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The twenty most popular blog posts since the blog started

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.)

The Money Laundering (Amendment) Regulations 2012

Amendments to the Money Laundering Regulations 2007 came into force on 1 October 2012, but what effect will these have on practitioners?  The answer in most cases is likely to be ‘little or none’.

It is now five years since the Money Laundering Regulations 2007 were introduced.  HM Treasury believe that the regulations should be reviewed and updated as necessary every five years.  The Money Laundering (Amendment) Regulations 2012 are the product of the first of these five-yearly reviews – but very little change has been made.

 

Estate Agents

Perhaps the only change of significance for practitioners relates to estate agents.  Previously an estate agent operating in the UK, but who dealt in properties situated overseas, was not subject to the MLR 2007.  That has been changed by way of a new definition of “estate agency work” in new regulation 3(11A).  However it remains the case that letting agents do not fall within the scope of the MLR.

 

Short term credit agreements

At the same time the regulations now make clear that a business whose only listed activity is the provision of fixed term credit by way of payments deferred by not more than 12 months does not thereby fall within the MLR regime.

 

Reliance – accountants and lawyers

In terms of the scope to rely on customer due diligence carried out by another practitioner, there is a minor simplification and relaxation of the rules relating to members of the various different professional bodies and a consequent redrafting of Schedule 3 to the 2007 regulations.

 

 

Supervisory bodies

The remainder of the amendments relate to increasing the powers of supervisory bodies and allowing the different supervisors to share information with each other.  So HMRC are now allowed wider scope to take matters into consideration for the purpose of deciding whether a person is “fit and proper”, and in consequence MLR 2007 regulations 28(2) and (3) have been removed.

 

Changes not made

The government had considered, and consulted on, some changes to the MLR 2007 that have not in the event been made.  In particular the government have not, after all, abolished the criminal penalties for breaches of the MLR 2007.

The government had also considered exempting some very small businesses from the need to comply with MLR 2007, but has not done so.

A proposed addition to the wording of Regulation 19 relating to the keeping of records of identity of beneficial owners also did not make it into the final version of the amendments.

 

The future

Work is well advanced a new EU Money Laundering Directive.  In practice however most of the ‘new’ requirements of this directive are already found in UK law (not least because the UK has adopted an ‘all crimes’ approach which entails a much wider definition of ‘money laundering’ in the UK than in most other countries, both within and outside the EU).

In consequence the most significant change which the new directive will bring in the UK is likely to be a widening in the definition of ‘Politically Exposed Person’.  At present a PEP is defined by reference to a person’s role outside the UK.  At some stage the legislation is likely to be amended so that it will apply equally to persons having a role within the UK.

Other than that the new directive, when it is finalised, is likely simply to require other EU member states to adopt money laundering regulations closer to those already in operation in the UK.

David

Confiscation – available amount

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

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

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

 

The ‘available amount’ is not the amount available

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

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

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

[NOTE: Since this article was written the circumstances in which a person may access monies in a pension scheme have changed. If, under current legislation, John were able to access a sum of money from his pension scheme then that sum would form part of his available amount.]

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

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

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

 

Establishing the ‘available amount’

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

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

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

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

 

When the evidence is unsatisfactory

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

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

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

 

Inadequacy of available amount

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

 

Appeals

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

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

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

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

David

(Note: There are a number of issues which could be relevant to a defendant’s ‘available amount’ in particular cases which it is not possible to deal with in a relatively short article such as this.  Appropriate professional advice should be sought in each individual case.)

Money laundering – entering into an arrangement – s328 PoCA 2002

Prosecutors are sometimes tempted, unwisely, to strain the meaning of statutory provisions in order to charge a defendant.  There have been a couple of successful appeals recently against money laundering convictions under s328 Proceeds of Crime Act 2002 where a defendant has been charged with “entering into or becoming concerned in an arrangement which he knows or suspects facilitates (by whatever means) the acquisition, retention, use or control of criminal property by or on behalf of another person”.

In effect the courts have held that this statutory provision should be given its natural meaning and not artificially stretched to cover situations which it had not originally been intended to encompass.

 

The Geary case

That concealment would have involved a criminal offence of conspiracy to pervert the course of justice

So in the case of R v Geary [2010] EWCA Crim 1925, the defendant was asked to ‘look after’ some money for a friend who said he was about to become involved in divorce proceedings.  The intention was that this money would be concealed from the friend’s wife and from the divorce court.  That concealment would have involved a criminal offence of conspiracy to pervert the course of justice.  It was not disputed that Mr Geary had received over £100,000 from his friend and had returned it (keeping a few thousand pounds as payment for his services).

During his Crown Court trial the judge indicated that what Mr Geary was admitting amounted to the money laundering offence of entering into an arrangement contrary to s328.  In the light of that Mr Geary changed his plea to guilty – but he subsequently appealed.

 

The Court of Appeal’s decisions

On appeal it was argued by the Crown that, even on the ‘facts’ as Mr Geary had understood them to be (in reality his friend had lied to him, he was not involved in a divorce – the money was part of the proceeds of a fraud which the friend was trying to launder by duping Mr Geary) the money became ‘criminal property’ in Mr Geary’s hands when he received it with the intention of concealing it from the divorce court.  Therefore, the Crown submitted, Mr Geary had knowingly entered into an arrangement facilitating the retention of ‘criminal property’ by his friend.

To be caught by s328 the money had to be ‘criminal property’ before the arrangement affected it – not because the arrangement affected it

No, said the Court of Appeal.  To be caught by s328 the money had to be ‘criminal property’ before the arrangement affected it – not because the arrangement affected it.  To put this another way, there was a difference between a plan to use lawfully acquired money in an unlawful way (which was what Mr Geary had in mind) and a plan to deal with unlawfully acquired money (which could amount to a money laundering offence under s328).  In this case the money would only become ‘criminal property’ as a consequence of the arrangement, and that was not caught by s328.

But the Crown also submitted that, in that event, when Mr Geary returned the money to his friend it had by that stage become ‘criminal property’ and so Mr Geary was then guilty of a s328 offence.

It was not permissible to dismantle that arrangement into its constituent parts

Again the Court of Appeal said no.  The ‘arrangement’ in this case was that Mr Geary should receive the money and later return it (or most of it) to his friend.  It was not permissible to dismantle that arrangement into its constituent parts and then seek to base a conviction under s328 on only the later elements.  With hindsight the prosecution could have charged Mr Geary with an offence of transferring criminal property contrary to s327 (which is another money laundering offence) in relation to the repayment to his friend, with better chances of success.  But that had not been done.

So Mr Geary walked free from the court.

 

Mr Dare wins

In the second case the defendant, Mr Dare, met with a man named Mick (whom he knew to be involved in dealing in stolen cars) who offered to sell him a car for the bargain price of £800.  Mr Dare thought he would be able to re-sell the car for £3,500 and, after taking the car for a test drive, asked Mick to give him some time to get the money together.  In the event Mr Dare got £500 together and arranged to meet Mick again with a view to buying the car at that price.

But something intervened (presumably in the shape of the boys in blue)

But something intervened (presumably in the shape of the boys in blue) and the deal was never completed.  Nevertheless Mr Dare was charged with, and convicted of, a money laundering offence under s328 on the basis that he had entered into an arrangement with the intention of facilitating the acquisition of criminal property by whoever ultimately bought the car off him.

On these facts Mr Dare could have been charged with handling stolen property, contrary to s22 Theft Act 1968, if he had actually received the car – but he did not receive it because the deal was never completed.

On appeal, Dare v Crown Prosecution Service [2012] EWHC 2074 (Admin), Mr Dare’s conviction under s328 was quashed.  What Mr Dare had done was not something which, at the time, could be said to facilitate the acquisition of criminal property by another (who was at that time neither identified nor identifiable).  What he had done was far too preparatory to be caught by s328 both because a price had not been agreed for his purchase of the car from Mick and because he had taken no steps to identify a prospective purchaser to whom he could sell the car on.

 

The lesson

The lesson from these cases seems to be that there are in reality sensible limits on the scope of the s328 money laundering offence of entering into or becoming concerned in an arrangement which facilitates the acquisition, retention, use or control of criminal property by or on behalf of another person.

David

UPDATE:  The Court of Appeal’s conclusion in the Geary case has been approved in a subsequent decision of the Supreme Court discussed in a later article on this blog.

17 year sentence for VAT carousel fraud

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

 

The offending

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

Undoubtedly the offending was serious.

 

The criminal charges

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

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

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

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

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

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

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

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

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

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

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

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

 

Common law v statutory offences

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

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

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

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

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

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

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

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

David

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

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

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

A club treasurer called to account for the money

It is often difficult to find someone willing to act as honorary treasurer for a local club or voluntary organisation and Upper Slagbank’s Over 60s Club was no exception.  When the current treasurer died the club cast about for a new ‘volunteer’.  The accounts had got into a bit of a mess and accounting procedures, if you can call them that, were a bit lax – but probably no more so than many other similar organisations up and down the country.  Finally Peter was persuaded to take on the responsibility, although he was only in his 50s and held no professional qualifications.

He used to work in a bank, so he knew about money, and he was well respected in the community.

Peter was a local man who now ran his own recruitment agency for top-flight executives.  He used to work in a bank, so he knew about money, and he was well respected in the community.  But life was about to take a turn for the worse for Peter.  A few months after he became treasurer his home was repossessed by the mortgage company (business had actually not been going too well for a while) and his wife, surprised to find herself out on the street, left him.

Vera, the club chairwoman, asked him if in the circumstances he no longer wished to be treasurer, but Peter said it gave him some continuity and normality in a turbulent time and he was willing to continue.

The club held several fund-raising events each year and had income from membership fees and contributions to the costs of excursions.  Its expenditure was on the outings themselves and the costs of speakers, entertainers, room hire and food and drink for evening meetings.  The club also made donations to good causes.  The management team (for want of a better description) met from time to time and there was the annual AGM.

Peter produced some figures on individual fund-raising events for the management team meetings and annual accounts for the club AGM, which were accepted without demur.  The figures took the form of an income and expenditure account resulting in a net surplus or deficit.  They did not show the bank balances or cash on hand.

Peter explained that due to some confusion between the two club bank accounts some cheques had bounced, but he was sorting it out.

After about 18 months William, the club’s President, began to hear grumblings in the village about club bills not being paid.  He had a word with Peter who explained that due to some confusion between the two club bank accounts some cheques had bounced, but Peter was sorting it out.

But things went from bad to worse until finally Vera and William demanded that Peter surrender all the books and records.  A Tesco carrier bag full of jumbled receipts, bills, bank statements, cheque books and some cash was left on William’s doorstep next morning.

William went through these in a meticulous manner, preparing his own schedules of club receipts and payments over the period for which Peter had been their treasurer.  Vera compared the bank statements to the accounts which Peter had presented to management meetings dealing with the fund-raising events.  They were horrified to find that the club’s finances were in a most unhealthy state.  On numerous occasions cash had been drawn from the bank – even in August when the club had no activities!  In fact the only time no cash was being drawn from the bank seemed to be when there was no cash in the bank to be drawn.

Profits from fund-raising events had not been paid into the bank.

Amongst the receipts in the bag were two post office chits for the purchase of Peter’s TV licences – bought with club cheques.

The police were contacted and Vera and William accused Peter of stealing over £7,000 from the club.

The police were contacted and Vera and William made statements.  William handed over the schedules he had prepared.  Vera and William accused Peter of stealing over £7,000 from the club.

Following a police investigation Peter was charged with the theft of cash drawn from the bank on over 30 occasions, theft of profits from the fund-raising events which had not been banked, and fraud in relation to the cheques used to purchase the TV licences.

Peter denied any wrongdoing.  He admitted the records were in a muddle but he vigorously denied any thefts.  Indeed on occasion he had found it necessary to put his hand into his own pocket to meet club bills.  It was because the club owed him money that he had used the club cheques to buy his TV licences.

There had been a lot of cash expenditures on this and that and he was not always given receipts.  Because of the cash expenditures, which arose unpredictably, he did not bank the surpluses from the fund-raising events but retained a tin of club cash.  He did bank ‘surplus’ cash from time to time.

He had not kept a cash book (and neither had the previous treasurer).  The records had been in a mess when he first received them and, to his regret, he had muddled along without ever really getting a ‘grip’ on things.

I was instructed by Peter’s lawyers to see if the evidence did support the theft and fraud charges.

It seemed to me that there was evidence to show substantial cash expenditures and that the fact that the surpluses from individual fund-raising events had not been banked separately did not necessarily indicate those surpluses had been stolen.

In the absence of a cash book it was not clear how cash drawn from the bank had been spent.

In the absence of a cash book it was not clear how cash drawn from the bank had been spent.  However it did seem, based on the annual accounts presented to the AGM by Peter, that he would have to have drawn at least some cash from the bank to pay those expenses which had not been paid by cheque.

It was not unreasonable to suppose that some of those expenses had needed to be paid in August, although there were no club activities that month.

William had prepared two sets of schedules.  One set based on the bank statements, the other set based on the receipts in the carrier bag.  There was at least one bona fide expenditure on the bank statement schedule which was not reflected on the other schedule – presumably because there was no receipt for it in the carrier bag.

Without a cash book it was not possible to exclude the possibility that there were further bona fide expenditures, which had been paid by cash, and for which the receipt had been lost (or never obtained).

I could not be sure that any monies had been misappropriated.

In the circumstances I could not be sure that any monies had been misappropriated.  Nor could I be sure whether, overall, Peter owed money to the club or they owed money to Peter.  In other words, I did not think the evidence proved that any crime had been committed.

When the matter came to trial Peter was acquitted of all the charges against him.

 

David

Names, locations and certain other details have been changed to protect the identities of those involved.

Can a bankrupt individual be subject to confiscation?

One question which arises from time to time concerns the interaction of insolvency and confiscation.  If a convicted defendant individual is bankrupt can he nevertheless be subject to confiscation under Part 2 Proceeds of Crime Act 2002?  (All references to a ‘defendant’ in this article are to a defendant who has been convicted of a criminal offence.)

Common sense suggests that if a person is bankrupt he has no assets and so confiscation proceedings would be pointless.  But law and common sense do not always go hand in hand!

the confiscation legislation neatly side-steps bankruptcy

In reality the confiscation legislation neatly side-steps bankruptcy by providing, in s84(2)(d) PoCA 2002 that “references to property held by a person include references to property vested in his trustee in bankruptcy”.  What this means is that any assets of a bankrupt will form part of his ‘available amount‘ for confiscation purposes and can be subject in a ‘criminal lifestyle‘ case to the statutory assumption of s10(3) regarding property held after the date of conviction.  So these assets can be taken into account in determining the amounts reflected in the confiscation order. (However on a reconsideration of ‘available amount’ under s23 the court must take into account amounts due to creditors in a bankruptcy or liquidation.)

Section 7 prescribes that the amount which the defendant is ordered to pay will be the lower of his ‘benefit’ and his ‘available amount’.  But what about ‘preferential debts’?  A ‘preferential debt’ is taken into account by way of a reduction in the defendant’s ‘available amount’ by virtue of s9(2)(b).  But there is a common misconception that an individual’s tax liabilities are ‘preferential debts’.  The law in this area was changed, by amendment to s386 and schedule 6 Insolvency Act 1986, in 2003 so that debts due to HM Revenue & Customs ceased to be ‘preferential debts’.  So ‘preferential debts’ now arise only in respect of unpaid remuneration of employees, contributions to occupational pension schemes, and unpaid levies on coal and steel production.

It still remains the case however that an individual’s secured liabilities, such as a mortgage on his home, take precedence over confiscation (because the secured charge gives the lender an ‘interest’ in the property which the court is required to take into account by s79(3)).

the court should direct that the compensation order should be satisfied in priority

Where a court makes both a confiscation order under PoCA 2002 (which is an order that the defendant make payment to the Crown) and a compensation order under s130 Powers of Criminal Courts (Sentencing) Act 2000 (which is an order that the defendant make payment to the victim of his crime) then s13(5) and (6) provide that the court should direct that the compensation order should be satisfied in priority to the confiscation order where there are insufficient funds to satisfy both.

It should also be borne in mind that where a defendant is subject to an actual or contemplated civil claim from a victim of his crime then the court’s “duty” to make a confiscation order becomes simply a “power” to do so as a result of s6(6).

if the restraint order pre-dates the bankruptcy then the property subject to the restraint order does not fall into the bankruptcy and can be realised to pay the confiscation order

But a problem may arise for the defendant in realising the sum which he is required to pay under the confiscation order if he is bankrupt.  What then?

Well it depends upon whether there has previously been a restraint order made under PoCA 2002, or following the making of a confiscation order an enforcement receiver has been appointed under s50.  If there is a restraint order over assets, or an enforcement receiver has been appointed, and this pre-dates the bankruptcy order, then s417 provides that the property subject to the restraint order or receivership does not fall into the bankruptcy (so it can be realised to pay the confiscation order rather than the other creditors of the bankrupt defendant).  A restraint order under s41 or receivership will normally have been drafted with the intention of covering all the defendant’s assets.

On the other hand, under s418, if the defendant’s bankruptcy order is made before any restraint order or management or enforcement receivership order is made then the trustee in bankruptcy can exercise his powers to realise the defendant’s assets under his control and pay creditors in the normal way.  The defendant should ask the Crown Court to adjust his ‘available amount’ under s23 to reflect the payments to his creditors made by the trustee in bankruptcy.

So the issue is resolved on a first-come, first-served basis.

a prosecutor can return to court at any time and seek a reconsideration of the defendant’s current ‘available amount’

A bankrupt individual is likely to be discharged from bankruptcy in due course.  What is his situation then in relation to the confiscation?  Just like other defendants who are subject to confiscation he will be at risk for the remainder of his life to action under s22.  Under this section a prosecutor can return to court at any time and seek a reconsideration of the defendant’s current ‘available amount’ to include assets acquired (whether legitimately or illegitimately) since the original confiscation order was made, if it is just to do so.  In effect a confiscation order can operate as a ‘life sentence’ requiring the payment to the Crown of any amount which the defendant has, up to the figure of ‘benefit’ shown in the original confiscation order.

In summary then, a bankrupt individual can indeed be subject to confiscation proceedings.

If a restraint order under PoCA 2002 is in force, or an enforcement receiver is appointed, before any bankruptcy order, the order of priority for payment will be, in effect:

  1. Secured liabilities
  2. Preferential debts (unpaid remuneration of employees, contributions to occupational pension schemes, and unpaid levies on coal and steel production)
  3. Sums due under a compensation order
  4. Sums due under the confiscation order
  5. Unsecured and non-preferential debts (including taxes and ordinary creditors).

the defendant may apply to the court to have his ‘available amount’ reconsidered to reflect those payments

But if a bankruptcy order is made before any restraint order or enforcement receivership order under PoCA 2002 then the trustee in bankruptcy will retain control of the defendant’s assets vested in him.  Once the trustee has ascertained the likely outcome of the bankruptcy in terms of payments to creditors, the defendant may apply to the court under s23 to have his ‘available amount’ reconsidered to reflect those payments (which will normally result in a reduction in the amount he is required to pay under the confiscation order).

An insolvency practitioner who is dealing with assets of a person who has been convicted, or is suspected, of an offence from which a benefit may have been obtained should consider carefully whether he may be handling ‘criminal property’ and if so he should obtain the necessary consent under Part 7 so as to avoid committing a money laundering offence himself.

(Note: This article refers to confiscation in England and Wales under the provisions of Part 2 of PoCA, the Proceeds of Crime Act 2002.)

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

Confiscation, mortgage fraud and a ‘minus millionaire’

I have recently returned from a 7 day confiscation hearing in Newcastle Crown Court.  Ordinarily confiscation cases don’t go to a full hearing – an agreement is reached by a process somewhat akin to horse-trading and a proposed order is drafted by both sides and put before the judge for his approval.

agreement is reached by a process somewhat akin to horse-trading

But this was not an ordinary confiscation case.  Jake was a property developer who had taken some ‘short cuts’ along the way.  One of those short cuts had involved boasting (in writing) to a mortgage company that he owned properties P and Q and was therefore the sort of person with whom they would want to do business.  Partly on the strength of that they lent him £800,000 secured on a property development, S.

Had the lender carried out some simple checks they would have discovered that Jake did not own either P or Q.

That mortgage fraud, and some other dishonesties, had earned Jake a 5 year sentence which he was now serving.

In particular Jake had been told that if a property he was developing was held in the name of a company registered in an offshore tax haven, and the proceeds of sale of the development were banked overseas, no UK tax liability arose on the profits.  Since the development was in the UK and the management of the offshore company was conducted by Jake (again in the UK) that was not the case.

Jake had not been too fussy about details such as accounting records and company law . . . but he made no complaint about his 5 year sentence

Also it has to be said that Jake had not been too fussy about details such as accounting records and company law in relation to the various companies he owned in the UK.  But he made no complaint about his 5 year sentence for his misconduct.

Following his sentence, confiscation proceedings were started.  Jake was a little taken aback to hear that he was alleged to have a benefit for confiscation purposes of £16 million and that his ‘available amount’ was said to include not only assets held in his own name and that of his companies, but also assets held by his wife, her sister and her mother.

The prosecution case was that these family members were ‘cogs in Jake’s machine’ and the assets held by them were Jake’s assets in all but name.

In total the prosecution pointed to over 50 different properties in which Jake or members of his family had had dealings, and a large number of bank accounts in the UK and offshore.

The defence case was that Tracey (Jake’s wife) and Tina (her sister) had had their own wealth from Theresa (their mother) and that the assets held in their names were not Jake’s.  But they had sought Jake’s help and advice in making their own investments in property.  Indeed some of the properties they owned had been purchased from Jake.  It was also true that Jake had, on one occasion, attended an auction and made the successful bid on a property for Tracey.

In fact, when Jake was short of money for property deals Tracey would lend him some of hers (and so would Tina) so that the various monies had become rather mixed up along the way.

Because Jake had borrowed money from Tracey and Tina he would purchase property for them and then transfer the property into their name without physical payment for it, in part settlement of the money he owed.

the prosecution had viewed these transactions as deeply suspicious

Not surprisingly, the prosecution had viewed these transactions as deeply suspicious – believing that Jake was putting his property into the girls’ names to avoid that property being subject to law enforcement action.

The first 5 days of the confiscation hearing were devoted to hearing evidence from Tracey, Tina, Theresa and Jake to the effect that the half-dozen or so properties registered in the girls’ names genuinely did belong to them and not to Jake.

the two sides went into discussions outside the courtroom to see if agreement could be reached

Once the judge had ruled that Jake had no interest in those properties the court needed to address the remaining 45 or so properties to determine their value and the ‘benefit’ attributable to Jake in the confiscation proceedings.  By common consent the two sides went into discussions outside the courtroom to see if agreement could be reached on that.

Meanwhile the judge dealt with another confiscation hearing related to Joe, Jake’s brother, who had been convicted of (largely) unrelated criminal offences.

After a couple of days of negotiation the two sides had reached no agreement and invited the judge to schedule a further 10 days in court to hear further evidence.

The judge invited the parties to try harder to reach agreement and agreed to ‘work late’ to facilitate that.

Myself and the prosecution’s financial investigator were sat at a desk throwing numbers at each other – with a view to some agreement being reached.

Suffice to say that at 6:15p.m. on day 7 the judge was able to rule with the consent of both sides that Jake’s ‘benefit’ was £2 million, which included £800,000 for the mortgage fraud, £200,000 as an estimate of tax evaded, plus other mortgage advances obtained on the basis of false information and an amount representing profits derived from the use of monies obtained by misconduct. This figure was, of course, substantially less than the £16 million initially contended by the prosecution.  The judge also ruled by consent that Jake’s ‘available amount’ was just over £1 million, that is the gross value of the properties he owns, less the mortgages secured on them, plus the value of all his other assets.

That means that Jake has to cough up £1 million to the Crown to settle the matter for now, and that at any time in future the prosecution can come back to Court to request that he be ordered to pay over the second million if by then he has it.

That makes Jake a ‘minus millionaire’.

Jake may feel that in some respects he is paying for a ‘victimless crime’

Jake may feel that in some respects he is paying for a ‘victimless crime’ since the mortgage lenders are likely to get their money back in full when the properties on which they are secured are sold.  But that’s how confiscation works!

Jake won’t be boasting to any mortgage lenders again and, whilst in prison, he has himself become something of an expert on confiscation law and practice – and an informal adviser to other prisoners.

David

Note:  In this blog item I have changed names and locations to preserve client confidentiality.

UPDATE:
Jake’s case was decided prior to the UK Supreme Court judgment in the case of R v Waya, and the outcome would be different if Jake’s case were being heard today.

Calamitous consequence of a failure to notify HMRC

Should one feel sorry for Gareth Edward Steed?

Mr Steed engaged in what the Crown Court judge described as “moonlighting” – legitimate trading which he failed to declare for tax.  Indeed it seems he was not on HMRC’s ‘radar’ at all.  He received no tax returns and he failed to notify HMRC of his chargeability to tax.

It seems that he was a ‘grafter’ prepared to do anything legitimate to make money – whether that involved buying and selling second hand cars, undertaking building work, or whatever.  Perhaps he also was engaged in some rather less legitimate ‘business’ too.

somehow he was ‘rumbled’

But somehow he was ‘rumbled’.  Ultimately he was charged with three counts of tax evasion.  As often happens in criminal cases there were clearly some sort of discussions between the two sides before the matter came to court.  As a result the original three charges were dropped and one new charge was introduced – to which Mr Steed pleaded guilty.

The charge was one of common-law ‘cheat’ in that between 1 April 2003 and 31 December 2004 Mr Steed failed “to submit declarations of tax due including the proceeds derived from the sale of vehicles, furniture and tools together with that from building work”.

Mr Steed accepted that, as a result, a tax liability of at least £3,558 had arisen for 2002/03 which had escaped self-assessment.

But that was not the end of Mr Steed’s troubles because, following his conviction for ‘cheat’ HMRC pursued confiscation proceedings.

They argued that he had a ‘criminal lifestyle’ for confiscation purposes on the basis that he had committed an offence over at least 6 months from which he had gained a benefit of at least £5,000 (s75 PoCA 2002).  In that connection HMRC pointed out that had a tax return been submitted for 2002/03 it would have triggered not only payment of £3,558 for 2002/03 but also a payment on account for the following year.  In consequence the amount involved exceeded £5,000.

Applying the ‘criminal lifestyle’ assumptions the judge found that Mr Steed was unable to produce evidence to rebut the statutory assumptions

The Crown Court judge agreed.  Applying the ‘criminal lifestyle’ assumptions the judge found that Mr Steed was unable to produce evidence to rebut the statutory assumptions that amounts expended by him and assets held by him had been obtained in consequence of unspecified general criminal conduct on his part.  He made a confiscation order against Mr Steed for £707,200 (with a four year prison sentence in default of payment by the due date).

That sum was Mr Steed’s ‘available amount’, which is normally calculated to be the value of the defendant’s gross assets less any liabilities secured on them (such as mortgages).

The Crown Court judge also formed the view that Mr Steed had probably been engaged in other criminal activity too.  He said, “It may be that the defendant . . . would not be convicted on the criminal standard of all the matters to which I have referred. It is a question of viewing an overall picture and the conclusion I come to is that the overall picture supports the contention that it is more likely than not that he was involved in criminal conduct over and above the Count to which he pleaded guilty”.  He referred to “money-laundering, drug-dealing, the possession of goods bearing false trademarks with a view to sale, the evasion of duty and benefit fraud”.

Mr Steed appealed.  The Court of Appeal in a decision published on 1 February 2011 upheld the confiscation order and dismissed the appeal – Steed v R [2011] EWCA Crim 75.

In particular the Court of Appeal recognised that the proceeds derived from legitimate trading (such as sales of used cars) were not themselves benefits of criminal conduct.  Rather the benefit consists of the tax evaded.

The Court of Appeal accepted that “where a trader evades tax and proves, on the balance of probabilities, that his assets and expenditure derived from legitimate trading on which he paid no tax then the trader will have rebutted the statutory assumptions”.  In that event the only benefit remaining for confiscation would be an amount equal to the tax evaded.

the appellant was unable to establish on the balance of probability the extent to which the sources of his assets and expenditure were legitimate

But crucially it also noted that the Crown Court judge had found that “the appellant was unable to establish on the balance of probability the extent to which the sources of his assets and expenditure were legitimate and the extent to which they were illegitimate. Since he was unable to prove what proportion was legitimate the consequence was that in relation to any given asset or item of expenditure he could not prove that the property was not held by him as a result of his general criminal conduct”.

It followed that he was unable to rebut the statutory assumptions in relation to monies he had expended and assets which he held.

So the financial consequences of Mr Steed’s failure to notify chargeability to tax have been rather more serious than he may have anticipated – almost 200 times more serious!

David