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The meaning of “dishonesty” in English criminal law

Legal wig copyright David Winch 2014
What is meant by “dishonesty” in English criminal law? When considering the meaning of dishonesty the criminal courts of England and Wales until now often referred to a case decided last century. Recently in the case of Ivey v Genting Casinos (UK) Ltd (t/a Crockfords) [2017] UKSC 67 (25 October 2017) the UK Supreme Court reconsidered the meaning of dishonesty – and came to some new conclusions.

 

The two-stage ‘Ghosh’ test

Until October 2017 the leading case on the meaning of dishonesty in English criminal law was R v Ghosh [1982] EWCA Crim 2. In that case, decided in 1982, the Court of Appeal determined that there was a two-stage test for dishonesty. The first stage was based on an objective criterion and the second stage was based on a subjective criterion. The two stage test was put in the following terms:-

“In determining whether the prosecution has proved that the defendant was acting dishonestly, a jury must first of all decide whether according to the ordinary standards of reasonable and honest people what was done was dishonest. If it was not dishonest by those standards, that is the end of the matter and the prosecution fails.

If it was dishonest by those standards, then the jury must consider whether the defendant himself must have realised that what he was doing was by those standards dishonest. In most cases, where the actions are obviously dishonest by ordinary standards, there will be no doubt about it. It will be obvious that the defendant himself knew that he was acting dishonestly. It is dishonest for a defendant to act in a way which he knows ordinary people consider to be dishonest, even if he asserts or genuinely believes that he is morally justified in acting as he did.”

So until October 2017 criminal courts operated on the basis that not only must the conduct of the defendant be dishonest by the ordinary standards of reasonable and honest people (the objective test) but the defendant himself must have realised that he was acting dishonestly by that standard (the subjective test).

 

The subjective test

What was implied in Ghosh, was that a defendant was entitled to say, “I did not know that anybody would regard what I was doing as dishonest” and if he was believed he should be acquitted of dishonesty (as the subjective test was not satisfied).

But the Supreme Court has now criticised that approach, saying that “It has the unintended effect that the more warped the defendant’s standards of honesty are, the less likely it is that he will be convicted of dishonest behaviour”.

The new judgment means that it is still necessary for the jury in the Crown Court or the magistrates in the Magistrates’ Court to reach conclusions about the actual state of mind of the defendant – but only insofar as this relates to the defendant’s state of knowledge or belief as to the facts.  The Supreme Court has now said that criminal courts should no longer ask themselves whether the defendant himself realised that he was acting in a way which ordinary people would consider to be dishonest.

 

The new legal position

So instead of the Ghosh test, when dishonesty is in question the court must first ascertain (subjectively) the actual state of the individual’s knowledge or belief as to the facts. The question is not whether that belief is reasonable – the question is whether it is genuinely held.  Once his actual state of mind as to knowledge or belief as to the facts is established, the question whether his conduct was honest or dishonest is to be determined by the jury or magistrates by applying the (objective) standards of ordinary decent people.

There is no longer any requirement that the defendant must appreciate that what he has done is, by those standards, dishonest.

One consequence of this is that the definition of “dishonesty” is now consistent between criminal and civil law in England and Wales.

 

An example

Suppose a person is newly arrived in England and he has come from a country in which all public transport is free.  He gets on a bus in London and on arriving at his destination gets off without paying.  He is charged under s3 Theft Act 1978 with dishonestly making off without payment.  But was he dishonest?

The issue is ‘Did he genuinely believe that no payment was required?’.  If he did then he has not been dishonest and should be acquitted.  If, on the other hand, he did know that payment was required then he was dishonest by not paying.

But this issue concerns the defendant’s belief about the relevant facts – the issue is not about his understanding of what constitutes “dishonesty”.  That is the change in the law as a result of the Supreme Court’s ruling in October 2017.

 

Contacting us

Our contact details are here.

David

(Note: This article applies to matters arising under the provisions of the criminal law in England and Wales.  Appropriate professional advice should be sought in each individual case.)

Bank account frozen

BanksFrom time to time I am contacted by people who have found their bank account frozen by the bank without warning or explanation.  Perhaps the account holder discovers this when he attempts to use a debit card, draw cash from an ATM, use online banking, or visit his bank to pay money in or take it out.

What should the customer do and what can he expect to happen?

 

Contact the bank

The first thing to do is to contact the bank and ask for an explanation.  The bank might be rather evasive in response – perhaps referring to ‘technical difficulties’ – or the bank may refer the customer to a specialist department (such as the fraud department) – or the bank may hand over a pre-printed leaflet about money laundering.  But the bank are unlikely to provide a full explanation about what is happening or when the account will be unfrozen.

If the bank won’t tell the account holder what is going on the likelihood is that someone at the bank has flagged up the account for possible ‘money laundering’.  In other words someone at the bank (or the bank’s computer system) has noted what appears to be unusual activity on the account which might be connected to proceeds of some sort of crime.

If that is the case then it may be helpful if the customer very swiftly supplies to the bank further information, explanations and, if possible, documentary evidence in support of an innocent explanation for any unusual recent transactions.

Also, if there is a particularly urgent need to have the account unfrozen – for example where the account is a business account and it is necessary to pay employees’ wages or a supplier almost immediately – tell the bank about the urgency.

The bank will not disclose which transactions have triggered their action or what suspicions they have, so the customer will be left guessing how he can best put the bank’s mind at rest.

But that further information needs to be supplied as quickly as possible, preferably the same day – delaying for a couple of days will probably be too long.

 

Inside the bank

What is happening inside the bank is probably that the customer’s account (or accounts) will have been referred to the bank’s anti-money laundering or anti-fraud department for consideration of whether a Suspicious Activity Report (SAR) should be made to the National Crime Agency (NCA) by the bank’s Money Laundering Reporting Officer (MLRO).

If the MLRO decides that there is a valid basis for a suspicion of money laundering (which is very widely defined) then an SAR will promptly be submitted to the NCA.  The SAR will ask the NCA to give consent for the bank to unfreeze the account.  Once that SAR is submitted matters will be largely out of the bank’s control – which means that nothing is likely to be achieved after that time by the customer supplying further information, or making a complaint, to the bank.

But the bank will not normally tell the customer whether it has made an SAR or when the SAR was submitted.

Once the bank has submitted an SAR to the NCA the account will remain frozen until either the NCA have replied to the bank authorising the bank to unfreeze the account, or the ‘notice period’ has elapsed without the bank receiving any response at all from the NCA.

The ‘notice period’ is seven working days starting from the day after the bank submits the SAR to the NCA.  So, for example, if the bank submitted an SAR on Thursday 9 June 2016 the ‘notice period’ would end on Monday 20 June.

In practice however the NCA aim to respond to these consent requests before the end of the ‘notice period’.  If the NCA are told by the bank that there is a particular urgency they will attempt to respond particularly swiftly (which is one of the reasons the customer should tell the bank if there is a particularly urgent need to have the account unfrozen).

If the NCA require further time to consider the matter they will respond to the bank by refusing consent.  Once that happens the account will remain frozen until the ‘moratorium period’ expires.  The ‘moratorium period’ is 31 days starting with the day on which the bank receives refusal of consent from the NCA.

So, for example, if the bank receives refusal of consent on Thursday 16 June 2016 the last day of the ‘moratorium period’ will be Saturday 16 July.  The account should then be unfrozen on the next working day.

[UPDATE: The Criminal Finances Act 2017 included legislation which allows a court to extend the ‘moratorium period’ by up to a further six months (an additional 186 days).  This is now in force.]

During the ‘moratorium period’ the NCA will continue to consider the position and may at any time give the bank consent to unfreeze the account.

If the NCA do not give consent then the bank should unfreeze the account once the ‘moratorium period’ has expired unless in the meantime the authorities have obtained a ‘restraint order’ from a Crown Court judge.

If a ‘restraint order’ has been obtained from a Crown Court judge then copies of that order are served promptly on the bank and on the customer (and perhaps also on others, such as the Land Registry).  A ‘restraint order’ will normally freeze all the assets of the customer indefinitely.  There is more information about ‘restraint orders’ HERE.

A customer who is served with a copy of a Crown Court ‘restraint order’ should seek advice from a solicitor experienced in such matters immediately.

 

What can the customer do?

The bank ‘s customer will not know whether the bank has submitted an SAR to the NCA, when the SAR was submitted, or what response has been received from the NCA, if any.

Because of this the customer will not know when the ‘notice period’ or the ‘moratorium period’ are due to expire.

Aside from very swiftly providing additional information and documents and telling the bank about any particularly urgent need to have the account unfrozen, as already mentioned, the customer will be able to do little more than check with the bank every day whether his account has been unfrozen.

 

What about the Banking Ombudsman?

In my experience the Banking Ombudsman does not intervene where the bank has a suspicion of money laundering and is acting in accordance with its Terms and Conditions.

 

How often are bank accounts frozen?

Figures published by the NCA indicate that they receive approximately 8,000 consent requests each year from banks, building societies and similar institutions.

The NCA on average respond to these consent requests in five working days – and give consent in about 90% of cases.  In about a further 5% of cases they give consent during the moratorium period.

However even where consent is granted the bank’s customer may become the subject of an investigation by the authorities (such as the police, HM Revenue and Customs or the Single Fraud Investigation Service).

 

What is the legal basis for this?

Most of the relevant law is to be found in Part 7, Proceeds of Crime Act 2002 – particularly in s335 and s340.

A case concerning the freezing of a bank account when a suspicious activity report had been filed with the NCA by the bank was considered by the Court of Appeal in London in the case of The National Crime Agency v N & Royal Bank of Scotland plc [2017] EWCA Civ 253 (07 April 2017).  The court concluded that it would only very rarely be appropriate for the court to interfere with the temporary freezing of a bank account where a report had been made to the NCA.

 

How long will the account be frozen?

In the majority of cases the account should be unfrozen within about two weeks.  In a minority of cases the account will be frozen for up to about six weeks, perhaps slightly longer.

[UPDATE: The Criminal Finances Act 2017 included legislation which allows a court to extend the ‘moratorium period’ by up to a further six months (an additional 186 days) which means that an account can be frozen for up to about 32 weeks without a ‘restraint order’. This is now in force.]

Where a ‘restraint order’ is obtained the account will remain frozen after that.

 

What happens after the account is unfrozen?

After the account is unfrozen the bank’s relationship with the customer may return to normal or the bank may write to the customer asking him to close his account (or accounts) within 60 days and move to another bank.

The bank may not give any reason for requiring the customer to close his account.

 

Can the customer claim damages against the bank?

I am not aware of any cases in which bank customers have successfully claimed damages against their bank in relation to an account which has been frozen because of a reasonable suspicion of money laundering (even where, on investigation, no ‘money laundering’ was discovered).

 

Contacting us

Our contact details are here.

David

(Note: This article applies to matters arising under the provisions of the Proceeds of Crime Act 2002 in England and Wales.  Appropriate professional advice should be sought in each individual case.)

Money Laundering Regulations 2017

Big Ben imageThe final wording of the new Money Laundering Regulations 2017 was published on 22 June 2017. To give them their full title The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 came into force on 26 June 2017.  The reality is however that the new Regulations will take a year or two to be fully effective.

The Regulations run to over 100 pages.  I cannot describe them fully in a blog such as this, but I will mention a few points of interest.  These regulations replace the Money Laundering Regulations 2007 (as amended) and The Transfer of Funds (Information on the Payer) Regulations 2007.  Many of the provisions of the 2017 Regulations simply continue requirements of the 2007 ones.  But there are some changes of emphasis and important new requirements too.  The new Regulations also implement in UK law the requirements of the EU Fourth Money Laundering Directive.

  1. The hierarchy of risk assessments
  2. Written policies, controls and procedures
  3. Changes for High Value Dealers
  4. Changes for Estate Agents
  5. Politically exposed persons
  6. Banning persons with criminal convictions
  7. Conclusion
  8. Contacting us

 

The hierarchy of risk assessments

The new Regulations set out a hierarchy of risk assessments.  The UK government, in particular HM Treasury and Home Office, are required by regulation 16 to make arrangements before 26 June 2018 for a risk assessment to be undertaken to identify, assess, understand and mitigate the risks of money laundering and terrorist financing affecting the United Kingdom.

Then under regulation 17 each of the various supervisory bodies must identify and assess the international and domestic risks of money laundering and terrorist financing to which those relevant persons for which it is the supervisory authority (“its own sector”) are subject.  The supervisory body must take into account the risk assessment from HM Treasury and Home Office.

Finally under regulation 18 each ‘relevant person’ (businesses in the regulated sector) must take appropriate steps to identify and assess the risks of money laundering and terrorist financing to which its own business is subject.

In carrying out that risk assessment a relevant person must take into account information made available to it by its supervisory authority and its own risk factors. Those will include risk factors relating to its customers, the countries or geographic areas in which it operates, its products or services, its transactions and its delivery channels.

 

Written policies, controls and procedures

The new Regulations are much more prescriptive about the written policies, controls and procedures required.  Regulation 19 in particular spells out these requirements.

    • (1) A relevant person must
      • (a) establish and maintain policies, controls and procedures to mitigate and manage effectively the risks of money laundering and terrorist financing identified in any risk assessment undertaken by the relevant person under regulation 18(1);
      • (b) regularly review and update the policies, controls and procedures established under sub-paragraph (a);
      • (c) maintain a record in writing of —
        • (i) the policies, controls and procedures established under sub-paragraph (a);
        • (ii) any changes to those policies, controls and procedures made as a result of the review and update required by sub-paragraph (b); and
        • (iii) the steps taken to communicate those policies, controls and procedures, or any changes to them, within the relevant person’s business.
    • (2) The policies, controls and procedures adopted by a relevant person under paragraph (1) must be —
      • (a) proportionate with regard to the size and nature of the relevant person’s business, and
      • (b) approved by its senior management.
    • (3) The policies, controls and procedures referred to in paragraph (1) must include —
      • (a) risk management practices;
      • (b) internal controls (see regulations 21 to 24);
      • (c) customer due diligence (see regulations 27 to 38);
      • (d) reliance and record keeping (see regulations 39 to 40);
      • (e) the monitoring and management of compliance with, and the internal communication of, such policies, controls and procedures.
    • (4) The policies, controls and procedures referred to in paragraph (1) must include policies, controls and procedures —
      • (a) which provide for the identification and scrutiny of –
        • (i) any case where —
          • (aa) a transaction is complex and unusually large, or there is an unusual pattern of transactions, and
          • (bb) the transaction or transactions have no apparent economic or legal purpose, and
        • (ii) any other activity or situation which the relevant person regards as particularly likely by its nature to be related to money laundering or terrorist financing;
      • (b) which specify the taking of additional measures, where appropriate, to prevent the use for money laundering or terrorist financing of products and transactions which might favour anonymity;
      • (c) which ensure that when new technology is adopted by the relevant person, appropriate measures are taken in preparation for, and during, the adoption of such technology to assess and if necessary mitigate any money laundering or terrorist financing risks this new technology may cause;
      • (d) under which anyone in the relevant person’s organisation who knows or suspects (or has reasonable grounds for knowing or suspecting) that a person is engaged in money laundering or terrorist financing as a result of information received in the course of the business or otherwise through carrying on that business is required to comply with —
        • (i) Part 3 of the Terrorism Act 2000; or
        • (ii) Part 7 of the Proceeds of Crime Act 2002;
      • (e) which, in the case of a money service business that uses agents for the purpose of its business, ensure that appropriate measures are taken by the business to assess —
        • (i) whether an agent used by the business would satisfy the fit and proper test provided for in regulation 58; and
        • (ii) the extent of the risk that the agent may be used for money laundering or terrorist financing.
    • (5) In determining what is appropriate or proportionate with regard to the size and nature of its business, a relevant person may take into account any guidance which has been —
      • (a) issued by the FCA; or
      • (b) issued by any other supervisory authority or appropriate body and approved by the Treasury.

This regulation effectively requires each business in the regulated sector to draw up new written statements of policies, controls and procedures.

 

Changes for High Value Dealers

It was expected that the monetary lower limit for cash transactions would be reduced from €15,000.  That has indeed happened and the new limit is €10,000.  This means that when a firm or sole trader who by way of business trades in goods (including an auctioneer dealing in goods) receives, in respect of any transaction, a payment or payments in cash of at least 10,000 euros (or equivalent) in total he is acting as a ‘high value dealer’ and is subject to the Regulations.  As previously, this applies whether the transaction is executed in a single operation or in several operations which appear to be linked.

But Regulation 14 makes two other changes for High Valuer Dealers.  Now these Regulations apply where such a trader makes such a payment as well as when he receives one.

Also the regulation specifies that a payment does not cease to be a “payment in cash” for these purposes if cash is paid by or on behalf of the person making the payment to a person other than the other party to the transaction for the benefit of the other party, or into a bank account for the benefit of the other party to the transaction.

 

Changes for Estate Agents

An important change for estate agents is that by Regulation 4 an estate agent is to be treated as entering into a business relationship with a purchaser (as well as with a seller) at the point when the purchaser’s offer is accepted by the seller.

This means that at that stage the estate agent will have to complete customer due diligence on the purchaser of a property.  That was not previously required where the estate agent had been instructed by the seller.

This provision may help to address concerns about overseas buyers using tainted funds to purchase properties in the UK.

 

Politically exposed persons

A new definition of ‘politically exposed persons’ in Regulation 35 means that a UK senior politician entrusted with prominent public functions would also now be regarded as a PEP.  As a result additional anti-money laundering precautions are necessary when dealing with him or with a family member or close associate of his.

 

Banning persons with criminal convictions

The Regulations effectively will prevent a person who has been convicted of a ‘relevant offence’ from being a beneficial owner, officer or manager of a firm or a sole practitioner in specified types of business within the regulated sector.  This is achieved by Regulation 26 using a rather circuitous mechanism.

The regulation requires beneficial owners, officers and managers of a firm and sole practitioners to be approved by their supervisory body (before 26 June 2018) if the firm is an accountant, tax adviser, auditor, insolvency practitioner, legal professional, estate agent or high value dealer.  But the supervisory body is required to approve anyone who applies to it unless the applicant has been convicted of a ‘relevant offence’.  If a person is inadvertently approved who has a conviction for a ‘relevant offence’ their approval is invalid (and a valid approval becomes invalid when an approved person is newly convicted).

There is a list of ‘relevant offences’ in Schedule 3 to the Regulations.  These include “any offence which has deception or dishonesty as one of its components” as well as a long list of specified offences, including offences under the Data Protection Act 1998 and Perjury Act 1911, for example.  Unsurprisingly, tax and money laundering offences are included in the list.

One ramification of this will be that for an accountant, for example, being convicted of a ‘relevant offence’ could effectively end his career.

It is not clear, to me at least, whether this will affect persons who have old offences which would be regarded for most purposes as ‘spent’ under the Rehabilitation of Offenders Act 1974.

 

Conclusion

The Money Laundering Regulations 2017 make significant changes to the law which will affect every business in the regulated sector.

 

Contacting us

Our contact details are here.

David

(Note: This article deals with the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 so far as they apply in England and Wales. Appropriate professional advice should be sought in each individual case.)

Challenging a s22 PoCA 2002 confiscation reconsideration

Crown Court judgeThe revisiting of old confiscation orders by prosecutors under section 22 Proceeds of Crime Act 2002 is becoming more frequent.

This blog post considers the provisions of s22 and ways in which prosecution applications under s22 may be challenged by the defendant.

Section 22 is headed “Order made: reconsideration of available amount”.

WARNING – THIS IS A LENGTHY BLOG POST – APPROXIMATELY 3,000 WORDS

  1. Reconsideration of available amount
  2. The legal ‘trigger’
  3. “Makes” v “varies”
  4. Inflation
  5. The burden of proof
  6. What is ‘just’?
  7. The prosecutor’s s22 application and witness statement
  8. Restraint orders and investigation powers
  9. Time limit
  10. Challenges
  11. Default sentence
  12. Due date for payment & interest
  13. Second revisit
  14. Appeals
  15. Conclusion
  16. Contacting us

 

Reconsideration of available amount

Section 22 PoCA 2002 empowers the Crown Court to vary an existing confiscation order made under s6 of the Act.  In effect it allows the prosecution to apply to the court for a further payment to be required from the defendant under an existing confiscation order where his available amount has increased since the original order was made.

This blog article does not consider variations to confiscation orders made under earlier legislation, such as the Criminal Justice Act 1988, Drug Trafficking Act 1994 or Drug Trafficking Offences Act 1986.  Different rules apply under those Acts.

Nor are we considering the position of a person who has a new conviction and a new confiscation order is being made as a result of that.

We are considering the situation of a defendant who was made subject to a confiscation order, perhaps some years ago, at which time the court ruled that he had a figure of benefit which was higher than his available amount.  At that time the court would not have ordered him to pay the full amount of his benefit.  Instead the amount he was then ordered to pay would have been restricted to his available amount at that time.  The figures of the defendant’s benefit, available amount and the amount he was ordered to pay should all be spelled out in the original confiscation order.

Under s22 the prosecutor asks the court to consider the available amount which the defendant has now and to order him to pay a further amount now towards his total benefit.

Let’s consider Jim’s case.  Jim was subject to a confiscation order in September 2008.  That order says that Jim’s benefit was £100,000 and his available amount was £500.  Jim was ordered to pay £500 which he has paid.  Today Jim owns a house with his wife.  The house is worth £200,000 but there is a mortgage of £180,000.  So Jim’s half share is worth £10,000.  Jim also has a car worth £6,000 but no other assets, so Jim’s total available amount today is £16,000.

The prosecution can ask the court under s22 to order Jim to pay a further £16,000 (or some other figure) by making a variation to the confiscation order made in September 2008, requiring a further payment now.

 

The legal ‘trigger’

The legal ‘trigger’ for a s22 variation is in subsection 22(4):-

If the amount found under the new calculation exceeds the relevant amount the court may vary the order by substituting for the amount required to be paid such amount as –

(a) it believes is just, but

(b) does not exceed the amount found as the defendant’s benefit from the conduct concerned“.

The ‘trigger’ is in the first phrase – “If the amount found under the new calculation exceeds the relevant amount“.  What that means is that a s22 variation can only be made where the defendant’s available amount now exceeds the available amount shown on the original confiscation order.

In Jim’s case it obviously does (£16,000 is more than £500) and so the court can consider making an order requiring a further payment from Jim now.

 

“Makes” v “varies”

Under s22 a court may “vary” an existing confiscation order – but it does not “make” a confiscation order.  The legislation does not regard a variation to amount to the ‘making’ of an order.  This can be seen most clearly in the differing provisions regarding default sentence when a court “makes” an order – see s35 – and when a court “varies” an order – see s39.

It follows that an order which has been varied under s22 is an order which was ‘made’ at the time of the original confiscation hearing, not at the time of the variation.

 

Inflation

In these cases we can be looking back at figures determined by the court some years ago.  Because of this s22 recognises the effect of inflation by subsection 22(7) which says:-

In deciding under this section whether one amount exceeds another the court must take account of any change in the value of money.

This is done by using the RPIJ index published by the Office for National Statistics.  [UPDATE: Since the article was written courts have moved on to using CPIH rather than RPIJ for ‘inflation’ uplifts.]

In Jim’s case the confiscation order was made in September 2008 when RPIJ stood at 209.8.  The latest figure (May 2016) is 240.1.

So uplifting Jim’s benefit of £100,000 it becomes equivalent to £114,442 and his original available amount of £500 becomes equivalent to £572 today.

So, strictly speaking, the trigger condition is whether £16,000 exceeds £572 – which of course it does.

The prosecutor will most likely ask the court to vary the original confiscation order so that Jim’s amount to pay is £16,500 – that is the £500 which he has already paid plus a further £16,000 payable now.

The prosecutor will point out that this amount (which when adjusted for changes in the value of money is equivalent to £16,572) is less than Jim’s total benefit (which when adjusted for changes in the value of money is £114,442).

 

The burden of proof

An application under s22 is made by the prosecutor (or an enforcement receiver appointed under s50).  It would appear that the burden of proof is on the applicant to provide information enabling the court to make a “new calculation” of the defendant’s available amount.

This contrasts with the position when the confiscation order was originally made (at which time the burden was on the defendant to show that his available amount was less than his benefit, by virtue of s7).

 

What is ‘just’?

Under s22(4) the court is to vary the amount to be paid to an amount which the court “believes is just.”  What does that mean?

I suggest that part of the process of deciding what is ‘just’ involves looking back at the figure of benefit previously decided by the court and considering whether that figure, in the light of subsequent legal developments, is either faulty because it was based on a misunderstanding of the law (as may have arisen, for example, in a case of mortgage fraud), or is an amount which it would now be considered disproportionate to order the defendant to pay in full (as may be the case, for example, where stolen property has been returned to its owner).

That will involve some detailed reconsideration of the basis on which the original confiscation order was made, which may involve re-examination of the basis of prosecution’s assertions regarding benefit which were set out in the original s16 statement insofar as the court accepted those assertions when making the confiscation order.

Where, in the light of the relevant law as it is understood today, the defendant would not now be ordered to pay an amount based on the whole of the benefit shown in the original confiscation order then, I suggest, it would not be ‘just’ to order a defendant to pay that amount now under s22.

So it is necessary, in my view, to consider the impact of case law such as R v Waya [2012] UKSC 51 (proportionality and confiscation, mortgage fraud), R v Ahmad [2014] UKSC 36  (recovery from co-defendants), R v Harvey [2015] UKSC 73 (VAT and confiscation) and Boyle Transport (Northern Ireland) Ltd v R [2016] EWCA Crim 19 (piercing the corporate veil) on the understanding of confiscation law, when considering an application under s22.

This does not mean that the defendant is appealing against the benefit figure in the original confiscation order.  He is asking the court to consider what it would be ‘just’ for him to be ordered to pay now under s22.

[UPDATE: The case of R v Cole [2018] EWCA Crim 888 (24 April 2018) in the Court of Appeal concerned a s22 application in a mortgage fraud case. The original confiscation order had been made before the Supreme Court decision in Waya and the benefit included the amount of the mortgage advance.  The Court of Appeal restricted the further amount ordered to be paid under s22 in line with what the original benefit figure would have been had a ‘Waya-compliant’ approach been followed when the confiscation order was first made.  In other words the Court of Appeal did take into account the decision in Waya when making the s22 variation.]

More broadly the court appears to have a discretion under s22 to consider what amount, in all the circumstances, it believes it would be ‘just’ for the defendant to be ordered to pay.

The Court of Appeal has held in the case of Padda v R [2013] EWCA Crim 2330, “In that context, it is entirely appropriate for a court to consider such matters as the amount outstanding, the additional amount which might now be available for a further payment, the length of time since the original confiscation order was made, the impact on the Defendant of any further payment contemplated and indeed any other consideration which might properly be thought to affect the justice of the case.

When the court is considering a variation to a confiscation order under s22 then – once the trigger condition has been satisfied – the court may order the defendant to pay a further amount of any size, large or small, so long as the total which the defendant is required to pay under the confiscation order (adjusted for changes in the value of money) does not exceed the total of his benefit (adjusted for changes in the value of money).

Strictly speaking, the only relevance of the defendant’s current available amount is in relation to determining whether the trigger condition is satisfied.  In practice however the prosecutor is likely to suggest that it would be just for the defendant to be ordered to pay an additional amount which is the lesser of (a) his current available amount, and (b) the maximum which the defendant could be ordered to pay in relation to his total benefit.

 

The prosecutor’s s22 application and witness statement

Section 22 does not make express provision for a prosecutor’s statement in support of an application for a variation of a confiscation order.  There are no express provisions akin to those found in s16.

Equally there are no express provisions akin to sections 17, 18 and 18A requiring statements or information from the defendant or third parties.

Nevertheless the prosecutor (or enforcement receiver) will need to make a written application to the court and the likelihood is that he will append to that a witness statement which will be in some respects similar to a s16 statement.  Rule 33.16 Criminal Procedure Rules 2015 applies to the service of the application and any supporting witness statement.  It is likely that the defendant will want to respond to the application by way of a statement of his own before the court hearing.

 

Restraint orders and investigation powers

The prosecutor is entitled to apply for a restraint order, under s40(6), when a s22 application is to be made or has been made.

Where the court makes a restraint order it may also require the subject of the restraint order to supply information under s41(7) for the purpose of ensuring that the restraint order is effective.

However it appears that the investigation powers under Part 8 of PoCA 2002 are not available to a prosecutor applying for a s22 variation, because a s22 application does not appear to involve a ‘confiscation investigation’ as defined by s341(1).

There could be some debate as to whether a s22 investigation is an investigation into “the extent or whereabouts of realisable property available for satisfying a confiscation order made” in respect of the defendant, referred to in s341(1)(c).  My own view is that “satisfying a confiscation order made” refers to full payment of the amount ordered to be paid under the original confiscation order which has been made, rather than referring to satisfying a variation of that confiscation order which is (perhaps) to be made.  If that is the case, and if the original confiscation order has been paid in full, then the s22 investigation would, in my view at least, not fall within s341(1) with the result that the Part 8 investigation powers would not be available to a financial investigator acting for the prosecutor.

[UPDATE: The recent Criminal Finances Bill includes – at clause 27 – a proposed amendment to s341(1)(c) intended to make the investigation powers of Part 8 available to a prosecutor applying for a s22 variation.]

 

Time limit

There is no statutory time limit.  This means that a s22 application may be made many years after the original confiscation order was made.

 

Challenges

A s22 application may be subject to a variety of challenges by the defendant.

The defendant may assert that the trigger condition has not been satisfied.  Take the example of Bert who was subject to a confiscation order made in February 2012.  In that order his benefit was held to be £90,000 and his available amount was £40,000.  Bert was ordered to pay £40,000 which he has paid.  The prosecutor now finds that Bert has £25,000 in a bank account in his sole name.  Bert has no other assets, so his available amount now is £25,000.

The RPIJ in February 2012 was 225.8.  The latest figure (May 2016) is 240.1.

So uplifting Bert’s benefit of £90,000 it becomes equivalent to £95,699 and his original available amount of £40,000 becomes equivalent to £42,533 today.

So, strictly speaking the trigger condition is whether £25,000 exceeds £42,533 – which of course it does not.

It follows that the trigger condition is not satisfied and the court should not order Bert to pay a further amount now under s22.

A second area of challenge concerns the defendant’s available amount.  Consider Charles who, according to Land Registry records, is the sole legal owner of Rose Cottage.  The prosecutor values Rose Cottage at £250,000.  There is an outstanding mortgage of £150,000.  The prosecutor therefore asserts that Charles has an available amount of £100,000.

Charles may challenge this on the basis that he is not the sole beneficial owner of Rose Cottage and that the current value of Rose Cottage is less than £250,000.  That challenge may have a bearing on whether the trigger condition is satisfied and on the value of Charles’ current available amount – with obvious implications for any amount which Charles may be ordered to pay now as a result of the s22 application.

A third area of challenge concerns what might loosely be described as ‘change of law’.  In 2005 Peter was convicted of mortgage fraud in that he had purchased a house with a mortgage of £100,000 which he had obtained by giving false information on his mortgage application.  Peter was subject to confiscation with a benefit of £100,000 (the amount of the mortgage advance) and an available amount of £20,000.  He was ordered to pay £20,000 which he has paid.  Peter now has £50,000 in a bank account in his sole name but no other assets (so his available amount is £50,000).  He is subject to a s22 application.

Peter may challenge the application on the basis that it would not be ‘just’ to order him to pay £50,000 under s22 as, on a proper and just interpretation of the legal position, he did not ‘obtain’ the mortgage advance and, in any event, the mortgage advance has since been fully repaid to the lender.

The court would then have to consider what further sum, if any, it would be ‘just’ to order Peter to pay under the confiscation order.  That may involve consideration of the price for which Peter ultimately sold the mortgaged property.

A fourth possible area of challenge concerns prosecution delay and Article 6(1) of the European Convention on Human Rights.  Consider the case of Derek who was subject to a confiscation order in 2006.  The court then found he had a benefit of £175,000 and an available amount of £25,000.  He was ordered to pay £25,000 which he has paid.  In 2011 the prosecution discovered that Derek was the sole owner of a property worth £200,000 which he had inherited from his father who died in 2009.  No action was taken by the prosecution at the time.  The file was reviewed in 2016 and an application was then made under s22.

Derek may challenge the application on the basis that it infringes his Article 6(1) rights in that the prosecutor has not brought the s22 application to court “within a reasonable time”.

Fifthly, a s22 application may be challenged on the basis that, taking everything into consideration, it would be simply unjust to order the defendant to make any further payment now – or that it would be unjust to require him to pay the full amount requested by the prosecution.  It might be argued, for example, that it would be just for the defendant to be ordered an amount based on his bank balance but not any part of the value of the equity in his home or the value of assets he uses in his legitimate business.  However such an argument would have to overcome the clear legislative policy in favour of maximising the recovery of the proceeds of crime, even from legitimately acquired assets.

There may be other bases on which a s22 application may be challenged.

 

Default sentence

The provisions of s22 permit the court to vary the amount to be paid under the confiscation order, but do not expressly authorise the court to vary the original default sentence (which will have been based on the original amount payable).

Section 35 authorises the court to set a default sentence when it “makes a confiscation order”, not when it varies one.  However s39 authorises the court to vary the default sentences in the circumstances detailed in that section.

One of the trigger conditions in s39 is that a confiscation order has been varied under s22 and the effect of the variation is to vary the maximum period of a default sentence applicable in relation to the order under s139(4) Powers of Criminal Courts (Sentencing) Act 2000.

Unfortunately when s35 was amended by s10 Serious Crime Act 2015 corresponding amendments to s39 were not made.  The effect appears to be that the court can vary the default term in accordance with the table of default terms in certain circumstances, but only in accordance with the default terms set out in s139(4) Powers of Criminal Courts (Sentencing) Act 2000.  These are the default terms which applied to confiscation orders made before 1 June 2015.

In other words, when considering a default term in the context of a s22 variation it is as if the changes to default sentences made by the Serious Crime Act 2015 had never happened.

 

Due date for payment & interest

Strictly speaking, s22 does not authorise the court to vary the due date for payment.  Under s11 this is closely tied to the date on which the confiscation order is “made” (not the date on which it is varied under s22).  Under s12 the defendant must pay interest on any amount which is not paid when it is required to be paid.

However it would appear to be a nonsense to charge interest, backdated to the date on which the confiscation order was originally made, on an additional amount.  Such an interest charge might be considered to infringe the defendant’s rights under Article 1 of the First Protocol of the European Convention on Human Rights.

 

Second revisit

After a confiscation order has been varied under s22 is it possible to revisit it again at a later date?  The short answer is ‘Yes’.

However on a subsequent revisit the ‘trigger’ condition will be interpreted as comparing the defendant’s current available amount with his available amount as determined on the most recent occasion on which an application was made under s22.

 

Appeals

It seems clear that a defendant can appeal against a s22 variation where he considers the variation to have been wrong in principle or manifestly excessive (see Padda referred to above).

On the other hand, it does not appear that a prosecutor is able to appeal against the amount by which the court decides to vary a confiscation order on a s22 application, or a decision not to make any variation – but he is able to make a fresh application under s22 at a later date.

 

Conclusion

There are a number of matters which will need to be carefully considered by prosecution and defence in connection with a prosecutor’s application under s22 for reconsideration of a defendant’s available amount.

 

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.  Appropriate professional advice should be sought in each individual case.)

Section 330 Proceeds of Crime Act 2002

ER 1 sigSection 330 Proceeds of Crime Act 2002 requires persons working in the ‘regulated sector’ to report their suspicions of money laundering by others, subject to certain exceptions.

The ‘regulated sector’ is defined by Schedule 9 PoCA 2002, as amended.  The most significant amendment to Schedule 9 was made by the Proceeds of Crime Act 2002 (Business in the Regulated Sector & Supervisory Authorities) Order 2007 which entirely replaced Parts 1 & 2 of the originally enacted schedule.  There have been a number of more minor amendments to the extent of the ‘regulated sector’ subsequently.

But s330 itself has been subject to important amendments on a number of occasions, not only has the original text been amended but six entirely new subsections have been added.  In consequence there is not, as far as I am aware, an up to date copy of s330 freely available on the internet.

I set out below my understanding of the current wording of s330 at the time of writing (November 2015).

 

Section 330 Proceeds of Crime Act 2002

Failure to disclose: regulated sector

(1)     A person commits an offence if the conditions in subsections (2) to (4) are satisfied.

(2)     The first condition is that he –

    • (a) knows or suspects, or
    • (b) has reasonable grounds for knowing or suspecting,

that another person is engaged in money laundering.

(3)     The second condition is that the information or other matter –

    • (a) on which his knowledge or suspicion is based, or
    • (b) which gives reasonable grounds for such knowledge or suspicion,

came to him in the course of a business in the regulated sector.

(3A)  The third condition is –

    • (a) that he can identify the other person mentioned in subsection (2) or the whereabouts of any of the laundered property, or
    • (b) that he believes, or it is reasonable to expect him to believe, that the information or other matter mentioned in subsection (3) will or may assist in identifying that other person or the whereabouts of any of the laundered property.

(4)     The fourth condition is that he does not make the required disclosure to –

    • (a) a nominated officer, or
    • (b) a person authorised for the purposes of the Part by the Director General of the National Crime Agency,

as soon as is practicable after the information or other matter mentioned in subsection (3) comes to him.

(5)     The required disclosure is a disclosure of –

    • (a) the identity of the other person mentioned in subsection (2), if he knows it,
    • (b) the whereabouts of the laundered property, so far as he knows it, and
    • (c) the information or other matter mentioned in subsection (3).

(5A)   The laundered property is the property forming the subject-matter of the money laundering that he knows or suspects, or has reasonable grounds for knowing or suspecting, that other person to be engaged in.

(6)     But he does not commit an offence under this section if –

    • (a) he has a reasonable excuse for not making the required disclosure,
    • (b) he is a professional legal adviser or relevant professional adviser and –
      • (i) if he knows either of the things mentioned in subsection (5)(a) and (b), he knows the thing because of information or other matter that came to him in privileged circumstances, or
      • (ii) the information or other matter mentioned in subsection (3) came to him in privileged circumstances, or
    • (c) subsection (7) or (7B) applies to him.

(7)     This subsection applies to a person if –

    • (a) he does not know or suspect that another person is engaged in money laundering, and
    • (b) he has not been provided by his employer with such training as is specified by the Secretary of State by order for the purposes of this section.

(7A)    Nor does a person commit an offence under this section if –

    • (a) he knows, or believes on reasonable grounds, that money laundering is occurring in a particular country or territory outside the United Kingdom, and
    • (b) the money laundering –
      • (i) is not unlawful under the criminal law applying in that country or territory, and
      • (ii) is not of a description prescribed in an order made by the Secretary of State.

(7B)   This subsection applies to a person if –

    • (a) he is employed by, or is in partnership with, a professional legal adviser or a relevant professional adviser to provide the adviser with assistance or support,
    • (b) the information or other matter mentioned in subsection (3) comes to the person in connection with the provision of such assistance or support, and
    • (c) the information or other matter came to the adviser in privileged circumstances.

(8)     In deciding whether a person committed an offence under this section the court must consider whether he followed any relevant guidance which was at the time concerned –

    • (a) issued by a supervisory authority or other appropriate body,
    • (b) approved by the Treasury, and
    • (c) published in a manner it approved as appropriate in its opinion to bring the guidance to the attention of persons likely to be affected by it.

(9)     A disclosure to a nominated officer is a disclosure which –

    • (a) is made to a person nominated by the alleged offender’s employer to receive disclosures under this section, and
    • (b) is made in the course of the alleged offender’s employment.

(9A)   But a disclosure which satisfies paragraphs (a) and (b) of subsection (9) is not to be taken as a disclosure to a nominated officer if the person making the disclosure –

    • (a) is a professional legal adviser or relevant professional adviser,
    • (b) makes it for the purpose of obtaining advice about making a disclosure under this section, and
    • (c) does not intend it to be a disclosure under this section.

(10)   Information or other matter comes to a professional legal adviser or relevant professional adviser in privileged circumstances if it is communicated or given to him –

    • (a) by (or by a representative of) a client of his in connection with the giving by the adviser of legal advice to the client,
    • (b) by (or by a representative of) a person seeking legal advice from the adviser, or
    • (c) by a person in connection with legal proceedings or contemplated legal proceedings.

(11)   But subsection (10) does not apply to information or other matter which is communicated or given with the intention of furthering a criminal purpose.

(12)   Schedule 9 has effect for the purpose of determining what is –

    • (a) a business in the regulated sector;
    • (b) a supervisory authority.

(13)   An appropriate body is any body which regulates or is representative of any trade, profession, business or employment carried on by the alleged offender.

(14)   A relevant professional adviser is an accountant, auditor or tax adviser who is a member of a professional body which is established for accountants, auditors or tax advisers (as the case may be) and which makes provision for –

    • (a) testing the competence of those seeking admission to membership of such a body as a condition for such admission; and
    • (b) imposing and maintaining professional and ethical standards for its members, as well as imposing sanctions for non-compliance with those standards.

 

Contacting us

Our contact details are here.

David

(Note: This article applies to the provisions of Section 330 of the Proceeds of Crime Act 2002 in England and Wales.  There are a number of issues which could be relevant to obligations or proceedings under these provisions in particular circumstances which it is not possible to deal with in an article such as this.  Appropriate professional or legal advice should be sought in each individual case.)

Restraint orders under PoCA 2002

Restraint orders can be obtained by the authorities acting under the Proceeds of Crime Act 2002 – but in what circumstances and what are the effects?  This blog article attempts to answer some of the most common questions about restraint orders.

 

What is a restraint order?

Essentially a restraint order under the Proceeds of Crime Act 2002 is an order made by a Crown Court judge, normally at the request of the police or other investigating or prosecuting authority, which effectively ‘freezes’ the assets (including bank accounts) of an individual or a company.  A single restraint order may apply to several connected individuals and / or companies.  A restraint order is typically designed to ‘freeze’ all the assets of the individual(s) and company(ies) to whom it is directed, including assets legitimately acquired and even including assets outside the UK.

The key legislation in relation to England & Wales is sections 40 – 47 PoCA 2002.

 

When can a restraint order be made?

A restraint order can be made at any time after a criminal investigation has commenced into suspected criminal conduct from which an individual or company is suspected to have benefited.  It is not necessary for the investigation to have progressed as far as the arrest of anybody, nor is it necessary that anybody has been charged with an offence.

But the applicant for the restraint order must show that he has reasonable grounds to suspect that a benefit has been obtained from criminal conduct, s40.  Ordinarily a restraint order should be made only if there is genuinely a risk that assets will be dissipated (for example being spent, hidden, given away or removed from the country) in the absence of such an order, see s69 and R v B [2008] EWCA Crim 1374.

 

How is a restraint order made?

A restraint order is normally made by a Crown Court judge on an application by the police / Crown Prosecution Office or other authority.  Before making the restraint order the judge will be provided with a witness statement (often supported by other documentary evidence) from the applicant for the order.  However the subject(s) of the order will NOT have an opportunity to challenge the making of the order at this stage and will NOT be informed of the application until after the restraint order has been made.

As a result the subject(s) of the restraint order will normally be unaware of the application until he / she / they are served with a copy of the restraint order – by which time it will already be in force.

 

Who can be the subject of a restraint order?

An individual or company may be the subject of a restraint order if he / she / it is an alleged offender who is suspected to have benefited from an offence or is a person who (though not an alleged offender) has received assets from an alleged offender (by way of what is known as a ‘tainted gift’).

It follows that a restraint order may be drawn up to name as its subjects not only the alleged offender but also, for example, his spouse.

 

What is the effect of the restraint order?

The restraint order will prevent the assets of the subject(s) being dissipated by preventing the sale or transfer of those assets and by ‘freezing’ the subject’s bank accounts.  Technically the restraint order prohibits each subject from “dealing with” his assets. The restraint order will typically list known bank accounts and assets of the subject and will contain clauses designed to ensure that the order relates to those assets and accounts and to any other assets and accounts which are not shown on the list.

There is normally a provision in the restraint order allowing the subject to draw and spend a sum of money, typically £250 per week, to meet day to day living expenses.

The applicant who obtained the restraint order will normally serve copies of it on the subject(s) of the order and send copies of it to banks, etc at which the subject(s) are believed to have accounts and to, for example, the Land Registry in relation to land and buildings owned by the subject(s).

 

Can a restraint order be challenged?

Yes.  The subject of a restraint order can apply to have the order discharged (cancelled) or amended.  The application will be heard by a Crown Court judge who will hear submissions both from the applicant for the original order and the subject(s) of that order.

Typically a subject of a restraint order will apply to have the terms of the order relaxed, for example to allow a higher level of living expenses or to allow monies to be used to pay specific expenses (such as mortgage payments) or to remove one or more of the subjects from the scope of the order.

In some circumstances it may be appropriate for a subject to apply to the court to have the order limited so as to cover only specified assets.

The decision of the Crown Court judge can be the subject of an appeal to the Court of Appeal and beyond.

Where the restraint order impacts upon a legitimate business it may be necessary to make careful arrangements in the order to allow the business to continue in operation – to pay employees’ wages and business expenditures, for example.  One option in such a situation is for the court to appoint a management receiver (such as an independent accountant or insolvency practitioner) to operate the business whilst protecting the business assets from dissipation. However this may prove expensive and the management receiver’s fees are normally met out of the assets which he is managing, so in effect the subject pays his fees.

 

What is the purpose of a restraint order?

Ultimately the purpose of a restraint order is to preserve the assets of the subject(s) so that they remain available to meet any confiscation order which the Crown Court may make after the alleged offender has been charged, tried and convicted of an offence, s69.

 

 

What else might a restraint order require?

Commonly a restraint order includes clauses requiring the subject(s) of the order to disclose further information to the authorities concerning their assets, s41(7).  This information may then be used to assist in ensuring the effectiveness of the restraint in preventing the dissipation of assets and to assist the prosecution in confiscation proceedings following the conviction of the alleged offender(s).  However the information cannot be used by the prosecution in the course of the alleged offender’s criminal trial.

A restraint order may also contain a requirement to return to the UK assets held overseas (such as monies in an overseas bank account).

 

What about paying the alleged offender’s legal fees?

Restrained assets cannot be used to meet any legal fees of the alleged offender in connection with his defence against any criminal charges arising from the investigation which formed the basis of the application for the restraint order, see s41(4) PoCA 2002.  This means that the alleged offender will have to rely on legal aid (or gifts from friends) to meet his defence costs.

 

What about payments made to lawyers before the restraint order was made?

Where a solicitor holds funds in his client account which he has received from a person who has since become subject to a restraint order then the balance standing to the credit of the client is an asset of the subject which (like his other assets) is ‘frozen’ by the restraint order.

It is permissible for the solicitor to bill work done by him up to the date of the restraint order and pay himself for that work by transfer from the client account.  But similar transfers cannot be made in respect of any subsequent legal work, see Irwin Mitchell v RCPO & Allad [2008] EWCA Crim 1741 at paragraph [40].

 

What is the effect of breaching the restraint order?

A person who breaches a restraint order may be held to be in contempt of court (this is a ‘civil’ contempt, see R v O’Brien [2014] UKSC 23, which can nevertheless result in imprisonment) or may be subject to prosecution for attempting to pervert the course of justice, see Kenny v R [2013] EWCA Crim 1 at paragraph [41].

 

When does the restraint come to an end?

A restraint order will continue in force until it is lifted by the Crown Court.  This could be on an application by the subject of the order, or where proceedings are not brought within a reasonable time as a consequence of a criminal investigation which has not resulted in anyone being charged, or on the acquittal of the alleged offender, or on the satisfaction of any confiscation order made by the Crown Court following the alleged offender’s conviction.

Even after a confiscation order has been satisfied or discharged a restraint order may continue in force & restrained assets may then be used to satisfy any outstanding legal aid contribution related to the criminal proceedings.

 

Conclusion

Anyone finding himself subject to a restraint order under PoCA 2002 should seek appropriate legal advice without delay.

David

 

[This article has been updated to reflect legal changes made with effect from 1 June 2015.]

(Note: This article applies to restraint orders 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 subject’s restraint order 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.)

Confiscation – default sentence

When making a confiscation order in the Crown Court the judge will specify a ‘default sentence’ – a consecutive prison term which the defendant may be required to serve if he fails to satisfy the confiscation order.  A default sentence could be described as an additional penalty for failing to pay the confiscation order on time.

The intention is that the threat of triggering the default sentence will encourage the defendant to pay up.  Serving the default sentence is not an alternative to paying the confiscation figure – the amount originally ordered to be paid remains payable even after the default sentence has been served.

 

How long is the default sentence?

The MAXIMUM length of the default sentence which the Crown Court judge may specify when making the confiscation order is set out in s139 Powers of Criminal Courts (Sentencing) Act 2000.  The maximum is related to the amount which the defendant is ordered to pay, which is sometimes referred to as the ‘recoverable amount’.  This will be the lower of his ‘benefit’ and his ‘available amount’ as found by the Crown Court.

These maximum sentences are set out in bands in s139(4), depending upon the amount ordered to be paid:

An amount not exceeding £200 7 days
An amount exceeding £200 but not exceeding £500 14 days
An amount exceeding £500 but not exceeding £1,000 28 days
An amount exceeding £1,000 but not exceeding £2,500 45 days
An amount exceeding £2,500 but not exceeding £5,000 3 months
An amount exceeding £5,000 but not exceeding £10,000 6 months
An amount exceeding £10,000 but not exceeding £20,000 12 months
An amount exceeding £20,000 but not exceeding £50,000 18 months
An amount exceeding £50,000 but not exceeding £100,000 2 years
An amount exceeding £100,000 but not exceeding £250,000 3 years
An amount exceeding £250,000 but not exceeding £1 million 5 years
An amount exceeding £1 million 10 years

 

[UPDATE: See a revised table of default sentences from 1 June 2015 HERE.]

However a judge may specify any length of default sentence, even a very short one – provided he does not exceed the relevant maximum length from this table.

In practice judges have been encouraged by decisions of the Court of Appeal in cases such as Pigott v R [2009] EWCA Crim 2292 to use appropriate discretion in fixing default sentences and not to automatically apply the maximum sentences set out in s139Typically the judge will fix a default sentence somewhere between the maximum for the appropriate band in the table and the maximum for the band below, bearing in mind that the purpose of the default term is to secure payment of the confiscation order.  But judges are discouraged from applying a purely mathematical approach to fixing the default term.

 

An example

So, for example, if a confiscation order was being made in the sum of £500,000 one would expect the judge to set a default sentence no greater than the maximum permitted for that amount (which is 5 years) and no less than the maximum for the band below (which is 3 years).

But one would not expect the judge to feel bound to fix the default sentence at a term based on a mathematical calculation, which would be 3 years 8 months (i.e. 3 years plus one third of an extra 2 years because the amount of £500,000 is one third of the way between £250,000 and £1,000,000).

 

Co-operation

Although the judge should consider all the circumstances of the case in fixing the default sentence, he is likely to be particularly influenced by the co-operation, or lack of it, which the defendant has displayed in his conduct in relation to the confiscation proceedings.

 

Very large amounts

A particular difficulty arises where the confiscation order is for an amount in excess of £1 million because the table gives no guidance as to when it may become appropriate for a default sentence to be made in the maximum period of 10 years.

The Court of Appeal considered this point in the case of R v Castillo [2011] EWCA Crim 3173 in which a default term had been set at 10 years in relation to an order for £3 million against a defendant who was held to have deliberately hidden his ill-gotten gains outside the UK.

Notwithstanding the size of the order and the lack of co-operation from the defendant, the Court of Appeal reduced the default sentence in Mr Castillo’s case to nine years.

 

Early release

Prisoners who are further detained at the end of their sentence in default of a confiscation order are eligible for early release at the halfway stage of the default sentence under s258 Criminal Justice Act 2003 and are eligible to be considered for early release on temporary licence (see chapter 5.3 of Prison Service Order 6300).

[UPDATE: See revised position re orders of £10 million or more from 1 June 2015 HERE.]

But in addition a default term is reduced pro-rata to any payments received in part satisfaction of the confiscation order.  This is a purely mathematical exercise. (The underlying statute law involves a complex path from s35(2) PoCA 2002 to ss139 & 140 Powers of Criminal Courts (Sentencing) Act 2000 to s79(2) Magistrates’ Courts Act 1980. There are worked examples of the calculation in Chapter 16 of PSO 6650 ‘Sentence Calculation’.)  So, for example, suppose Timothy had been ordered to pay £600,000 with a four year prison term in default.  Let’s say Timothy has paid £500,000 and there remains £100,000 outstanding.  Timothy’s default sentence has now become 8 months – or, more accurately, 243 days (i.e. one-sixth of his original default sentence of 4 years because one-sixth of the original amount remains outstanding).

[UPDATE: See a more detailed article about reductions for part payments HERE.]

Contrast this with Gerald who has a confiscation order made against him for £100,000 with a default sentence set at 2 years and has made no payment off it.  Gerald also has £100,000 outstanding but, unlike Timothy, his default sentence is 2 years.  That apparent unfairness is a result of the non-linear basis of the table of default sentences in s139.

 

Appeals

In the past default sentences have proved to be a fertile ground for appeals – particularly where the Crown Court judge has been too quick to apply the maximum term specified in s139.  In all likelihood we shall continue to see a steady stream of such cases making their way to the Court of Appeal.

 

David

(Note: This article applies to default sentences relating to confiscation orders 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 default sentence 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.)

Confiscation – available amount

This article considers what is meant by a defendant’s ‘available amount’ and explains some of the rules the court must follow in determining the ‘available amount’.

In confiscation proceedings against a convicted defendant the Crown Court will ordinarily have to separately determine two figures – the ‘benefit’ obtained by the defendant and his ‘available amount’.  The court will then order the defendant to pay an amount equal to the lower of these two figures (see s7).

This article is based on the confiscation provisions of Part 2 of the Proceeds of Crime Act 2002, PoCA 2002, which apply in England & Wales.  Slightly different rules apply in Scotland and Northern Ireland.  In earlier confiscation legislation the ‘available amount’ was referred to as the ‘amount that might be realised’.

 

The ‘available amount’ is not the amount available

Like a lot of expressions used in confiscation, ‘available amount’ is defined by PoCA 2002 and has a specific meaning which is not the same as the meaning of the expression in everyday English usage.  A defendant’s ‘available amount’ is not simply the amount he has available to pay a confiscation orderSection 9 of PoCA 2002 defines ‘available amount’ as the total of the values (at the time the confiscation order is made) of all the free property then held by the defendant minus the total amount payable in pursuance of obligations which then have priority, and the total of the values (at that time) of all tainted gifts.

Typically a defendant’s ‘available amount’ is the total of all his assets less any liabilities secured on those assets, plus the value of any tainted gifts.  Take a simple example:  John and his wife jointly own their home which is currently valued at £300,000, there is an outstanding mortgage currently of £260,000 on it, John has £1,000 in a bank account in his own name, he owns shares quoted on the London Stock Exchange which have a current value of £12,000, he owes £15,000 on credit cards, and he has £80,000 in a pension scheme (which he cannot currently access as he is aged only 45), five years ago he gave £10,000 to his son Jake.  Let’s assume that for confiscation purposes John has a ‘criminal lifestyle‘.  What is John’s ‘available amount’?

John’s ‘available amount’ is £43,000.  This is made up of £20,000 as his half-share of the equity in his home, the £1,000 in the bank account, the shares worth £12,000 and the £10,000 gift to Jake.  The mortgage is taken into account because it is secured on the property and so reduces the value of John’s interest in the house, see s79(3).  The credit card debts are not secured on any asset and so are ignored.  The pension scheme is ignored because John cannot access it at present (see R v Chen [2009] EWCA Crim 2669). The value of the gift to Jake is added in because it is a ‘tainted gift’ (see s77).

Let’s assume that the court has determined John’s ‘benefit’ to be £100,000.  The court will order John to pay £43,000 (because this is his ‘available amount’ which is lower than his ‘benefit’) and can initially allow him up to three* months to pay (see s11).  In default John may have to serve an additional term of imprisonment of up to 5 years*, because the amount does not exceed £500,000* (see s35(2A) PoCA 2002).

[NOTE: *The time to pay period was reduced to three months, from six months, by s5 Serious Crime Act 2015; the maximum default sentence in relation to an amount of £43,000 was increased to 5 years, from 18 months, by s10 Serious Crime Act 2015.]

In practice John will have difficulty paying the £43,000 because the only money he has readily available is the £1,000 in the bank account and the £12,000 he can raise from selling the shares.  He may need to sell the house in order to pay off the confiscation order in full.  He should talk to his solicitor about seeking further time to pay and about requesting reconsideration of the ‘available amount’ if the house and the shares cannot be sold for the full amount of their valuation.

 

Establishing the ‘available amount’

In law the burden is upon the defendant to satisfy the court that his ‘available amount’ is less than his ‘benefit’ (see s7 which says “if the defendant shows that the available amount is less than that benefit . . .”).

In practice the prosecutor will normally supply information about the defendant’s ‘available amount’ in his s16 statement.  The defendant may feel that the information supplied by the prosecutor is incorrect or incomplete, but it is up to the defendant to supply the correct information.

If the defendant fails to supply information about his ‘available amount’ to the court, or the court is not satisfied that the information supplied by him is correct and complete, then the court might simply make an order that the defendant should pay the whole amount of his ‘benefit’.  Indeed in the case of R v Barwick [2000] EWCA Crim 3551 the Court of Appeal went so far as to say “once the benefit has been proved, it is permissible and ought normally to be the approach of the court, to conclude that the benefit remains available until the defendant proves otherwise”.

That was exactly what the English courts did in the case of Mr Barnham, R v Barnham [2005] EWCA Crim 1049.  Mr Barnham ultimately appealed to the European Court of Human Rights contending that the burden placed upon him to satisfy the court of his ‘available amount’ involved a breach of his human rights, but the European Court found against him.

 

When the evidence is unsatisfactory

However it does not follow that in every case in which the court is not satisfied that the defendant has made a complete and accurate disclosure of his ‘available amount’ the court will make a confiscation order in the full amount of the benefit.

In the case of McIntosh v R [2011] EWCA Crim 1501 the Court of Appeal said, “there is no principle that a court is bound to reject a defendant’s case that his current realisable assets are less than the full amount of the benefit, merely because it concludes that the defendant has not revealed their true extent or value, or has not participated in any revelation at all  . . . The court may conclude that a defendant’s realisable assets are less than the full value of the benefit on the basis of the facts as a whole.  A defendant who is found not to have told the truth or who has declined to give truthful disclosure will inevitably find it difficult to discharge the burden imposed upon him.  But it may not be impossible for him to do so.  Other sources of evidence, apart from the defendant himself, and a view of the case as a whole, may persuade a court that the assets available to the defendant are less than the full value of the benefit.”

It appears therefore that a Crown Court judge has some scope to weigh the evidence as a whole in coming to his own determination of a defendant’s ‘available amount’ where there is uncertainty about the true position.

 

Inadequacy of available amount

Where, after the confiscation order has been made, it transpires that the defendant’s assets are less valuable than previously thought or, on realisation, they fail to produce the expected value, then the defendant may request the court to adjust his available amount.  That will involve the court reconsidering the entirety of the defendant’s available amount – so that the values all the defendant’s assets taken into account in the confiscation order are reconsidered by the court.

 

Appeals

It is possible for an appeal to be made against a confiscation order on the basis that the Crown Court judge has made an error in his determination of the defendant’s ‘available amount’.

There is a recorded case, R v Lemmon [1991] EWCA Crim 1, in which a confiscation order was quashed on appeal when a professional residential property valuation obtained after the date of the confiscation hearing showed that the defendant’s ‘available amount’ had been overstated.  However that decision may be specific to its facts.  In particular it appears that in that case “the figures put as the value of his realisable assets were unknown to the appellant until the day of the hearing”.  Ordinarily a defendant will be made aware of the prosecution’s assertions regarding his ‘available amount’ in advance of the Crown Court hearing, as they will be set out in the prosecutor’s s16 statement.

In the case of R v Davies [2004] EWCA Crim 3380 a prosecution valuation of property (which proved to be an over-valuation) was not challenged at the confiscation hearing.  Subsequently a professional valuation was obtained in a substantially lower figure and an appeal was lodged against the order.  In the Court of Appeal defence counsel indicated that the valuation had not been challenged due to an oversight on his part.  The Court of Appeal considered, at paragraphs [11] to [14], that the Crown Court judge had been misled as to the value of the property and it amended the defendant’s ‘available amount’ and hence the amount of the confiscation order.

As a result of amendments made to the Criminal Appeal Act 1968 by s140 Coroners and Justice Act 2009 it is now open to the Court of Appeal to remit confiscation cases to the Crown Court for re-hearing.  However it would be unwise, I suggest, to assume that a failure by the defence to carefully consider the defendant’s ‘available amount’ at the time of the Crown Court hearing could always be remedied on appeal.

David

(Note: There are a number of issues which could be relevant to a defendant’s ‘available amount’ 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.)

17 year sentence for VAT carousel fraud

Recently Dilawar Ravjani was sentenced to 17 years imprisonment following conviction for conspiracy to cheat the public revenue.  He was said to be the ring-leader in a complex missing trader intra community (MTIC) VAT fraud – sometimes known as carousel fraud.  But was that sentence – reportedly the longest ever given to an individual in the UK for this type of fraud – too harsh?

 

The offending

It is said that Mr Ravjani was at the head of a conspiracy involving purported trading in mobile phones of a total value of £1.7 billion.  But some of the phones did not even exist and a total of 5,700 fake transactions had been created to give the appearance of legitimate trading.  HM Revenue & Customs started their investigation in 2006.  It culminated in five trials and the conviction of 15 conspirators.  Only recently has the final trial been concluded.  The total VAT loss to HMRC was £107 million.

Undoubtedly the offending was serious.

 

The criminal charges

Mr Ravjani was charged and convicted of a single offence of ‘Conspiracy to Cheat the Public Revenue’.  He was sentenced to 17 years imprisonment and banned from acting in the management of a company for 15 years.  He is also to be subject to confiscation proceedings.

The offence of ‘Conspiracy to Cheat the Public Revenue’ is a common law offence in England & Wales with a history going back hundreds of years

The offence of ‘Conspiracy to Cheat the Public Revenue’ is a common law offence in England & Wales with a history going back hundreds of years.  The common law offence of ‘Cheat’ had applied more widely but was abolished by s32(1)(a) Theft Act 1968 except in relation to the public revenue.  The logic of that abolition was that the statutory offences set out in the Theft Act 1968 replaced the old common law.

One of the consequences of this was that, except in relation to offending concerning the public revenue, the statute introduced maximum sentences for offending formerly prosecuted as ‘Cheat’.  The maximum sentence for theft was originally set at 10 years imprisonment.  For some offences a lower maximum was set, for example ‘false accounting’ carried a maximum sentence of 7 years.

In relation to VAT a criminal offence was enacted by s72(1) Value Added Tax Act 1994 where “any person is knowingly concerned in, or in the taking of steps with a view to, the fraudulent evasion of VAT by him or any other person”.  Subsection (2) provides that “the evasion of VAT includes a reference to the obtaining of . . . the payment of a VAT credit”.  A ‘VAT credit’ is defined in s25(3) to include a VAT refund paid following the submission of a trader’s VAT return.

So it seems that Mr Ravjani could have been prosecuted under s72 VAT Act 1994.  But the maximum sentence for an offence under that section is 7 years imprisonment.

It appears to be the case that the offending occurred prior to the coming into effect of the Fraud Act 2006, which provides a maximum sentence of 10 years for fraud by false representation and similar offences.

However had the victim of this fraud been a wealthy individual, rather than the public purse, the maximum penalty (for the common law offence of conspiracy to defraud) would have been 10 years.

Mr Ravjani was not charged with any money laundering offence under Part VII, Proceeds of Crime Act 2002.  Such offences carry a maximum sentence of 14 years imprisonment.

the prosecutors may have had an option to charge Mr Ravjani either under the specific statutory offence or with the common law offence

So it seems that the prosecutors may have had an option to charge Mr Ravjani either under the specific statutory offence of s72 VAT Act 1994 (with a maximum sentence of 7 years) or with the common law offence of ‘Cheating the Public Revenue’ (which has no statutory maximum sentence).

It is perhaps not surprising that they chose to charge Mr Ravjani with the common law offence.  But were they entitled to do so?

 

Common law v statutory offences

It might be argued that Mr Ravjani ought to have been charged with the statutory offence under s72 VAT Act 1994 because his alleged criminal conduct fell within the scope of that statutory offence.

good practice and respect for the primacy of statute do in my judgment require that conduct falling within the terms of a specific statutory provision should be prosecuted under that provision unless there is good reason for doing otherwise

In the case of R v. Rimmington [2005] UKHL 63 Lord Bingham said this at paragraph [30]:
“Where Parliament has defined the ingredients of an offence, perhaps stipulating what shall and shall not be a defence, and has prescribed a mode of trial and a maximum penalty, it must ordinarily be proper that conduct falling within that definition should be prosecuted for the statutory offence and not for a common law offence which may or may not provide the same defences and for which the potential penalty is unlimited.  . . .    It cannot in the ordinary way be a reason for resorting to the common law offence that the prosecutor is freed from mandatory time limits or restrictions on penalty.  It must rather be assumed that Parliament imposed the restrictions which it did having considered and weighed up what the protection of the public reasonably demanded.  I would not go to the length of holding that conduct may never be lawfully prosecuted as a generally-expressed common law crime where it falls within the terms of a specific statutory provision, but good practice and respect for the primacy of statute do in my judgment require that conduct falling within the terms of a specific statutory provision should be prosecuted under that provision unless there is good reason for doing otherwise”.

It is clear that Mr Ravjani was regarded as the organiser and ring-leader in this conspiracy.  It is also clear that other members of the conspiracy were convicted of money laundering and sentenced to prison terms in excess of 7 years.  It follows that, had Mr Ravjani been prosecuted only under s72 VAT Act 1994, he would have received a lighter sentence than other conspirators who were considered less culpable.

But is that, in the words of Lord Bingham, “good reason for doing otherwise”?

It has to be said that appropriate sentencing in this area remains open to debate.  In the Court of Appeal judgment R v Meehan [2006] All ER (D) 105 it was indicated that organisers of such frauds should expect sentences well into double figures – clearly in excess of those envisaged in VAT Act 1994.  That appears to leave a tension between the views of the Court of Appeal and those of Lord Bingham in the House of Lords.

Perhaps that should be resolved by Parliament looking again at the 7 year maximum sentence under s72 VAT Act 1994?

But can it be right that a person who defrauds the public purse faces a higher sentence on conviction than a person who defrauds wealthy individuals or businesses?

David

P.S.  Mr Ravjani might, on the other hand, consider himself fortunate to have been prosecuted in England rather than in another jurisdiction.  At least he did not have to face a very, very long sentence such as that meted out in the US courts in the case of Bernie Madoff – 150 years!

UPDATE
On 29 November 2012 the Court of Appeal refused Mr Ravjani’s application for leave to appeal against his 17 year sentence R v Ravjani [2012] EWCA Crim 2519.

SECOND UPDATE
The Court of Appeal on 17 December 2013 in the case of Dosanjh & Others v R. [2013] EWCA Crim 2366 commented upon the use of common law charges in circumstances where the offending could be covered by a statutory offence. They said, at paragraph [33], “we are entirely confident that as far as Parliament is concerned, the offence of conspiracy to cheat the public revenue retains its established and clearly understood role in the prosecution of revenue cases. It is used to supplement the statutory framework and is recognised as the appropriate charge for the small number of the most serious revenue frauds, where the statutory offences will not adequately reflect the criminality involved and where a sentence at large is more appropriate than one subject to statutory restrictions”.
In practice however I see the common law offence being charged apparently routinely in cases which could not be described as “the most serious revenue frauds”. Will that no longer be the case in future?

Confiscation – counts left to lie on the file

In confiscation proceedings counts left to lie on the file may have unwelcome implications which had not been foreseen by the defendant and his legal team at an earlier stage.  What are these implications?

 

Counts left to lie on the file

in any subsequent confiscation proceedings there is, I venture to suggest, a very important difference between these two methods of disposal

When a defendant has been charged with more than one offence he may wish to offer a guilty plea to some of the counts he faces if the remaining counts against him will not be pursued.  Those counts which are not pursued might be dealt with in one of two ways.  The prosecution could state in court that they propose to offer no evidence on those counts.  The judge will then formally record ‘not guilty’ verdicts in relation to them.

Alternatively the prosecution could invite the judge to agree that the counts are to be ‘left to lie on the file’ without any verdict being entered.  That means that the prosecution may only revive and proceed on those counts in wholly exceptional circumstances.

So it would appear that, in practical terms, the outcome is the same – those allegations have been disposed of and the defendant will no longer face prosecution for them.  But in any subsequent confiscation proceedings there is, I venture to suggest, a very important difference between these two methods of disposal.

Case law

Case law indicates that where a defendant has been formally acquitted of a count it is not open to the prosecution to suggest, in confiscation proceedings based on his conviction on one or more other counts on the same indictment, that the defendant was in fact guilty of that offence.  To do so would imply that the court has ‘got it wrong’ so far as the acquittal is concerned.

it is not open to the state to undermine the effect of the acquittal

In R (on the application of Adams) v Secretary of State for Justice [2011] UKSC 18 the Supreme Court held at paragraph [111] “the principle that is applied is that it is not open to the state to undermine the effect of the acquittal”.  Similarly the Supreme Court held in Gale v Serious Organised Crime Agency [2011] UKSC 49 at paragraph [115] “in all proceedings following an acquittal the court should be astute to ensure that nothing that it says or decides is calculated to cast the least doubt upon the correctness of the acquittal”.

In this respect the UK Supreme Court judgments are consistent with the decision of the European Court of Human Rights in the case of Geerings v The Netherlands [2007] ECHR 191.  In the Geerings case a confiscation order made against Mr Geerings following his conviction of certain offences was assessed, in part, on the basis that he was in fact also guilty of other offences of which he had been acquitted in the same proceedings.  The European Court held that this had violated his Article 6(2) right to the presumption of innocence.

in contrast . . . the defendant may find that the burden will rest upon him

In contrast where counts have been left to ‘lie on the file’ I suggest that it is open to the prosecutor, in confiscation proceedings, to suggest that the defendant is in fact guilty of those offences.  Indeed in a ‘criminal lifestyle‘ confiscation the defendant may find that the burden will rest upon him to satisfy the court, on the balance of probabilities, that he is not guilty of those offences.

Simon’s case

An example from a recent case in which I was involved may underline the point.  The defendant, let’s call him Simon, ran a plant hire business.  His premises were raided by the police who examined 91 items of plant which he hired out.  They found 39 of these items to have been stolen property.  Simon was charged with 39 counts of ‘handling’ under s22 Theft Act 1968 on the basis that he knew or believed these items to be stolen.  Simon denied that he knew or believed the items to be stolen but, shortly before the matter came for trial, he pleaded guilty to 9 of the 39 counts and all parties agreed to the remaining 30 counts being left to ‘lie on the file’.

Simon was subsequently subject to confiscation on the basis that he had a ‘criminal lifestyle‘ having been convicted of more than 3 offences and having obtained from them a benefit of at least £5,000 (which was not disputed).  In the confiscation proceedings the prosecution asserted that the income generated from the hiring out of all 39 items was benefit of Simon’s criminal conduct.  The defence contended that the benefit should be assessed only by reference to the income from the hire of the 9 items in relation to which Simon had been convicted.

The judge entirely disbelieved and rejected Simon’s evidence

The judge heard oral evidence from Simon regarding his state of knowledge concerning the 30 items and also heard oral evidence from other witnesses.  The judge entirely disbelieved and rejected Simon’s evidence and based the confiscation order on the income generated from the hire of all 39 stolen items.

In approaching the matter in the way he did, the judge acted consistently with the recent Court of Appeal judgment in Bagnall v R [2012] EWCA Crim 677.  It was open to the judge to apply the statutory assumptions which, in his judgment, Simon had failed to rebut in relation to income generated from the hire of all 39 stolen items.  This did not, in law, amount to a finding that Simon was guilty of offences of which he had not been convicted (although it had the same effect in terms of the confiscation order).

In a jury trial the burden would have been upon the prosecution to prove, to the criminal standard, that Simon knew or believed that each of the items of plant was stolen

No doubt the outcome of the confiscation would have been significantly different if Simon had been formally acquitted of the 30 counts to which he did not plead guilty.  Alternatively, had Simon insisted, insofar as he was able, that he face trial before a jury on the 30 counts (and, in my view at least, a defendant has a right to a fair trial on all the counts with which he has been charged) it is possible that he would have been acquitted on some or all of those counts.  In a jury trial the burden would have been upon the prosecution to prove, to the criminal standard, that Simon knew or believed that each of the items of plant was stolen.  As things turned out, acquittals on any of the counts would have led to a better outcome for Simon in the confiscation proceedings.

So, for a defendant and his legal team, agreeing to counts being left to ‘lie on the file’ may be a less attractive option than it appears.

David