Michael Lynch loses his application to appeal extradition

 

Last Friday, 21 April 2023, Michael Lynch, co-founder of the technology companies Autonomy and Darktrace, was refused permission to appeal his extradition to the USA. He is charged with “one of the largest frauds ever prosecuted by the United States Department of Justice” relating to the sale of Autonomy to Hewlett Packard [HP] in 2011. The US District Court for the Northern District of California has indicted Lynch, together with Stephen Chamberlain, Autonomy’s former Vice-President of Finance of an overall scheme to defraud purchasers and sellers of Autonomy’s shares and of covering up this activity after the sale.

The Facts

Lynch co-founded Autonomy in 1996, selling innovative software products for data processing in various sectors. In 2005 the company was listed on the London Stock Exchange, and it joined the FTSE 100 in 2008. The company was sold to HP for $11.7bn in 2011 via a Netherlands based shell company called Hewlett-Packard Vision BV.

It is alleged that prior to the sale, from 2009, Lynch engaged in a conspiracy to provide dishonest financial and other information about Autonomy’s performance to the markets and then again to HP from about 2011 during the purchase negotiations, artificially inflating the share price and the ultimate purchase amount paid by HP.  By the end of 2012, HP announced that Autonomy was worth $8.8bn less than the purchase price, of which it attributed $5.5bn to the alleged fraud.

An investigation was launched by the FBI, who further accuse Lynch of “conspir[ing] with others to conceal the fraudulent nature of the accounting at Autonomy and engaged in activity to further that goal, including violating internal controls of a publicly traded company, obstruction of justice, and money laundering” in order to frustrate the investigation.

In 2019 and 2020 a civil claim was brought by HP (via the Netherlands entity).  In ACL Netherlands BV and others v Lynch and another [2022] EWHC 1178 (Ch) (17 May 2022)), the High Court upheld claims substantially the same as the indictment against Lynch in the US. At the same time the California court indicted Lynch on 22 July 2021. Lynch, who is resident in the UK resisted the subsequent extradition request on the following five grounds:

• the alleged conduct does not amount to extradition offences under s 137 of the EA 2003;
• extradition is barred by the passage of time (s 82);
• extradition is barred on the grounds of forum (s 83A);
• extradition is barred on human rights grounds (s 87/Article 3 of the Convention for the Protection of Human Rights and Fundamental Freedoms (the Convention)) based on the Applicant’s medical conditions and treatment in prison and;
• the extradition request is an abuse of process.

The district judge rejected the arguments made by Lynch on each of these grounds, but before the High Court judgment had been handed down.  There was then an unedifying diversion to the Administrative Court over the question of whether the Home Secretary was entitled to wait for the High Court judgment before deciding whether to order Lynch’s extradition, on the basis that it somehow brought the rule of specialty into play.  It didn’t and she wasn’t.  So, on 15-16 March of this year, Lynch’s extradition appeal finally went ahead.  His arguments were described in the judgment as a “root and branch attack on all of the district judge’s reasons”.  Unfortunately, for Mr Lynch, they were also variously described as “misconceived”, “unrealistic” and “hopeless”.  Lewis LJ and Julian Knowles J considered and rejected Lynch’s submissions on every ground, focussing in particular on the ‘forum bar’.

The Forum Bar

Extradition to the US, as a Category 2 territory, can be barred by reason of forum under Section 83A of the Extradition Act 2003 (‘the Act), which provides that

“The extradition of a person (‘D’) to a category 2 territory is barred by reason of forum if the extradition would not be in the interests of justice.”

The Act state that extradition would not be in the interest of justice if the judge:

1. decides that a substantial measure of D’s relevant activity was performed in the United Kingdom

and

2. considers that the extradition should not take place having regard to the following specified matters:

Location of Loss or Harm

Counsel for Lynch argued that the over payment for Autonomy shares occurred in England, on the London Stock exchange, reflected by the fact that the civil suit had been brought by the Dutch shell company in London, and so the loss had been incurred in the UK. Equally, with regard to harm, he argued that this had been primarily suffered by the English markets, which had been misled.

The court rejected this argument, stressing that the loss had been felt by HP and its shareholders, based in the US. While the court accepted that the purchasing company was based in the Netherlands, it pointed out that contractually it was the only company allowed to bring the civil claim, and stated that “The loss did not – or did not just – occur in the place where the payment was made for Autonomy, ie, London” and that the argument for the applicant “approaches loss on too narrow a basis”. Rather, it was HP, which provided all the money for the purchase, that was impacted financially and so it was in the US that loss had been suffered.

The applicant attempted to avoid this conclusion by stating that these losses would be remedied by the civil claim. The court disagreed, finding that quantum had not yet been determined, and may not cover the full amount of the loss and further “as of now, loss has occurred in the US, whatever happens in the future”.

While the court accepted that the UK market had been misled, similar reputational damage had been caused to US financial institutions. Additionally, HP had suffered reputational harm as a result of the alleged fraud. Therefore, it was incorrect that harm had been limited to the UK with regards to markets.

The harm caused by the alleged cover up after the sale was almost uniquely felt in the US “which is where justice was said to have been obstructed”.

Victims Interests

Given the finding that the primary loss and harm had been suffered by HP and its shareholders, the court had no issue identifying the US company as the main victim of the alleged fraud. Therefore, this factor would weigh towards extradition.

Counsel for Lynch attempted to apply the reasoning of in Scott v Government of the United States of America [2019] to argue that extradition was unnecessary if a UK civil trial would provide an alternative mechanism of redress. The court distinguished this case on the grounds that it did not lay down any general propositions of law and that the facts here were different. Whereas in Scott “There [had] been a settlement in which [the] single victim had been ‘properly compensated’, and there had also been a prosecution.” In the present case “There has not been any settlement. The victims have not yet been properly compensated” and “there has been damage to the integrity of the financial markets in the US and the UK caused by that alleged fraud.”

The Prosecutor’s Belief as to the appropriate jurisdiction

The SFO ceded its own investigation to the USA based on the evidence and information then available. It later issued a detailed and reasoned statement of belief that the UK is not the most appropriate forum for this prosecution.  In particular, the SFO concluded that it might not be able to rely on evidence from co-operating witnesses in the US, including discharging its disclosure obligations, in any UK proceedings.  The district judge relied on this statement, finding that the SFO’s belief was not irrational and so this weighed strongly toward extradition.

The applicant disagreed with this analysis, arguing that the district judge should have “delved into the prosecutor’s reasons and decided for himself whether they were right or wrong” rather than considering only the rationality of the SFO’s belief. The Divisional Court disagreed, pointing out that this was directly contrary to established authority (Dibden v Tribunal de Grande Instance de Lille, France [2014]) and the court was not required to form its own belief.  The judge “was entitled simply to set out the prosecutor’s belief, and his reasons for that belief, consider them, and conclude that those were not irrational.”

Evidence could be available in the UK

The court rejected as hopeless the argument that the district judge should have relied on the witness statements at the civil trial and that witnesses could be compelled to testify in the UK.  There was no precedent for US witnesses being compelled, under a co-operation agreement with US prosecutors, to give evidence in the UK and it was “unrealistic to have expected the district judge to have arbitrated on opaque issues of US criminal law and procedure.”

Delay resulting from trial in one jurisdiction rather than another

Given that the SFO had not pursued this case since 2015 while the authorities in the US were ready for trial, the court found that the judge was correct that this factor weighs heavily towards extradition.

The desirability and practicability of all prosecutions taking place in one jurisdiction

The court agreed with the judge’s assessment that this factor weighed toward extradition given the other prosecutions on the same matter in the US and the intent to try Lynch and Chamberlain together.

Connection with the UK

Lynch has significant connections with the UK. The district judge recognised this and accepted that it was a factor against extradition. On appeal, counsel for Lynch raised concerns that the judge had been hesitant about this evidence, however, the court disregarded this as the judge had “correctly identified the Applicant’s ties and accepted they were strong and long-standing. Whether he should have had any hesitation in doing so is irrelevant.”

The Result

The court upheld the district judge’s conclusion on the forum bar, stating that “he concluded that the preponderance and collective weight of the specified matters satisfied him that extradition was in the interests of justice. He was not even arguably wrong in reaching that conclusion. Indeed, we consider that he was correct in his conclusion.”

A spokesman Lynch stated that ““Dr Lynch is very disappointed, but is reviewing the judgment and will continue to explore his options to appeal, including to the European court of human rights (ECHR)” adding that “The United States’ legal overreach into the UK is a threat to the rights of all British citizens and the sovereignty of the UK.”

Comment

Although Dr Lynch has high-profile supporters and his case has attracted a great deal of attention, in truth his arguments in the extradition proceedings were always weak.  The extradition request disclosed clear evidence of fraud over which the US had jurisdiction, even if the UK could have prosecuted too.  The judgment does not break any new ground and is another example of how extradition, despite the introduction of the forum bar in 2013, is incapable of resolving the question of where someone should be prosecuted in cases of concurrent jurisdiction: once a prosecution is underway in the US (or another requesting State) and provided there are no dual criminality concerns, in reality it takes something exceptional for extradition to be barred by reason of forum.  As the Lord Chief Justice made clear in Love v Government of the United States of America [2018], the specified factors “do not leave to the court the task of some vague or broader evaluation of what is just. Nor is the bar a general provision requiring the court to form a view directly on which is the more suitable forum”.  In short, if the UK has rationally declined to prosecute, however unfair that might be in some broader or more nebulous sense (such as the threat to UK sovereignty through US “legal overreach” referred to by Dr Lynch’s spokesman) the forum bar will almost certainly not apply.  It is not a mechanism which allows either the applicant or the court to choose where the prosecution takes place.  That choice will almost certainly have already been made by the prosecutors.

Despite counsel for Lynch’s valiant effort to prise open the bonnet of “the prosecutor’s belief” to invite the court to look inside and review whether the SFO’s decision to cede jurisdiction was correct, the court rightly declined to do so.  Court’s traditionally show great deference to the decisions of independent prosecutors and it would be a highly significant constitutional development for judges to review and substitute their own decisions on questions of prosecutorial discretion.

The main plank of the SFO’s reasoning was that it could not guarantee the admissibility in UK proceedings of evidence from US co-operating witnesses, nor that it could properly discharge its disclosure obligations in respect of those witnesses.  Furthermore, it was not clear whether, as a matter of UK and US law and procedure, a witness could be compelled pursuant to a co-operation agreement with a US prosecutor to give evidence in the UK.  Given the ubiquitous use of co-operating witnesses in US prosecutions, and the comparative clunkiness of our own SOCPA regime combined with more onerous disclosure duties, this is likely to be a recurring issue.  If jurisdiction was ceded routinely by UK prosecutors to their US counterparts on this basis, so that the location of the prosecution was effectively determined by differences in the law and procedure for co-operating witnesses, that would be problematic.  It is hoped that the CPS and SFO have the integrity, imagination and resolve not to allow that to happen.