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Confiscation & compensation – double trouble?

doppelgangerFor some years courts have wrestled with the issue of compensation & confiscation.  Should the Crown Court make both a compensation order (in favour of the victim of the crime) & a confiscation order (effectively in favour of the Crown) in respect of the same benefit obtained by a convicted defendant?

The Court of Appeal recently considered the issue again in the case of Davenport v R [2015] EWCA Crim 1731.

 

Statute law

The power to make a compensation order in the Crown Court derives from s130 Powers of Criminal Courts (Sentencing) Act 2000.  The power to make a confiscation order in the Crown Court derives from s6 Proceeds of Crime Act 2002.  The legislation clearly envisages that the Crown Court may make both a compensation order and a confiscation order when dealing with an offence.

In particular s13 PoCA 2002 (as amended by s6 Serious Crime Act 2015 with effect from 1 June 2015) defines a “priority order” in subsection (3A) to include a compensation order and sets out what the court is to do where a court is making both a confiscation order and one or more priority orders against the same person in the same proceedings and the court believes the person will not have sufficient means to satisfy all of those orders in full.

In these circumstances the court must direct that so much of the amount payable under the priority order(s) as it specifies is to be paid out of any sums recovered under the confiscation order; and the amount it specifies must be the amount it believes will not be recoverable because of the insufficiency of the person’s means, subsection (6).

The other types of priority order now identified in subsection (3A) include a surcharge order under s161A Criminal Justice Act 2003, an unlawful profit order under s4 Prevention of Social Housing Fraud Act 2013 and a forfeiture order under s23 or s23A Terrorism Act 2000.  It is anticipated that a slavery and trafficking reparation order under s8 Modern Slavery Act 2015 will be added to the list of priority orders in due course.

 

Case Law

The Court of Appeal have considered the making of both compensation orders and confiscation orders against the same person in the same proceedings in the cases of Jawad v R [2013] EWCA Crim 644 and of Davenport v R [2015] EWCA Crim 1731.  Both of these judgments post-date the UK Supreme Court decision in the case of R v Waya [2012] UKSC 51 which highlighted the importance of proportionality in the making of confiscation orders and resulted in the amendment to s6(5)(b) PoCA 2002.

 

The issue

The problem is that whilst the statute law makes clear that it is possible for the court to make a compensation order and a confiscation order against the same person in the same proceedings – and sets out what the court should do if the offender cannot pay both orders in full, the statute gives no guidance as to what the court should do if the offender can pay both.

Since the decision in Waya and the amendment to s6(5)(b) would it now be disproportionate, and therefore wrong, for the court to make a compensation order and a confiscation order in respect of the same benefit obtained from the same offence against an offender who appears to be in a position in which he can pay both?

This was the question addressed in Jawad and in Davenport.

The Court of Appeal considered in Jawad that it generally will be disproportionate to require the defendant to pay for a second time money which he has fully restored to the loser – and an order for a lesser sum which excludes the double counting ought generally to be the right order.  What will bring disproportion, said the Court, is the certainty of double payment.  If it remains uncertain whether the loser will be repaid, a POCA confiscation order which includes the sum in question (and therefore requires the same benefit to be recovered twice – by compensation & confiscation orders) will not ordinarily be disproportionate, concluded the Court of Appeal.

In Davenport the Court of Appeal appears to have taken a slightly more relaxed approach.  It held that mathematical certainty of restitution is not required.  The court should approach matters in a practical and realistic way in deciding whether restitution is assured.  Restitution to the victims in the future is capable of being properly assessed as assured, depending on the particular circumstances, notwithstanding that such restitution will not be immediate, or almost immediate, at the time of the confiscation hearing.  Obviously the longer the time frame the greater force there will be to an argument that restitution is not assured: but a prospective period of delay in realisation is not of itself necessarily a conclusive reason for proceeding to make a combination of such orders without adjusting the amount of the confiscation order.

Whilst a defendant who is truly intent on making restitution in full to his victims ordinarily should be expected to have arranged such restitution prior to the date of the confiscation hearing there may sometimes be cases where that is not possible.  If, in such a case, the court has firm and evidence-based grounds for believing that restitution may nevertheless be forthcoming, albeit that cannot be taken as “assured” at the time of the hearing, the court has power in its discretion to order an adjournment to enable matters to be ascertained.

But, said the Court of Appeal, each case must be decided on its own facts and circumstances.

 

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.)

A book-keeper accused of stealing

Beatrix was Mr McGregor’s book-keeper – or more correctly she was a self-employed book-keeper and Company Secretary working for Mr McGregor’s company, which was an agency supplying circus acts and finding ‘C’ list celebrities to open supermarkets and the like.  But times were tough and it seemed like, however hard Mr McGregor worked, he was just scraping by.

Fortunately Mr McGregor could rely on the faithful Beatrix to look after the paperwork and pay the bills and the part-time staff.  One Sunday Mr McGregor was wondering how much there was in the company’s accounts with the District Bank and the Provincial.  So, unusually for him, he had a look at the bank statements.

He was shocked by what he saw.  Not only was there next to nothing in either of the company bank accounts but a quick check of the bank statements showed numerous transfers in the past month or two to Beatrix and to her daughter, and payments to Rentaphone and CloudsTV (neither of which Mr McGregor knew anything about) as well as several cash machine withdrawals and petrol purchases.

 

The police

Mr McGregor phoned the police and arranged an interview with Detective Constable Carrott.  He made a formal statement alleging that Beatrix had stolen money from the company.

DC Carrott interviewed Beatrix who said that all the expenditures were legitimate and had been authorised by Mr McGregor who had agreed that the company should pay Beatrix’s phone and TV subscriptions and her petrol bills.  The cash had been drawn on Mr McGregor’s instructions.  Some had been used to pay company bills in cash and the rest had been handed over to him.  There was nothing in writing because Beatrix and Mr McGregor had a relationship based on trust.  Beatrix denied any wrongdoing.

DC Carrott met with Mr McGregor again.  He denied authorising payment of any of Beatrix’s bills and he denied receiving any of the cash.

Mr McGregor now produced to DC Carrott bank statements and voluminous accounting records going back over more than two years revealing a stream of unauthorised payments and withdrawals made by Beatrix.  In total over £40,000 had been stolen, he alleged.

Meanwhile DC Carrott did a little digging and found that, while she was working for Mr McGregor’s company, Beatrix had been receiving Job Seeker’s Allowance and Council Tax Benefit on the basis that she was not working and had no earnings.

Beatrix was charged with theft of cash and fraud by abuse of position in relation to Mr McGregor’s company and making false representations to obtain Job Seeker’s Allowance and Council Tax Benefit.

 

The solicitor

After consulting her solicitor Beatrix decided to plead guilty to making false representations to obtain benefits but continued to deny any wrongdoing in relation to Mr McGregor’s company.  She told her solicitor that Mr McGregor was being untruthful and that it was inconceivable that Mr McGregor had (as he claimed) been unaware of the payments to her (which she sometimes had made direct to her daughter’s bank account to save time) and of her bills for phone, TV and petrol.  The business was a small one and the bank statements went direct to Mr McGregor who also had an accountant check everything and prepare annual accounts.

The solicitor contacted us and asked us to prepare a report based on an examination of the prosecution evidence (amounting to over 1,200 pages) and Beatrix’s responses.

 

Our involvement

We provided a fee quotation to enable the solicitor to obtain a prior authority from the Legal Aid Agency.  We also, at this initial stage, wrote to the solicitor outlining the sort of further documentary evidence which would assist us if it were available and indicating that, in our experience of other small businesses, allegations of theft by trusted members of staff were not a rarity and that this indicated that all too often in practice business owners failed to exercise sensible supervision over book-keepers and others with control over company monies.

When we examined the prosecution exhibits we found amongst them copies of emails which had apparently routinely been sent by Beatrix to Mr McGregor each week setting out the payments she was making out of the business accounts, and the monies received from customers.  The listed payments included staff wages and payments to Beatrix (in relation to which she had submitted sequentially numbered invoices as she was technically self-employed).

But whilst the emails showed one weekly payment to Beatrix, she was typically taking a dozen or more payments per month.  Often more than one payment to Beatrix referred to payment of the same invoice.  Sometimes the same invoice had been paid out of both of the two company bank accounts.  So although the amount of any one payment was not unreasonable the number of these payments and their total value was clearly inconsistent with the information which Beatrix was emailing to Mr McGregor.

We reported that we were simply unable to say what had happened to the cash withdrawn from the company bank accounts as there was no evidence beyond the contrasting assertions of Beatrix and Mr McGregor.

However the prosecution estimate of the amount of ‘wages’ legitimately due to Beatrix was, in our view, a significant underestimate.  The prosecution figure was based on £85 per week whereas the emails clearly showed payments of up to £175 per week to Beatrix (of which Mr McGregor must have been aware and which he had, by implication, approved).  Taking that into account the prosecution figure of the amount stolen was, in our view, overstated by £10,490.

Attached to our expert witness report were schedules detailing the amounts paid from the company bank accounts to Beatrix and members of her family, the amounts reported as paid to her on her emails to Mr McGregor, and the cash withdrawals from the bank accounts.

 

The outcome

The solicitor discussed our report with Beatrix.  After thinking it over for a few days Beatrix decided to plead guilty at Liverpool Crown Court to theft and fraud in relation to Mr McGregor’s company (as well as the benefit fraud offences).  She was given a suspended prison sentence, ordered to do 180 hours unpaid work and required to pay compensation of £1,200 to Mr McGregor’s company.

That is undoubtedly a better result than she would have obtained had she gone to trial and been convicted.

David

N.B. Names and certain other details have been changed to protect client confidentiality.

(Note: This article relates to a criminal prosecution in England and Wales. There are a large number of additional issues which could be relevant to criminal 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.)

Confiscation and “abuse of process”

There is no doubt that confiscation in ‘criminal lifestyle’ cases can be harsh.  It is often referred to as Draconian.  But in what circumstances does confiscation become an abuse of process?

The Court of Appeal in England and Wales has considered abuse of process arguments in several important cases.  There are two strands of appeals in which abuse of process arguments have been successful.

There are two strands of appeals in which abuse of process arguments have been successful.

One strand is based on confiscation which leads to a result which is not only oppressive but which also lacks any justification in the public interest because the victim(s) of the offence(s) have, or will have, obtained full restitution for their losses and the offender has retained no gain from his crime.  The second strand is based on the structuring of the charges faced by the convicted defendant – where these have unnaturally resulted in the finding of a ‘criminal lifestyle’.

The first type of case is exemplified by the Court of Appeal judgment in R v Morgan & R v Bygrave [2008] EWCA Crim 1323.  The Court considered that confiscation proceedings would be an abuse of process where:

“demonstrably (i) the defendant’s crimes are limited to offences causing loss to one or more identifiable loser(s), (ii) his benefit is limited to those crimes, (iii) the loser has neither brought nor intends any civil proceedings to recover the loss, but (iv) the defendant either has repaid the loser, or stands ready willing and able immediately to repay him, the full amount of the loss”.

this was not an opportunity for courts to rewrite statute law

But the Court was quick to point out that abuse of process arguments should only be successful in a small minority of cases and that this was not an opportunity for courts to rewrite statute law which gave rise to uncomfortable outcomes.  In CPS (Durham) v N [2009] EWCA Crim 1573, quoted in Basso & Goodwin v R [2010] EWCA Crim 1119 the Court of Appeal said:

“The just result of these proceedings is the result produced by the proper application of the statutory provisions as interpreted in the House of Lords and in this court. However to conclude that proceedings properly taken in accordance with statutory provisions constitute an abuse of process is tantamount to asserting a power in the court to dispense with the statute“. (emphasis added)

In each of six months he had inflated his claim by adding a few extra (false) items.  As a result of the false items he had profited by a little under £500 in total.

An example of the second strand of abuse of process cases is Shabir v R [2008] EWCA Crim 1809. Mr Shabir was a pharmacist who made monthly claims for payment from the National Health Service for the cost of prescriptions which he had dispensed.  He was paid £6.30 for each prescription.  In each of six months he had inflated his claim by adding a few extra (false) items.  As a result of the false items he had profited by a little under £500 in total.  However the total of the six payments which he had received for these six monthly claims was over £179,000 – the vast bulk of which was legitimately due to him.  Each of the six payments included some bogus amounts and Mr Shabir was charged, and convicted, of six counts of obtaining a money transfer by deception in relation to the amount received from each claim.

On that basis Mr Shabir was deemed to have a criminal lifestyle, having been convicted of more than three offences resulting in a benefit of at least £5,000, s75(2)(b), (3)(a) and (4).  The benefit of the particular offences of which he had been convicted was over £179,000 and further benefit arose under the criminal lifestyle assumptions – resulting in a total benefit for confiscation purposes of £212,464.  The Crown Court judge made a confiscation order in that amount – even though the bulk of that benefit figure undoubtedly represented monies which had been legitimately due to Mr Shabir.

The Court of Appeal found that Mr Shabir could have been charged with theft of the additional amounts of under £500.  Such a charge would have fully reflected his criminality but would not have resulted in a finding that he had a criminal lifestyle (since the benefit obtained would be less than £5,000).  Nevertheless the confiscation order of £212,464 correctly reflected the detailed provisions of the confiscation legislation.

However the prosecution and the Court had a wider responsibility.  The Court of Appeal held:

What was patently oppressive was to . . . bring the criminal lifestyle provisions into operation when they could not have applied if the charges had reflected the fact that the defendant’s crimes involved fraud to an extent very much less than the threshold of £5,000

“What was patently oppressive in the present case was to rely on the form of the counts for obtaining a money transfer by deception (i) to bring the criminal lifestyle provisions into operation when they could not have applied if the charges had reflected the fact that the defendant’s crimes involved fraud to an extent very much less than the threshold of £5,000, and (ii) to advance the contention that the defendant had benefited to the tune of over £179,000 when in any ordinary language his claims were dishonestly inflated by only a few hundred pounds.  We accept that those who determined to seek confiscation on the basis advanced did so in good faith, having not applied their minds to the question whether what was being done was oppressive.  But we have no doubt that in fact it was.  Whether or not, if the criminal lifestyle provisions had applied, there would have been a basis for applying one or more of the assumptions we do not know.  But we are clear that without oppression the assumptions could not be brought into play and are thus irrelevant.  It might have been different if there were a genuine dispute what the excess of the defendant’s inflated claims was, and whether it did or did not exceed £5000, but that situation did not arise.  On the very unusual and exceptional facts of this case, we are sure that if application had been made to the Judge to stay the confiscation application for abuse of process his answer could only have been that such stay should be granted.”

The Appeal Court quashed the confiscation order and made a compensation order in the amount by which Mr Shabir had actually profited from the bogus inflation of his claims.  However this case was decided upon its own “very unusual and exceptional facts”.

In summary, there may be occasions upon which confiscation would be an abuse of process – and in certain circumstances it may be appropriate to advise a convicted defendant to make, or offer to make, full restitution to his victim(s) with a view to forestalling confiscation proceedings – but ordinarily the pursuit of Draconian confiscation proceedings, and their harsh outcome, will not amount to an abuse of process.

David

UPDATE:

The Supreme Court judgment in the case of R v Waya, handed down on 14 November 2012, suggested that cases which might previously have been considered an abuse of process should instead be considered by reference to a possible infringement of the defendant’s human rights under Article 1 of the First Protocol to the European Convention on Human Rights.  In consequence it may very rarely be the case in future that a confiscation is appealed on the basis of an alleged abuse of process.

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