month paid on to various third parties – none of whom were known to have been connected with Intertrade; (5) there was no evidence of any connection between the two intermediaries save that they had had previously traded with each other, and indeed various payments had historically been made by Intertrade to Mirren (but not the other way round).
At first instance, Sales J had held that the payments were part of a money laundering scheme in which the intermediaries were part of a corrupt network of Russian/Ukrainain based entities. He found that Mr Gorecia knew that those entities could be used as different vehicles to effect payments in ways which obscured the true source of the money and were used to preparing corrupt and fraudulent accounting records. Further, Sales J held that Mr Gorecia used his contacts in the Ukraine to arrange to transfer Relfo’s money to the Defendant in a way that disguised its source and purpose.