Confiscation – what is a tainted gift?

Allegations of tainted gifts can cause serious problems for a defendant in confiscation proceedings. But what exactly is a ‘tainted gift’?

 

What is a gift?

In confiscation proceedings the word gift has a wider meaning than in everyday life.  A defendant is treated as making a gift if he transfers an asset to another person and receives either nothing for it or receives in return something whose value is significantly less than the value of that asset, s78 PoCA 2002.

So, for example, if I transfer £100 to you and receive nothing in return, I have made a gift to you.  But I can also make a gift to you if I transfer to you a car worth £20,000 and you pay me only £10,000 for it.

The statute does not contain a complete definition of a “gift”, it only indicates that, for example, a “gift” includes a transfer of an asset at a significant undervalue.

However case law suggests that for there to be a gift there must be (i) transfer of legal and beneficial ownership in an asset, (ii) acceptance of the gift by the donee, (iii)  no intention on the part of the donor that the asset should be returned to him, and (iv) that the transfer be either without consideration or at a significant undervalue, see Re Somaia [2017] EWHC 2554 (QB) at para [76].

So, for example, if a defendant owns a car and changes the registered owner to someone else (such as his wife or a friend) but continues to use the car as his own, then it could be argued that there has been no gift as the defendant is still in reality the owner of the car.  To put this in more formal words, there may have been a transfer of legal ownership but no transfer of beneficial ownership.

Similarly with a property, the legal title shown at the Land Registry does not necessarily indicate the beneficial ownership of the property.

If the defendant retains beneficial ownership of an asset then there has been no gift of that asset by him.  The same will be true if the defendant transfers an asset to someone to simply look after it for a while and return it to him later, or where the defendant transfers the asset to someone to hold it on trust for him.  In these cases the defendant is to be regarded as still owning the asset in question.

 

What is a tainted gift?

First of all, a tainted gift must be a gift by the defendant.  Once that is established, whether the gift is a tainted gift will in most cases depend solely on the date on which the gift was made.  The nature and provenance of the asset which is gifted is irrelevant in most cases.

The rules are slightly different depending upon whether the defendant has a criminal lifestyle or not.

If the defendant does not have a criminal lifestyle, then a gift by him will be a tainted gift if, and only if, it is a gift made by him on or after the date on which the offence was committed.  If the offence was committed on more than one day, or there is more than one offence, then the earliest day is used, see s77(4) to (7).

(Reference to the offence means the offence for which he is being sentenced in the proceedings which trigger the confiscation, see s6(2) and (9).)

So, for example, consider the case of Peter being sentenced for thefts from his employer which occurred from 5 October 2016 to 9 January 2017.  Peter does not have a criminal lifestyle.  The earliest day is 5 October 2016 and any gift by Peter on or after that day will be a tainted gift.  But any gift made by him before 5 October 2016 is not a tainted gift.

If the defendant does have a criminal lifestyle, then a gift by him will be a tainted gift in one of two circumstances.

Firstly, a gift will be a tainted gift if it was made on or after the ‘relevant day’.  Here the ‘relevant day’ is the first day of the period of six years which ends on the day on which the proceedings were commenced against the defendant which have resulted in conviction for an offence which has triggered the confiscation, see s77(2) and (9).  If there are two or more days, then the earliest one is the ‘relevant day’.

So, for example, consider the case of Jane being sentenced for concealing or converting criminal property which she did on 15 November 2016.  She has no previous convictions.  Jane does have a criminal lifestyle (because her offence is a Schedule 2 offence).  She was charged with the offence on 8 September 2017, which is the day the proceedings against her commenced.  So the ‘relevant day’ in her case is 9 September 2011.  Any gift by Jane on or after 9 September 2011 is a tainted gift.  Any gift made by her before 9 September 2011 is not a tainted gift.

But where a defendant has a criminal lifestyle there is an additional rule.  A gift is also tainted if it was made by the defendant at any time and was of property (a) which was obtained by the defendant as a result of or in connection with his general criminal conduct, or (b) which (in whole or part and whether directly or indirectly) represented in the defendant’s hands property obtained by him as a result of or in connection with his general criminal conduct, see s77(3).

This will rarely be applicable.  It can occur however if a long time elapses between the commission of an offence and the defendant being charged or where a defendant has previous convictions in previous proceedings (because these convictions will form part of his general criminal conduct, see s76(2)).

So, for example, consider the case of Trevor being sentenced for tax evasion from 6 April 2008 to 5 April 2015 from which he has obtained a benefit of £23,500.  Trevor does have a criminal lifestyle (because his offence was committed over a period of at least six months and he has obtained a benefit of at least £5,000).  He was charged with the offence on 27 June 2017, which is the day the proceedings against him commenced.  So the ‘relevant day’ in his case is 28 June 2011.  Any gift by Trevor on or after 28 June 2011 is a tainted gift.  But in addition any earlier gift of an asset which is, or is derived from, benefit of his offending (which as we know commenced prior to 28 June 2011) will also be a tainted gift.

This situation, where the defendant has a criminal lifestyle and his offence, or an earlier offence, occurred or commenced before the ‘relevant day’, is the only circumstance in which the nature and provenance of the asset which is gifted may be relevant to whether there has been a tainted gift.

 

What about spouses?

It is clear that one spouse may make a gift to the other and, in appropriate circumstances, a gift to a spouse is a tainted gift.  But does that mean that day to day sharing of money between spouses can be treated as the making of tainted gifts?

In practice it does not appear that, for example, a husband is regarded as making a gift when his salary is paid into a joint bank account with his wife.

It might be argued that legally there is no gift as, in this example, the husband is free to withdraw all the money in the account himself and so there is an expectation of a return of any ‘gift’.

A more likely explanation may be that prosecutors typically regard this as simply a feature of day to day domestic financial realities for many couples, rather than as examples of gifts being made from one spouse to another.

But what about more substantial and non-recurring gifts?

The case of R v Hayes [2018] EWCA Crim 682 concerned a married couple and the home in which they lived.  They married in September 2010.  Prior to their marriage both had had successful careers and well paid employments in Japan.  The husband’s employment came to an end just prior to their wedding.  The couple returned to the UK and the wife became pregnant, giving birth in October 2011.  It appears that neither of them were earning on their return to the UK.

In September 2011 they purchased a property.  The husband funded the entire purchase cost of £1.2m from his own resources, there was no mortgage.  But ownership of the property was placed in their joint names.

The husband and wife lived in the property.  The wife was a full time housewife and mother until returning to work in May 2013.  Until that time the husband paid all the household expenses and regular outgoings.

In July 2013 the husband transferred his half share in the matrimonial home to the wife for £250,000.  He was by that time incurring significant legal fees dealing with a criminal investigation into his conduct between 2006 and 2010.  He had been formally charged in June 2013.

His wife took out a mortgage to enable her to pay him the £250,000.

In October 2016 the property was sold for £1.6m.

The husband was ultimately convicted and was subject to confiscation on the basis that he had a criminal lifestyle.  The relevant day was in June 2007.

The issue arose as to whether he had made tainted gifts to his wife (a) on the purchase of the property in September 2011, and (b) on the sale of his half-share to her for £250,000 in July 2013.

Undoubtedly these events occurred after the ‘relevant day’ – the issue was whether these events were ‘gifts’.

The prosecution did not suggest that any additional gift arose from the husband paying all the household expenses and regular outgoings.

The husband pointed out that his wife had provided unpaid services as a wife and mother and argued that these should be valued and taken into account in determining whether he had made any gifts to her in relation to the ownership of the matrimonial home.

The court held that the husband had made tainted gifts to his wife on both occasions and that, for the purposes of confiscation, no monetary value could be placed on her services as a wife and mother in this case.

The court emphasised that each case is different and that the court needs to undertake an objective and evidence based approach to assertions concerning contributions.  Where the consideration which is asserted to have been provided by the recipient of the property is not in the form of a direct financial contribution, then it is necessary to examine the evidence rigorously and closely to see if the asserted consideration is capable of being assessed as consideration of value and (if it is) to what extent.  Any consideration which is asserted to have been provided must be capable of being ascribed a value in monetary terms and must be attributable to the transaction in question.

 

What are the consequences of a tainted gift?

The valuation of a tainted gift (both when the gift is made and subsequently) and the consequences of a tainted gift in confiscation proceedings are considered in a further blog article Tainted gifts – valuation and consequences.

 

Contacting us

Our contact details are here.

David

(Note: This article applies to confiscation proceedings under the provisions of Part 2 of the Proceeds of Crime Act 2002 in England and Wales. There are a number of additional issues which could be relevant to a defendant’s confiscation proceedings in particular cases which it is not possible to deal with in a relatively short article such as this. Appropriate professional advice should be sought in each individual case.)

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