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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.

 

Is the defendant’s state of mind irrelevant?

So is it now totally irrelevant that the defendant wrongly believed that what he was doing was acceptable behaviour?  Well, not entirely.  A defendant’s deluded belief that he was not acting dishonestly (for example because he hoped one day to repay money which he was stealing and spending) will not now result in his acquittal.  But it could be put forward in mitigation on sentencing that he had no intention to cause harm to his unfortunate victim.

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.)

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?

What is ‘just’ does not only mean what is ‘just’ for the defendant.  The concept has regard to the legitimate interests of both sides.

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 Criminal Finances Act 2017 includes – at section 33 – an amendment to s341(1)(c) intended to make the investigation powers of Part 8 available to a prosecutor applying for a s22 variation.  This came into force on 31 January 2018.]

 

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.

[UPDATE: In the case of R v Mundy [2018] EWCA Crim 105 the Court of Appeal did grant the prosecution leave to appeal a Crown Court decision not to vary a confiscation order under s22.  The basis for that leave to appeal appears to have been s31(1) PoCA 2002 which refers to an appeal where the Crown Court “makes” a confiscation order.  Since the s22 application was a request to “vary” rather than to “make” a confiscation order, it is open to debate whether the prosecution’s appeal was validly made.  In any event the Court of Appeal dismissed the prosecution’s appeal.]

 

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.)

Balance of probabilities in confiscation

balance-scalesIn confiscation law ‘the balance of probabilities’ plays a key role.  Under s6(7) Proceeds of Crime Act 2002 the court must decide any question relevant to the determination of the amount which the defendant is to be ordered to pay on the balance of probabilities.

But what does that mean?

 

The balance of probabilities

Some years ago the House of Lords (as the UK Supreme Court was known at the time) considered the meaning of the phrase ‘the balance of probabilities’ in the case of Re H & Others (minors) [1995] UKHL 16.  The case actually concerned an application by a local authority for a care order under the Children Act 1989 in respect of certain children who may or may not have become subject to significant harm if they remained in the care of their mother and step-father.

Nevertheless I suggest that the House of Lords’ comments in that case on the meaning of the expression ‘the balance of probabilities’ are of wider application.  Indeed when s6(7) of the then Proceeds of Crime Bill was being considered by a committee of MPs they were referred by the government minister to this judgment.

The House of Lords’ judgment includes the following:-

“The balance of probability standard means that a court is satisfied an event occurred if the court considers that, on the evidence, the occurrence of the event was more likely than not. When assessing the probabilities the court will have in mind as a factor, to whatever extent is appropriate in the particular case, that the more serious the allegation the less likely it is that the event occurred and, hence, the stronger should be the evidence before the court concludes that the allegation is established on the balance of probability. Fraud is usually less likely than negligence. Deliberate physical injury is usually less likely than accidental physical injury.  . . .  Built into the preponderance of probability standard is a generous degree of flexibility in respect of the seriousness of the allegation.”

“Although the result is much the same, this does not mean that where a serious allegation is in issue the standard of proof required is higher. It means only that the inherent probability or improbability of an event is itself a matter to be taken into account when weighing the probabilities and deciding whether, on balance, the event occurred. The more improbable the event, the stronger must be the evidence that it did occur before, on the balance of probability, its occurrence will be established.”

In the later case of Re B (Children) [2008] UKHL 35, the House of Lords commented on this passage, stressing the importance of the words “to whatever extent is appropriate in the particular case“.  The judgment went on:-

“There is only one rule of law, namely that the occurrence of the fact in issue must be proved to have been more probable than not. Common sense, not law, requires that in deciding this question, regard should be had, to whatever extent appropriate, to inherent probabilities.”

In another House of Lords case in 2008, Re CD (Northern Ireland) [2008] UKHL 33 Lord Carswell said, at para [28]:-

“A possible source of confusion is the failure to bear in mind with sufficient clarity the fact that in some contexts a court or tribunal has to look at the facts more critically or more anxiously than in others before it can be satisfied to the requisite standard.  The standard itself is, however, finite and unvarying.  Situations which make such heightened examination necessary may be the inherent unlikelihood of the occurrence taking place (Lord Hoffmann’s example of the animal seen in Regent’s Park [which may have been a lioness or an Alsatian]), the seriousness of the allegation to be proved or, in some cases, the consequences which could follow from acceptance of proof of the relevant fact.  The seriousness of the allegation requires no elaboration: a tribunal of fact will look closely into the facts grounding an allegation of fraud before accepting that it has been established.  The seriousness of consequences is another facet of the same proposition: if it is alleged that a bank manager has committed a minor peculation, that could entail very serious consequences for his career, so making it the less likely that he would risk doing such a thing.  These are all matters of ordinary experience, requiring the application of good sense on the part of those who have to decide such issues.  They do not require a different standard of proof or a specially cogent standard of evidence, merely appropriately careful consideration by the tribunal before it is satisfied of the matter which has to be established.”

In a further case, Re S-B Children [2009] UKSC 17, Lady Hale in the Supreme Court said:-

“There is no necessary connection between the seriousness of an allegation and the improbability that it has taken place. The test is the balance of probabilities, nothing more and nothing less.”

So it is the inherent improbability of an event, not its seriousness, which as a matter of common sense will be in the mind of the court when deciding an issue on the balance of probabilities.

 

Confiscation proceedings

In confiscation proceedings the court will be dealing with a defendant who has been convicted of an offence.  The existence of that conviction, and the evidence already accepted by the court in relation to it, cannot be ignored by the court when drawing conclusions relevant to the confiscation order.

However I suggest the court should not lose sight of the significance of ‘the balance of probabilities’ when determining matters which are in dispute in the consequent confiscation proceedings.

 

Contacting us

Our contact details are here.

David

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

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.)

Confiscation default sentences under the new law

BewareThe law relating to the default sentence which may be triggered by a failure to satisfy on time a confiscation order made under Part 2 Proceeds of Crime Act 2002 has been amended by s10 Serious Crime Act 2015 with effect from 1 June 2015.

The government’s objective in making the changes seems to be to make default sentences more effective in securing payment by both simplifying & increasing the severity of sentencing.

So what has changed & what has not?

 

Comparing the old & new tiers

It might be helpful to compare the old tiers & the new.  There were twelve tiers previously – now there are only four.  The four new tiers include a new break point at £500,000.  The following table shows all the tiers with both the old & new maximum default terms.

Old New Change
An amount not exceeding £200 7 days 6 months Increased
An amount exceeding £200 but not exceeding £500 14 days 6 months Increased
An amount exceeding £500 but not exceeding £1,000 28 days 6 months Increased
An amount exceeding £1,000 but not exceeding £2,500 45 days 6 months Increased
An amount exceeding £2,500 but not exceeding £5,000 3 months 6 months Increased
An amount exceeding £5,000 but not exceeding £10,000 6 months 6 months No change
An amount exceeding £10,000 but not exceeding £20,000 12 months 5 years Increased
An amount exceeding £20,000 but not exceeding £50,000 18 months 5 years Increased
An amount exceeding £50,000 but not exceeding £100,000 2 years 5 years Increased
An amount exceeding £100,000 but not exceeding £250,000 3 years 5 years Increased
An amount exceeding £250,000 but not exceeding £500,000 5 years 5 years No change
An amount exceeding £500,000 but not exceeding £1 million 5 years 7 years Increased
An amount exceeding £1 million 10 years 14 years Increased

It can be seen that the maximum default sentences are increased for all amounts except for amounts exceeding £5,000 but not exceeding £10,000 & amounts exceeding £250,000 but not exceeding £500,000, for which the maximums are unchanged.

Because in each case the specified sentence for each tier is a maximum sentence, any default sentence which may have been set on or after 1 June 2015 using the old tiers will not be an unlawful sentence under the new tiers.

However when operating the new tiers it seems likely that in very many cases Crown Court judges will be minded to fix a higher default sentence than the one which they would have fixed under the old tiers.

In the author’s view this is particularly likely in relation to higher value confiscation orders.  For example a defendant ordered to pay £400,000 will be subject to a statutory maximum of 5 years (which is unchanged).  But whereas previously the ‘5 year tier’ was from £250,000 to £1 million it is now from £250,000 to £500,000.  Therefore a sum of £400,000 is now much closer to the ceiling of the tier and therefore likely to attract a default sentence which is also closer to the ceiling for that tier.

 

Previous case law

The setting of a default term will always be, in the author’s view at least, dependent upon the particular facts relevant to the defendant & the case.  But previous case law has established a principle that the default term will normally be not less than the maximum term applicable to the tier immediately below.

So, for example, under the old tiers one would expect a default term in respect of an amount of £110,000 to be not less than two years (which was the maximum for sums not exceeding £100,000).

That principle may be a less useful guide under the new regime as there are now four tiers rather than twelve.

It remains to be seen how far, if at all, Crown Court judges will have some regard to the old tiers when setting a default sentence under the new regime.

 

Transitional provisions

The amendment made by s10 SCA 2015 came into effect on 1 June 2015 as set out in regulation 3 Serious Crime Act 2015 (Commencement No 1) Regulations 2015.  But neither the 2015 Act nor the commencement regulations tell us anything useful about transitional arrangements for the new four tiers.

Typically confiscation proceedings (in the broadest sense) might pass through nine significant stages en route to activation of the default sentence:-

  • The offence is committed
  • The defendant is charged
  • The defendant is convicted
  • A prosecution s16 statement is issued or amended
  • A confiscation order is made in the Crown Court
  • Default in payment occurs
  • Interest accrues on the outstanding amount
  • The confiscation order might be varied in the Crown Court
  • The defendant is committed to prison by the Magistrates’ Court

But which of these must occur on or after 1 June 2015 for the new regime to be applicable?  The legislation gives no clue.

One approach is to suggest that whenever the Crown Court makes or varies a confiscation order on or after 1 June 2015 the new regime applies.  I understand that to have been the government’s intention & there is a certain logic to it.

An alternative approach is to suggest that the new regime can only apply where the offence is committed on or after 1 June 2015.  The basis of that is an argument that the setting of the default sentence, and the confiscation proceedings in the Crown Court, are an integral part of the sentencing for the offence.  Since legislation cannot retrospectively impose a greater penalty for an offence than was in operation when the offence was committed, the old regime (it is argued) must apply if the offence was committed before 1 June 2015.

Which is the correct approach may become clearer over the coming months.

 

Pro-rata release

Questions have been raised as to whether early release of the defendant from his default sentence on the basis of part-payment still operates.  The short answer appears to be “Yes”.

Pro-rata release for part payment applies by virtue of a rather complex chain of statute law from s35(2) PoCA 2002 to s140(3) Powers of Criminal Courts (Sentencing) Act 2000 to s79(2) Magistrates’ Court Act 1980.  That chain of legislation is unaffected by the changes made by the Serious Crime Act 2015.

This means that, for example, a defendant who is given a 2 year default sentence in respect of an amount of £100,000 will have his sentence effectively reduced to one year if he makes payment which reduces the amount outstanding to £50,000.

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

 

Early release on licence

Similarly – but with one important exception – early release from a default sentence at the half-way stage on licence under s258 Criminal Justice Act 2003 continues to apply.

The exception is that the early release provision is disapplied where “the sum in question” exceeds £10m, see s10(3) SCA 2015.  It appears that “the sum in question” refers to the amount ordered to be paid by the confiscation order or any variation of that order, rather than to the amount currently remaining unpaid under the order (taking into account interest accrued & payments made).  In a sense therefore this provision creates a further tier of default sentence in respect of orders for sums in excess of £10m.

This disapplication of early release in respect of sums exceeding £10m applies where the default occurs on or after 1 June 2015 and so can apply where a confiscation order was made prior to the implementation of the new regime, see s86(2) SCA 2015.

 

Appeals

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

However it appears that the prosecution has no right of appeal against a default sentence which it considers is too short, see R v Mills [2018] EWCA Crim 944 at para [37].

 

Variation of the confiscation order

Application may be made in various circumstances by the defendant or by the prosecution to vary the confiscation order, for example where the available amount proves inadequate (s23), where new assets come to light (s22), or where accrued interest has increased the amount outstanding & the prosecution wish the court to consider increasing the default sentence (although in practice such applications are understood to have been rare).

 

Impact on future proceedings

It might be considered that the increased severity of default sentences under the new regime could have an impact upon the way that prosecutors pursue & settle confiscation proceedings.

For example it may prove to be the case that prosecutors will be less willing to settle confiscation proceedings by compromise agreement, or more willing to pursue assertions of ‘tainted gifts’ or ‘hidden assets’, in the hopes that heavier default sentences may strengthen their hand in negotiations prior to the making of an order & in persuading defendants (& perhaps their families or third parties) to disgorge assets to satisfy an order which has been made.

Similarly prosecutors might have greater expectation of reward from revisiting older PoCA 2002 confiscation orders & pursuing s22 applications.

 

Contacting us

Our contact details are here.

David

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

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 by defendants – 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.

However it appears that the prosecution has no right to appeal against a default sentence which it considers is too short, see R v Mills [2018] EWCA Crim 944 at para [37].

 

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 – 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

Civil recovery under PoCA 2002 & the acquitted defendant

Under Part 5 Proceeds of Crime Act 2002 the Crown can pursue civil claims in respect of ‘recoverable property’ and can seek the forfeiture of ‘cash’.  Both of these terms have specific meanings in this context.

‘Recoverable property’ is defined by sections 304 – 310, but the essence is that it is proceeds of crime (or, as the legislation puts it, property obtained through unlawful conduct) and property representing the proceeds of crime.  So if I steal a valuable painting that painting is ‘recoverable property’.  If I then sell the stolen painting the money or asset which I obtain from the sale is ‘recoverable property’.

‘Cash’ is defined in s289(6) and (7).  It includes not only notes and coins but also cheques, traveller’s cheques, bankers’ drafts and bearer shares (but not bank balances).

These are civil – not criminal – proceedings and the standard of proof is ‘the balance of probabilities’

The key point in proceedings under Part 5 is that the Crown do not have to show that anyone has been convicted of any criminal offence in order to succeed.  (The civil recovery provisions of Part 5 of the Act are quite different from the confiscation provisions of Part 2 – which DO require that a person has been convicted of an offence.)  Nor do the Crown have to show that the person from whom the asset is being taken is himself the perpetrator of an offence, he may simply be holding an asset which was obtained by the criminal conduct of someone else (although a bona fide purchaser for value is protected).  These are civil – not criminal – proceedings and the standard of proof is ‘the balance of probabilities’, see s241(3).

The Crown do not even have to identify a specific offence by which the money or asset was obtained.  (In civil recovery proceedings the Crown need not allege the commission of any specific criminal offence but must specify the kind or kinds of unlawful conduct involved.)

Indeed, in relation to cash the Crown may succeed simply by showing that the cash was intended for use in a future crime (s298(2)).

But, apart from that, what the Crown do have to do is satisfy the Court, on the balance of probabilities, that the money or asset in question has been derived from criminal conduct (by somebody who may, or may not, be identified).  In the case of ‘cash’ the Magistrates’ Court may then order the cash to be forfeit to the Crown.  In relation to other assets the High Court (in England and Wales) may order the property to be vested in a civil trustee who will realise the property for the benefit of the enforcement authority (for example SOCA, the SFO or the CPS).

If a defendant has been acquitted of a crime can an asset or cash believed to have been derived from that crime be subject to civil recovery

This raises an interesting technical question.  If a defendant has been acquitted of a crime (meaning that it has not been proved to the criminal standard – ‘beyond reasonable doubt’) can an asset or cash believed to have been derived from that crime be subject to civil recovery (since the lower standard of ‘the balance of probabilities’ applies in civil recovery proceedings)?

You may remember the notorious case of OJ Simpson in the United States.  Mr Simpson was acquitted of the murders of Nicole Brown and Ronald Goldman, but was subsequently ordered by a civil court to pay substantial damages to the Goldman family as he was (in the civil court) held to be liable for Mr Goldman’s ‘wrongful death’.

Let’s consider the case of Peter who has been acquitted of mortgage fraud.  Can the Crown now commence civil recovery proceedings against the house he purchased with the mortgage?

Or the case of Gwen who has been acquitted of ‘possession of criminal property’ in relation to cash of £30,000 which the police found and seized when they searched her home.  Can that cash now be subject to forfeiture in the Magistrates’ Court?

It seems to have been the view of the (then) government when PoCA 2002 was being debated in the Houses of Parliament that civil recovery proceedings could be pursued in these circumstances.  In the House of Lords Lord Goldsmith, speaking for the government, said on 13 May 2002, “We certainly do not accept that, where a criminal case has not resulted in a conviction, civil recovery action should automatically be barred”.  Later he added, “I do not shrink from the fact that . . . evidence is available in the civil process which would satisfy a court, even though it did not satisfy the criminal process”.

But the UK has brought into effect the European Convention on Human Rights, by virtue of the Human Rights Act 1998.  The Convention Rights are set out in Schedule 1 to the Act.  Article 6(2), reproduced in the Schedule, says simply, “Everyone charged with a criminal offence shall be presumed innocent until proved guilty according to law”.

But if a person has been acquitted of an offence in the criminal courts can it be right for a civil court to proceed on the basis that actually he is guilty of that same offence?

The European Court of Human Rights (ECHR) has answered that question with a firm, “No”.

In the Scottish case of Scottish Ministers v Doig, reflecting a number of ECHR judgments, the court put it this way (at para 24):

“It is perhaps not immediately obvious as a matter of language that article 6(2) could ever be said to apply to proceedings in which a person is not charged with a criminal offence. It is nevertheless clear from decisions of the European Court of Human Rights that article 6(2) may be said to apply, and be said to be infringed, in the course of proceedings which are not criminal in nature but which follow an acquittal in criminal proceedings. In particular a clear strand of authority suggests (a) that article 6(2) would apply if the later proceedings can be said to be sufficiently linked (in particular by law and practice) as to be the consequence, and to some extent a concomitant, of the criminal proceedings in which the person was acquitted, and (b) that the article would be infringed in these later proceedings if it can be said that the court casts doubt on the soundness of the earlier acquittal.”

More bluntly in the case of Geerings v The Netherlands the ECHR held (at para 49):

following a final acquittal, even the voicing of suspicions regarding an accused’s innocence is no longer admissible

“following a final acquittal, even the voicing of suspicions regarding an accused’s innocence is no longer admissible”.

It has to be said however that the UK Supreme Court has expressed disquiet on this issue.  In its judgment in Gale v SOCA [2011] UKSC 49 Lord Phillips said (at para 44), “If confiscation proceedings do not involve a criminal charge, but are subject to the civil standard of proof, I see no reason in principle why confiscation should not be based on evidence that satisfies the civil standard, notwithstanding that it has proved insufficiently compelling to found a conviction on application of the criminal standard”.  Although he refers to “confiscation” it may be that Lord Phillips has civil recovery proceedings rather than confiscation proceedings particularly in mind here.

However the European Court judgments apply where there is a close link between the civil and criminal cases, so that the civil proceedings “constitute a consequence and the concomitant of the criminal proceedings”.  The Supreme Court found no such link in the case of Mr & Mrs Gale.

The principle might be summarised as – one court cannot treat a person as guilty (even on a balance of probabilities) of an offence of which he has previously been acquitted in another court.

But where does leave Peter and Gwen?

Peter purchased a house with the aid of a mortgage and has been acquitted of mortgage fraud.  In these circumstances I cannot see that the Crown can pursue civil recovery proceedings in respect of the house (which Peter has acquired as a bona fide purchaser for value).

Gwen has been acquitted of ‘possession of criminal property’ in relation to cash found in her home.  I would suggest her position is rather different.  Suppose the facts of her defence were that the money in question had been passed to Gwen to look after by her friend Alice.  Unknown to Gwen, Alice had obtained the money by drug trafficking, but Gwen neither knew nor suspected that the monies were tainted by criminality.

On that basis Gwen would be properly acquitted of ‘possession of criminal property’ but the cash itself would still be proceeds of a crime (Alice’s drug trafficking).  So the cash could, I would suggest, be subject to civil recovery proceedings without casting any shadow of doubt on Gwen’s acquittal.

It seems to me that there are three sets of circumstances in which civil recovery could properly proceed:

  1. where the acquitted defendant lacked the mens rea or actus reus for the offence of which he was acquitted but that nevertheless the money or asset concerned is recoverable property (having been derived from an offence committed by someone else) which is able to be traced into the hands of the acquitted defendant;
  2. where the money or asset concerned has been derived from a different offence committed by the defendant (i.e. an offence of which he has not been acquitted); or
  3. where (in the case of cash) it is liable to forfeiture as property intended for use in a future crime.

depending upon the circumstances, it may, or may not, be permissible for civil recovery proceedings to be pursued in relation to money or an asset held by an acquitted defendant

In short, depending upon the circumstances, it may, or may not, be permissible for civil recovery proceedings to be pursued in relation to money or an asset held by an acquitted defendant.

For obvious reasons it is preferable for the defendant’s guilt or innocence to be determined in the criminal courts before any cash forfeiture or civil recovery proceedings are concluded (as noted in Harrison, R (on the application of) v Birmingham Magistrates’ Court [2011] EWCA Civ 332).

(Note: This article refers to civil recovery in England and Wales under the provisions of Part 5 of PoCA, the Proceeds of Crime Act 2002.)

David