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A dishonest employee – but is it theft?

Police lamp copyright David Winch 2014

Pamela Darroux was from 2 November 2002 until 1 April 2014 employed as a manager by a charity known as the Sunridge Court Housing Association.  She was a trusted and senior employee, managing the residential care home for elderly people operated by the Housing Association in Golders Green.  She had responsibility for the general running of the home.  Her responsibilities extended to the pay-roll of all employed staff, including herself.

She was contracted to work from Monday to Friday, between 9 am and 5 pm.  It was an agreed term that when she did overtime, or covered for other members of staff, she was entitled to claim additional payment.  She was also entitled to claim payment in lieu of holiday not taken.

It seems that her the practice throughout the period of her employment was to fill in the relevant claim forms by hand.

The mechanics of payment

Once the relevant claims were approved the forms would be sent on a monthly basis to a company called PCS Limited, who, in effect, provided pay-roll services.  It appears that on receipt of the relevant forms PCS would make the necessary computations for each employee; arrange for the appropriate deductions, with a view to accounting to the Revenue, in respect of PAYE and National Insurance contributions; prepare and send to each employee, the relevant monthly Pay Advice (which would include recording payment for hours worked in excess of the basic contracted amount); and arrange for the payment by bank transfer to each such employee accordingly.

The sums in question would then be paid out of the Housing Association’s account via BACS and the corresponding amount would then appear as a credit in each individual employee’s designated bank account.

Discovery of the overpayments

In 2013 the Housing Association was subject to an inspection by the Care Quality Commission, which reported shortcomings in its administration.

The Executive Director of the Housing Association ordered an audit of the financial position, including payroll payments.  The upshot of this was a claim by the Housing Association that Ms Darroux had defrauded the charity by submitting falsely inflated overtime / on call claims and claims in lieu of holiday entitlement for herself.  The total amount said to be involved was quantified at £49,465 for the period between January 2011 and February 2014.

Criminal prosecution

Ms Darroux was arrested, interviewed and ultimately charged with nine counts of theft contrary to s1 Theft Act 1968 in that she “stole monies belonging to Sunridge Court Housing Association”.

At the conclusion of her trial in the Crown Court on 15 June 2016 the jury found Ms Darroux guilty on six of the counts on the indictment.  On those counts on which the jury convicted they had, on the invitation of the judge, returned special verdicts setting out the amounts they had found to be dishonestly taken (these were rather less than had been alleged by the prosecution).

Ms Darroux was sentenced to 16 months imprisonment.  She appealed.

Grounds of appeal

In the Court of Appeal her counsel argued that, on the facts and circumstances of this case, counts of theft were unsustainable.

Counsel necessarily accepted that, by their verdicts, the jury had found Ms Darroux to be dishonest in respect of the counts on which she was convicted, but submitted that there were no acts constituting the appropriation of property belonging to another.

Counsel accepted that the facts alleged would bring this case within the ambit of s2 of the Fraud Act 2006; but not within the ambit of s1 Theft Act 1968.

Court of Appeal decision

The Court of Appeal concluded “with no enthusiasm” that these convictions must be quashed, Darroux v The Crown [2018] EWCA Crim 1009.

The dishonest actions of Ms Darroux were not “theft” as defined in law.  What had happened was that the Housing Association’s bank balance (a debt due from the bank to the Housing Association) had fallen and Ms Darroux’s bank balance (a debt due to her from her bank) had increased.

But these were two different assets.  Ms Darroux had not therefore appropriated property from the Housing Association.  This was a point dealt with by the courts long ago in R v Preddy [1996] UKHL 13.

What is more, the bank transfer had been made by PCS, not by Ms Darroux.  Ms Darroux had not assumed the rights of the Housing Association to its bank balance – those rights had been exercised by PCS.

The Court of Appeal held that it would be wrong to distort the meaning of the statutory language in order to overcome the difficulties thrown up by a wrong charging decision.  The remedy in such a case is to formulate the appropriate charges in the first place.

The Appeal Court was not prepared to substitute a conviction under s2 Fraud Act 2016.

Conclusion

Perhaps surprisingly no one appears to have drawn the attention of the Court of Appeal to the offence of false accounting contrary to s17 Theft Act 1968 – which seems to perfectly cover the facts of this case.  That section applies “Where a person dishonestly, with a view to gain for himself or another or with intent to cause loss to another . . .  falsifies any account or any record or document made or required for any accounting purpose”.

The lesson to be learned is that it is important – for both prosecution and defence – to have careful regard to the legal ingredients of the offence on the indictment.  A ‘technical’ error in selecting the correct offence to charge may result in a dishonest defendant going free.

Contacting us

Our contact details are here.

David

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

UK Supreme Court rules on money laundering arrangements

Supreme Court logoThe UK Supreme Court recently ruled on the law relating to prosecutions for entering into, or becoming concerned in, an arrangement which facilitates the acquisition, retention, use or control of criminal property for, or on behalf of, another person – contrary to s328 Proceeds of Crime Act 2002.

The case arose as a result of the actions of a fraudster, referred to as ‘B’.

Shortly before commencing his fraud the defendant, referred to as ‘H’, opened two bank accounts and handed control of them to ‘B’ who then used them in connection with his frauds.  ‘B’ conned unsuspecting members of the public into making payments into these bank accounts (for services which in truth were non-existent).

The prosecution case was that ‘H’ must have known or at least suspected that ‘B’ had some criminal purpose even if he was not aware of the details of the con.  ‘B’ was convicted of fraud.  ‘H’ was charged with becoming concerned in an arrangement contrary to s328 PoCA 2002.

The Supreme Court was required to consider whether, in the circumstances alleged, ‘H’ could be guilty of a s328 offence – R v GH [2015] UKSC 24 (22 April 2015).

The Supreme Court broke the issue down into four key questions.  In addressing those questions it overturned some decisions of the courts below.

 

1  Must the property be ‘criminal property’ before the arrangement operates on it?

Counsel for the prosecution submitted to the Supreme Court that the same conduct could both cause property to become criminal and simultaneously constitute the offence charged under s328.  He made the same submission in relation to sections 327 and 329, correctly recognising that the three sections have to be construed coherently.

So, he submitted, a thief who steals “legitimate” property is necessarily at the same time guilty of “acquiring criminal property” contrary to s329.

The Supreme Court rejected that view, holding that it failed to recognise the necessary distinction between a person who acquires criminal property and one who acquires legitimate property by a criminal act or for a criminal purpose.

Sections 327, 328 and 329 are aptly described as “parasitic” offences because they are predicated on the commission of another offence which has yielded proceeds which then become the subject of a money laundering offence.

The Supreme Court therefore approved the decision of the Court of Appeal in an earlier case R v Geary [2010] EWCA Crim 1925 that to say that s328 extends to property which was originally legitimate but became criminal only as a result of carrying out the arrangement is to stretch the language of the section beyond its proper limits.  I have discussed the Geary case more fully in an earlier article on this blog.

However, for example, a thief who steals legitimate property might then commit a s329 money laundering offence by his possession or use of that property after his acquisition of it.

In practice such a thief should normally face a charge of theft rather than one of money laundering.  But the legal point that he may also be guilty of a money laundering offence is an important one because of the obligation on banks & others in the ‘regulated sector’ to report suspicions of money laundering under s330.

 

2  Must the ‘criminal property’ exist before the defendant joins the arrangement?

The Supreme Court agreed with the decision of the Court of Appeal in holding that it does not matter whether criminal property existed when the arrangement was first hatched.  What matters is that the property should be criminal property at a time when the arrangement operates on it.

It should be noted that the Supreme Court did not hold it to be necessary that the property should be criminal property at the time when the arrangement commences to operate on it.

The offence is complete when the arrangement becomes one which facilitates the acquisition, retention, use or control of criminal property for, or on behalf of, another person and the defendant knows or suspects this to be the case.

 

3  Were the monies ‘criminal property’ before being paid into the defendant’s bank account?

Counsel for the prosecution made a somewhat technical submission to the Supreme Court that the monies banked were criminal property at the time of payment because they represented a chose in action, namely the obligation of the purchasers of the supposed services to pay for them.

The Supreme Court were unimpressed by this submission, holding that there was a stark absence of material before the court to substantiate a case of this nature.

However the court did not close the door on such an argument being successfully presented in a future case.

 

4  Was the actus reus of the offence committed on the facts of the case?

Looking at the substance of the matter, the money paid by the victims into the accounts was lawful money at the moment at which it was paid into those accounts.  It was therefore not a case of the account holder acquiring criminal property from the victims.

But by the arrangement the respondent also facilitated the retention, use and control of the money by or on behalf of ‘B’.  Did the arrangement regarding the facilitation of the retention, use and control of the money fall foul of s328 on the basis that it was criminal property at that stage, since it was the proceeds of a fraud perpetrated on the victims?

In this case the character of the money did change on being paid into the defendant’s accounts.  It was lawful property in the hands of the victims at the moment when they paid it into the defendant’s accounts.  But it then became criminal property in the hands of ‘B’, not by reason of the arrangement made between ‘B’ and the defendant, but by reason of the fact that it was obtained through fraud perpetrated by ‘B’ on the victims.

There was a crucial difference therefore between this case and the situation in Geary (in which the arrangement itself had been the reason that the property in question became criminal property).

The Supreme Court (overturning the decision of the Court of Appeal) held that there was no artificiality in recognising that change in character of the money, and that it would be appropriate to regard the defendant as entering into or becoming concerned in an arrangement to retain criminal property for the benefit of another.

It was the retention, use & control of the monies after they had been paid into the bank accounts as the result of a fraud, under the bank account arrangement made earlier between ‘B’ & ‘H’, which could properly form the basis of a conviction of ‘H’ under s328.

 

Contacting us

Our contact details are here.

David

(Note: This article applies to prosecutions under the provisions of Part 7 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 trial 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.)

Post Office ‘Horizon’ issue in the news again

Post OfficeThe Post Office has again been mired in controversy over the alleged failings in its ‘Horizon’ software system used in thousands of sub-postoffices around the country.

It is clear that there has been a breakdown of trust between the national Post Office organisation and Second Sight, the independent forensic accountants appointed by the Post Office to investigate the allegations.

 

This has resulted in the Post Office terminating their contract with Second Sight and closing a Working Group which had been set up to examine outstanding disputes between the Post Office & sub-postmasters.

Following an investigation by the parliamentary Business, Innovations & Skills select committee the chairman wrote to the Secretary of State on 17 March 2015 commenting on the “lamentable lack of information” provided to Second Sight by the Post Office.

It is understood that Second Sight completed a report recently but this report remains confidential to the parties involved in the dispute.  Nevertheless media reports have surfaced indicating serious disagreements between the Post Office and the forensic accountants with the forensic accountants claiming that the Post Office have failed to disclose relevant documents to the investigating accountants & the Post Office disputing the accountants’ assertions.

 

Prosecutions

The heart of the dispute has been a number of prosecutions of sub-postmasters following investigations into their figures.  Many of those prosecutions have resulted in conviction of the sub-postmaster for dishonesty.  But matters may not be as straightforward as they appear.

The Justice for Sub-postmasters Alliance (JFSA) believes that in many cases the root cause of the problems have been failures in the Post Office ‘Horizon’ software – which have created unexplained apparent shortfalls in cash in local post offices.  Since sub-postmasters are contractually obliged to make good such shortfalls out of their own pockets they have in some cases ‘cooked the books’ in an attempt to hide these apparent shortfalls from the Post Office organisation.

It is these false entries which have been identified by Post Office internal auditors & which have led to the successful prosecutions.

But JFSA says that this is an injustice where the original computer failings have remained uninvestigated.

The Post Office say that there “has been an exhaustive and informative process which has confirmed that there are no system-wide problems with our computer system and associated processes” and that they “will now look to resolve the final outstanding cases as quickly as possible”.

But we may not have heard the last of this controversy.

David

Confiscation & legitimate businesses

Business officeDo recent English Court of Appeal decisions map out a new approach to confiscation when applied to legitimate businesses which have become tainted with criminality?

Has there been an evolution in the assessment of ‘benefit’ following the Supreme Court judgment in Waya?

Are the courts in certain circumstances now looking to confiscate only the profit from trading?

 

Payments received

Whilst one could describe drug trafficking as a ‘business’ as it involves trading in goods, it has long been the case – since the Drug Trafficking Offences Act 1986 in fact – that the gross receipts of such a ‘business’ are treated as ‘benefit’ for confiscation purposes.

Drug trafficking is of course a wholly criminal enterprise.  Prior to the Proceeds of Crime Act 2002 confiscation in respect of drug trafficking was dealt with under a separate legislative regime which specified that the offender’s benefit was “any payments or other rewards received”.  That can only mean the gross receipts.

 

Property obtained

But the wording of the confiscation provisions in s71 Criminal Justice Act 1988, relating to non-drug crime, referred to property “obtained” as a result of or in connection with the offence.  Similar wording was adopted when the two different legislative regimes for confiscation were merged in PoCA 2002.  Is the notion of what an offender has “obtained” a more flexible one than what he has “received”?

Initially the PoCA 2002 formulation was considered, identically to the old drug crime wording, to refer to gross receipts.  For example the Court of Appeal in CPS Nottinghamshire v Rose [2008] EWCA Crim 239 at paragraph [67] said “it can safely be assumed that Parliament, in enacting the legislation, did not intend to weaken the application of the existing confiscation regime”.

The House of Lords in the case of CPS v Jennings [2008] UKHL 29 confirmed that “obtained” meant obtained, solely or jointly, by the offender himself & that a person may “obtain” property without it actually passing through his hands.  In R v May [2008] UKHL 28 it was said that a defendant “ordinarily obtains property if in law he owns it”.  In that sense the notion of what has been “obtained” may be wider than that which has been “received”.

But the House of Lords also recognised that a person may “receive” property without “obtaining” it – as in the case of a courier.

 

High water mark

Perhaps the case of Del Basso & Goodwin v R [2010] EWCA Crim 1119 might be regarded as a high water mark in the application of confiscation to legitimate business.  In that case the offenders operated a ‘park & ride’ business in contravention of an enforcement order.  There was no local authority planning permission allowing the use of the land in question for that purpose.  A confiscation order based on the gross receipts of the business was upheld by the Court of Appeal notwithstanding the acknowledged fact that in other respects the business was operated in a proper & lawful manner.

 

Scottish High Court case

But in a case involving the Weir Group PLC, a quoted company, the Scottish High Court took a very different line.  The Weir Group PLC paid an agreed figure of £13,945,962 in confiscation and a fine of £3m after pleading guilty to two charges of breaching UN sanctions in connection with a number of ‘Oil for Food’ programme contracts awarded between 2000 and 2002.  The company admitted breaching UN sanctions applicable at the time on doing business with Iraq which was then ruled by Saddam Hussein’s regime.

Under the relevant statute, s1(1) Proceeds of Crime Scotland Act 1995, the Scottish Court had discretion to make a confiscation order in “such sum as the court thinks fit”.  The Weir Group companies had secured 16 contracts, for which they were paid £34,340,204, by paying ‘kickbacks’ of £3,104,527. The confiscation order was for only £13,945,962. This included Weir’s gross profit of £9,414,283 from the contracts – plus the kickbacks of £3,104,527 and the fee of £1,427,152 paid to Weir’s agent in Iraq.

The confiscation order could have been for £20m more had the Scottish Court settled on the gross receipts as the appropriate figure for confiscation.

 

Three contrasting situations

Recent Court of Appeal decisions in England & Wales appear to differentiate between three contrasting situations.

The first is where a licence or other form of authorisation is mandatory when carrying on a particular trade or business activity but the absence of that licence does not render the trading itself illegal.  So, for example, in Sumal & Sons (Properties) Ltd v London Borough of Newham [2012] EWCA Crim 1840 the company was convicted of being the owner of a rented property without a licence contrary to s95(1) Housing Act 2004.

However the Court of Appeal found that the Housing Act did not prohibit the renting out of an unlicensed property & that the rent was legally recoverable from tenants even where the required licence had not been obtained.

That being the case, the rent was not received or obtained as a result of or in connection with the offence & so was not ‘benefit’ for confiscation purposes.

A similar result occurred in the case of Mr Singh who failed to obtain a licence under s1(1) Scrap Metal Dealer’s Act 1964, before he carried on business as a scrap metal dealer – see McDowell & Singh v The Queen [2015] EWCA Crim 173.  Again his trading activity was not itself prohibited due to the absence of a licence & therefore no ‘benefit’ for confiscation purposes arose from it.

The underlying trading was not itself an illegal activity, nor could it be said to have resulted from the criminal conduct.

Confiscation orders which had been made in these cases were quashed on appeal.

 

Illegitimate trading

At the other end of the scale we have trading activity which is itself illegal, being prohibited by law.  Obviously drug trafficking falls into this category but so too was the trading of a company controlled by Mr McDowell who was convicted of being knowingly concerned in the supply, delivery, transfer, acquisition or disposal of controlled goods with intent to evade the prohibition thereon, contrary to Article 9(2) Trade in Goods (Control) Order 2003.

The trading in question involved the delivery of aircraft and other military equipment from China to Ghana.  The Court of Appeal found the underlying transactions to be prohibited and unlawful.  Mr McDowell’s criminal offence was being concerned in the trading activity.  His ‘benefit’ for confiscation purposes was the gross amount received from that trading.

Intriguingly however the Court of Appeal added, “We were informed only that the company’s accounts revealed the gross profit made by the company in consequence of all its trading. In these circumstances, even if, in principle, the court had been prepared to entertain a submission that the appellant’s benefit was for a lesser sum than his receipts, he had manifestly failed to discharge the burden of proof.”

 

Legitimate trading resulting from criminality

But the Court of Appeal in McDowell suggests at paragraph [51] there is a middle ground – “In a case in which the underlying transactions producing the appellant’s receipts are lawful and not criminal, the cost of those transactions to the defendant may, on the grounds of proportionality, properly be treated as consideration given by the appellant for the benefit ‘obtained’. There may be no “loser” as contemplated by the Supreme Court in Waya and by the Vice President in Jawad, but the underlying principle is the same – the defendant has not gained by his conduct to the extent that he has given value for his receipts. Each case must be decided according to its particular facts.”

We are dealing here with the situation in which the defendant has committed an offence and that offence has resulted in trading activity which would not otherwise have occurred – but the underlying trading activity is not itself criminal conduct.

An earlier decision of the Court of Appeal had concerned a Mr Sale who had obtained contracts for his engineering company from Network Rail by bribing one of their employees, R v Sale [2013] EWCA Crim 1306.  The engineering work was properly performed and was, of itself, an entirely legal trading activity.

The Court of Appeal concluded that the amount to be confiscated was not the gross receipts of the company under the contracts but was the company profit plus the the pecuniary advantage gained by obtaining market share, excluding competitors, and saving on the costs of preparing proper tenders for the work.  The Court of Appeal held that, on grounds of proportionality & in the light of the Supreme Court decision in Waya, the amount ordered to be paid under the confiscation order ought to have been calculated on that basis.

In another case, R v Boughton Fox [2014] EWCA Crim 2940, the court had found that customers had been induced by dishonest misrepresentations to enter into legitimate leasing agreements upon terms which were, in the event, more onerous than had been represented to them.  The defendant’s company had received commission from the lessors on the signing of the lease agreements.  The defendant was convicted of conspiracy to defraud and was subject to a confiscation order.

The Court of Appeal, following Sale, concluded “that the benefit to the appellant might arguably be reflected as (1) the gross profit from the dishonest trading activity, (2) the increase in market value of the company, if any, represented by the dishonest trading activity with (3) an adjustment to represent the appellant’s 50% interest in the company”.

In the event however there was no information before the Court enabling it to assess the benefit in that way & it instead took Mr Boughton Fox’s benefit to be a proportion of the salary & dividends received by him over the period of the offending.

 

Conclusion

It appears that in the three contrasting situations the amount to be paid under a confiscation order may be based on (a) no benefit, (b) benefit equal to gross receipts, or (c) a figure based, on grounds of proportionality, on the gross profit from the resulting trading plus the value of any other advantages obtained (such as benefit from increased market share and cost savings).

An accountant might consider that the appropriate figure, instead of gross profit plus cost savings, should be the contribution which the trading in question makes to net profit, that is to say the relevant turnover net of associated variable costs.  That would be a better measure of what the business has gained by the additional sales.

Certainly in such cases a forensic accountant, such as myself, should be instructed to assist in quantifying the appropriate figure.

The key to differentiating the three situations is a careful analysis of the nature of the offence and the extent, if at all, to which it involves trading, or results in underlying trading, which is itself illegal.  Where the offence involves illegal trading, or results in trading which is itself illegal, then the benefit will be the gross amount received from that trading.

Where the offence does not involve trading but results in trading which itself is not illegal, then the expenses incurred in that trading are not expenses of the crime and may be treated, on grounds of proportionality, as consideration which may reduce the amount to be paid under the confiscation order.

Where the offence does not itself involve trading and the trading does not result from the offence, then that trading does not give rise to any benefit for confiscation purposes.

However there are undoubtedly some legal complexities inherent in this new approach particularly with regard to distinguishing, on the one hand, trading receipts from criminal activity and, on the other, trading receipts from legitimate activity resulting from criminal conduct.

It remains to be seen whether the Supreme Court will endorse this new approach when an appropriate case comes before it.

 

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.)

PoCA section 22 – unfit for purpose?

SlipperyThe Proceeds of Crime Act 2002 was a reform and strengthening of UK law designed to strip criminals of the proceeds of crime.  Section 22 allows the Crown to require the court to re-examine the ‘available amount’ of a convicted defendant with a view to increasing the amount he must pay under an existing confiscation order.

On the face of it this enables a convicted defendant to be pursued for money for the rest of his life until he has ‘repaid’ his total ‘benefit’ (uplifted for inflation).

But is s22 so badly drafted that it creates too many problems and uncertainties? Is s22 unfit for purpose?

WARNING – THIS IS A LENGTHY BLOG POST – IN EXCESS OF 3,000 WORDS

  1. Genesis of s22
  2. Context of s22
  3. Case law
  4. Operation of s22
  5. Problems
  6. Suggested solutions

 

Genesis of s22

Prior to the Proceeds of Crime Act 2002 there was a provision, originally in s16 Criminal Justice (International Cooperation) Act 1990 and repeated in s16 Drug Trafficking Act 1994, which provided that where a person had been ordered to pay by a confiscation order an amount less than the full value of his proceeds of drug trafficking and his available amount was greater than the amount which he had been ordered to pay (whether it was greater than was thought when the order was made or had subsequently increased) then the court could, on an application by the prosecutor or a receiver, (i) substitute a new amount to be paid (not exceeding his total proceeds from drug trafficking) and (ii) if as a result the maximum default sentence moved into a higher band, increase the default sentence.

This was to be done in a two stage process involving both the High Court and the Crown Court.

There was at the time no equivalent provision in relation to proceeds of non drug-related crime.

Part of the rationale of the new proceeds of crime legislation which became PoCA 2002 was to transfer all confiscation proceedings to the Crown Court and to provide a single confiscation process applicable to all types of crime from which a benefit had been obtained by the offender.

A draft bill was published for consultation in February 2001.  That draft bill contained, as clause 21, a clause very similar to s22 but without subsections (6), (8) & (9).  The draft bill proposed major changes to UK proceeds of crime law including the creation of the Assets Recovery Agency, the streamlining & consolidation of confiscation law, the introduction of civil recovery of the proceeds of crime, sweeping changes to money laundering law and new investigation & taxation powers.

The draft bill ran to 325 clauses.  It would have been surprising had clause 21 attracted much attention during the consultation period.

In October 2001 the Proceeds of Crime Bill, running to 444 clauses, was introduced into the House of Commons.  It included, as clause 23, the clause from the draft bill but with the addition of subsection (6).

When the bill came to be considered in detail by a House of Commons committee as part of the normal legislative process, clause 23 was approved without any discussion whatsoever on 27 November 2001.

In due course the bill passed to the House of Lords.  When the bill was considered in detail there on 22 April 2002 the government added subsections (8) & (9) and made a consequential amendment to the wording of subsection (4) but again there was no debate on the clause.  The amendments made at that stage appear to be directed towards accommodating the possibility that the original confiscation order had already been amended before the court came to apply this clause.

Ultimately clause 23, as amended, became s22 Proceeds of Crime Act 2002.

In that way s22 became law without being subject to any detailed parliamentary scrutiny.

 

Context of s22

Section 22 is one of a series of sections dealing with reconsideration of a confiscation order.

Sections 19 to 21 apply where there is evidence which was not available to the prosecutor when the court originally considered making a confiscation order.  Accordingly the prosecutor may, within 6 years of the defendant’s conviction, require the court to reconsider the original confiscation order.  The sections apply where (i) the court never proceeded under s6 (s19), (ii) the court originally decided that the defendant had obtained no benefit (s20), or (iii) the prosecutor believes that if the court reconsidered the matter it would find a higher figure of benefit (s21).

These sections in effect require the court to re-perform the making of a confiscation order under s6, calculating the defendant’s benefit as if it were doing so at the time that the court originally considered making a confiscation order but taking into account the newly discovered evidence.  However when re-performing the making of the confiscation order it appears that the court is to take account of the defendant’s current available amount.

For that reason when an application is being made for reconsideration of benefit under sections 19 to 21 it is not necessary to make a simultaneous application for reconsideration of available amount under s22.

When sections 19 to 21 operate the prosecutor and the defendant are, in effect, subject to the provisions of sections 16 to 18 which require statements of relevant financial information to be prepared and served (see s26).

So the procedure under sections 19 to 21 is akin to a complete re-run of the confiscation proceedings.

On the other hand sections 23 to 25 (and section 25A when it comes into effect) are intended to deal with events which have occurred after the confiscation order was made and, in particular, to address a diminution in the defendant’s available amount.

Section 23 permits the court to reduce the figure of the defendant’s available amount to reflect an inadequacy in his available amount which has become apparent (for example where assets have been sold but have realised less than the amount anticipated).  Sections 24 & 25 (and s25A) permit the court to discharge a confiscation order in specified circumstances where it would not be appropriate to pursue a modest remaining amount outstanding.

 

Case law

One might have hoped that, prior to the drafting of s22, there would have been case law on the previous provisions – s16 Criminal Justice (International Cooperation) Act 1990 and s16 Drug Trafficking Act 1994 – which had a somewhat similar purpose.  But there appears to have been only one case of note prior to 2002, R v Tivnan [1998] EWCA Crim 1370.

In January 1992 Mr Tivnan was sentenced to 5 years’ imprisonment for a drug trafficking offence.  A confiscation order was made (the date of the order is not given in the Court of Appeal judgment) by which his benefit was said to be £479,376 and he was ordered to pay £72,481 (presumably his available amount at the time) with two years’ imprisonment in default.  In 1996 the Crown made an application under s16 CJ(IC)A 1994 which resulted in an order that Mr Tivnan pay £479,376 (the full amount of his benefit) within 12 months, with four years’ imprisonment in default.  Mr Tivnan’s appeal against the later order was dismissed.

The judgment does not indicate what transpired between the original and revised orders, so we do not know whether Mr Tivnan had actually paid anything under the original order or whether he served any part of the default sentence under it.  Nor does the judgment give full details of the assets which the court had taken into account in concluding that Mr Tivnan’s available amount had increased in 1996 to a figure in excess of £72,481.

It does appear that the Court of Appeal did take into account assets which had been first acquired by Mr Tivnan after the original confiscation order was made.

It was not until 2012, in the Supreme Court judgment Re Peacock [2012] UKSC 5, that it was finally determined that s16 Drug Trafficking Act 1994 did catch after-acquired property (assets acquired legitimately by the convicted defendant in later life).

The case of Saggar Re Drug Trafficking Act 1994 [2005] EWCA Civ 174 dealt in particular with the passage of time between Mr Saggar’s original arrest in November 1993 (and conviction in September 1995) and the Crown’s application in October 2003 for a revision of his confiscation order.  It was argued that the Crown’s application was in breach of article 6(1) of the European Convention on Human Rights.  The matter was remitted to the Crown Court for further consideration on the facts.

In a recent case under s22 PoCA 2002, Padda v R [2013] EWCA Crim 2330, the defendant had been the subject of a confiscation order in September 2006 which assessed his benefit at £156,226 and his available amount at £9,520.  He was ordered to pay the £9,520 with six months in default.  He paid the £9,520 in full.  In February 2013 as a result of an application by the Crown under s22 he was ordered to pay £74,652 with 12 months in default.

It appears that the £74,652 represented the defendant’s available amount in February 2013 (which of course would exclude monies used to satisfy the original confiscation order) and that the effect was that the defendant was required to pay both the £9,520 originally paid and the further sum of £74,652.  The order was upheld on appeal.

 

Operation of s22

Section 22 requires the Crown Court, on an application by the prosecutor or by an enforcement receiver appointed under s50, to perform a new calculation of the defendant’s current available amount.  If the new calculation produces a figure in excess of the ‘relevant amount’ the court may vary the amount to be paid under the confiscation order.

The ‘relevant amount’ is the amount previously determined to be the defendant’s available amount, adjusted for changes in the value of money, s22(7) & (8).

The variation to be made by the court is made “by substituting for the amount required to be paid such amount as it believes is just but does not exceed the amount found as the defendant’s benefit”, s22(4).

For this purpose the “amount found as the defendant’s benefit” is the amount previously determined to be the his benefit, but adjusted for changes in the value of money, s22(7) & (9)Section 22 does not expressly incorporate any reconsideration of the defendant’s benefit beyond an inflation uplift.

Potentially confusingly, by subsection (5)(b), in deciding what is just the court must have regard to any order which falls within s13(3) and has been made against the defendant in respect of the offence concerned and has not already been taken into account by the court in deciding what is the free property held by him for the purposes of s9 (calculation of available amount).  Subsection 13(3) refers, amongst other things, to “any order involving payment by the defendant”.

But it seems that subsection (5)(b) is not intended to direct attention to the original confiscation order since similar wording appears, for example, in s19 (where no confiscation order has been made).

So s22 does not require the making of the original confiscation order to be effectively re-performed (in the way that sections 19 to 21 do).  It does not refer back to the machinery of s6.  Instead it permits the court in appropriate circumstances to vary the original confiscation order by amending the amount to be paid under it.

Where sections 19 to 21 deal with reconsideration following the discovery of new evidence relevant to the state of affairs when the original confiscation order was made, and sections 23 to 25 deal with reconsideration in consequence of events occurring after the original confiscation order was made, section 22 (unwisely perhaps) attempts to deal with both types of reconsideration.

 

Problems

I suggest the drafting of s22 leaves a host of unresolved problems.  The section seems to be unclear as to whether it is attempting simply to authorise further action against a person who has been subject to a confiscation order limited to his available amount so that he may be required to pay a specified additional amount, or whether it means to have the entire amount payable specified afresh by the court.

The section appears not to be designed to deal with the defendant who has already paid an amount under the original order.  The section is silent as to that possibility.  Does the “substitution” of a new amount to be paid under s22 expunge the requirement to pay any amount under the original order?  Should an amount which has previously been paid be returned to the defendant?  Presumably not!

The best way of dealing with this may be to regard s22 as permitting the court to vary the original confiscation by requiring an additional payment.  The result may be that the total sum shown as to be paid by the confiscation order exceeds the defendant’s available amount either at the time the confiscation order was made or at the time it was varied (because the amount to be paid could be as much as the aggregate of those two amounts).  However it would seem that s7, which would normally prevent such an occurrence, has no application in s22 proceedings.

The practicalities are rather different where (i) a defendant has retained his original available amount and made no payment, and alternatively where (ii) he has paid an original order in full and subsequently acquired new assets.  But s22 attempts to deal with these two contrasting situations in the same way.  In the second case the ‘trigger’ in subsection (4) – that the defendant’s current available amount exceeds his previous available amount – will arguably be inappropriate and misconceived.  See my earlier blog article ‘Confiscation – after-acquired property‘ for an example of this.

Because, unlike sections 19 to 21, section 22 does not give fresh effect to the principal order making power of s6, it implicitly suggests that the only variation which can be made to the confiscation order is to “substitute” the new amount which must be paid.  The court arguably has no authority under s22 to vary other matters fixed by the original order, for example, the due date for payment (which under the original order may have passed many years earlier).  The significance of the due date for payment is that under s12(1) the defendant “must pay interest”.

In practice courts appear simply to have assumed the authority to set a new date for payment – see, for example, the case of Padda referred to above.

With regard to the default sentence, s39 authorises the court to vary the default sentences in the circumstances detailed in that section.

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

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

However a problem may arise, I suggest, where a defendant has not paid – and has already served a default sentence.  Can he be required to serve a second default sentence for what may be, at least in part, the same debt?

Because s22 effectively requires the defendant’s benefit to be adjusted to take account of any change in the value of money it is conceivable that a court could order a defendant to pay an amount greater than the figure of benefit shown in his confiscation order.  That would appear anomalous.

Ordinarily in confiscation proceedings the burden is on the defendant to satisfy the court as to his available amount but clearly the provisions of s7 (recoverable amount) are incompatible with s22.  Under s22 that burden of calculating the defendant’s available amount appears to fall on the prosecution.  There appears to be no provision in s22 to deal with a situation in which the prosecution is unable to put a figure on the defendant’s current available amount so that no “new calculation” can be made.

Where a list of assets comprising the defendant’s available amount has been appended to the original confiscation order there is no express power in s22 to amend that list.

There are no time limits in s22, in contrast to the six year time limits in sections 19 to 21.  But it is now accepted that article 6(1) of the European Convention on Human Rights, requiring a hearing within a reasonable time, applies to confiscation proceedings including applications for reconsideration under sections 19 to 22.  Arguably therefore the existing legislation in s22 is incompatible with the Convention.

 

Suggested solutions

No change to s22 is proposed in the Serious Crime Bill currently completing its passage through parliament.

However I would suggest that the best way to deal with these issues would be for parliament to amend PoCA 2002 by repealing the existing s22 and introducing in its place two new sections.

My suggested new s22A would deal with the situation where evidence is discovered which indicates that the defendant may have had, at the time the confiscation order was made, an available amount greater than the figure specified in the original confiscation order.

In these circumstances the prosecutor or a receiver could make application to the court under s22A, within six years of the date of conviction, for a re-performance of the making of the confiscation order, giving effect to sections 6 to 13 with appropriate modifications.  The court would, if satisfied, make a new confiscation order entirely replacing the original confiscation order.  Section 22A would permit the new order to reproduce any requirement to pay specified sums on specified dates which had been contained in the original order (even where those dates preceded the making of the new order) along with any requirement to pay one or more additional sums immediately or on future dates.

My suggested new s22B would deal with the situation where evidence indicates that the defendant may currently have an available amount which may justify a requirement that he pay a further sum of not less than (say) £5,000 in relation to an existing confiscation order.

In these circumstances the prosecutor or a receiver could make application to the court under s22B for an addition to the existing confiscation order requiring the payment, by way of an additional recoverable amount, of one or more further sums on one or more specified dates (and permitting an additional list of assets, reflecting the defendant’s current available amount, to be appended to the order).  The aggregate recoverable amount would not be permitted to exceed the defendant’s benefit, but subject to that the court could order payment of such additional amount as it believed to be just.  An application under s22B would need to be made (i) within two years of sufficient evidence in support of the application coming to the applicant’s knowledge, and (ii) within twenty years of the defendant’s conviction.

Amendments to existing confiscation orders under s22B would apply sections 9, 10A (to be inserted by the Serious Crime Act 2015) and 13 with appropriate modifications.  The court would decide any question arising on the balance of probabilities (the civil standard) in the same way that it does under s6.

Under both my suggested new sections the court would be permitted to (i) increase the benefit figure, but only in respect of changes in the value of money since the court had previously determined the defendant’s benefit, and (ii) set the defendant’s aggregate recoverable amount equal to his benefit where the court was not satisfied that the defendant’s available amount was insufficient to justify that.

Amendments would in consequence be required to some other sections of PoCA 2002.

Section 26(1) would need to be amended to include reference to s22A (effectively applying sections 16 to 18 to applications under s22A).

Section 11 (time to pay) would require amendment to allow time to pay to be related to the date of any reconsideration under the new sections.  In my view it would also be appropriate to allow time to pay to be related to the dates of reconsideration by the Crown Court under existing sections 19 to 21 and on an appeal to the Court of Appeal or Supreme Court.

Legislation already before parliament will amend s11 to expressly provide for payments by instalments.

With regard to default sentences the legislation could be amended to permit separate default sentences to be related to separate instalments, providing always that the aggregate default sentences did not exceed the maximum permitted default sentence for the aggregate amount payable.  The legislation should also provide that the time required to be served in aggregate should be reduced by the proportion which the aggregate amount paid bears to the aggregate amount ordered to be paid.

These suggested amendments to PoCA 2002 would I believe provide a workable basis on which to deal with the issues which are left unresolved by the existing s22.

 

Contacting us

Our contact details are here.

David

(Note: This article applies to confiscation proceedings under the provisions of Part 2 of the Proceeds of Crime Act 2002 in England and Wales.   Appropriate professional advice should be sought in each individual case.)

LAA introduces ‘soft rejection’ of claims

Two way trafficThe Legal Aid Agency has introduced a new ‘soft reject’ process for solicitors’ legal aid claims in a bid to improve its claims handling procedures.

In an announcement dated 6 February 2015 the government said that the LAA were adopting a more pragmatic approach following feedback from users.

Rather than immediately rejecting a legal aid application which is incomplete the LAA will contact the solicitor or other legal aid provider who submitted the claim form to find a way of obtaining any missing information.

If appropriate LAA criminal applications team caseworkers will contact legal aid providers by telephone in order to obtain the information they need where the legal aid application cannot be granted without it.

In 2014 the LAA introduced a similar process for Advocates’ Graduated Fees Scheme (AGFS) applications.

 

Importance of responding on the day

Where the provider is unavailable or does not have the information to hand the LAA will provide a telephone number or e-mail address and a deadline for an answer on the day to their enquiry.

If the provider can provide the necessary information before the deadline, then the application will be processed.

If that is not possible, a formal LAA rejection will be sent along with a letter detailing the missing information needed to process the application.

The new procedure is intended to help avoid unnecessary rejections, reduce processing delays, and ensure all claims are processed in a timely manner.

 

Contacting us

Our contact details are here.

David

(Note: This article applies to criminal proceedings in England and Wales.  Appropriate professional advice should be sought in each individual case.)

7 key differences between trial & confiscation

Legal booksIn many respects confiscation proceedings exist in a different world from criminal trials.  It is almost as if, like Lewis Carroll’s Alice, we have stepped through a looking glass into a parallel universe.

It is important that lawyers recognise this and adjust their approach to the work accordingly.  This article points up, briefly and in the most general terms, seven key differences between Crown Court trials and confiscation proceedings.

 

1 The question

In a Crown Court trial the key issue is whether the defendant is ‘Guilty‘ or ‘Not Guilty‘ of the offence or offences of which he is charged.

In confiscation proceedings the question is ‘How much?.  The proceedings are concerned primarily with the quantification, in money terms, of the convicted defendant’s ‘benefit‘ and ‘available amount‘ (as defined in Part 2 of the Proceeds of Crime Act 2002).

 

2 The standard & burden of proof

In the trial the burden of proof rests upon the prosecution to the ‘criminal standard’.  They have to make the jury ‘sure’ of the guilt of the defendant.

In confiscation proceedings the standard of proof is the ‘civil standard’ – the balance of probabilities – and, in many respects, the burden of proof is on the convicted defendant; particularly in rebutting the statutory s10 assumptions in a ‘criminal lifestyle‘ case and in satisfying the court that the convicted defendant’s ‘available amount‘ is less than his ‘benefit‘.

 

3 The focus & scope of the proceedings

In the trial the focus is on the offence or offences of which the defendant is charged.  In confiscation proceedings the focus is on the convicted defendant under consideration.

Where, as is often the case, in confiscation proceedings the convicted defendant is alleged to have a ‘criminal lifestylethe scope of the proceedings can range far beyond matters relevant to the offence or offences of which he has been convicted.  The entire financial affairs of the convicted defendant over a period of many years may be subject to scrutiny.

Consideration of the convicted defendant’s ‘available amount‘ involves matters unconnected with any offence.

The indictment in a criminal trial may cover a number of co-defendants, but the s16 statement in confiscation proceedings deals only with a single convicted defendant.  A confiscation order reflects the ‘benefit‘ obtained, solely or jointly, and the ‘available amount‘ of only that particular convicted defendant.

 

4 The evidence

In a criminal trial the prosecution may call a number of witnesses who may have, quite literally, witnessed the alleged crime being committed.  The defence may call evidence from the defendant himself.

In confiscation proceedings the prosecution are unlikely to call evidence from anyone other than the financial investigator who is the author of the s16 statement (which sets out the prosecution assertions regarding the convicted defendant’s ‘benefit‘ and ‘available amount‘).  The likelihood is that little or no weight will be given by the court to unsupported oral evidence from the convicted defendant since, by that stage, he has been found guilty and his credibility thereby undermined.

The defence will therefore seek to present other witnesses, perhaps including a forensic accountant expert witness, and documentary evidence in support of the defence assertions.

Evidence which would be inadmissible in the criminal trial may be admissible in confiscation proceedings.

 

5 The decision makers

In a Crown Court trial the key decision of ‘Guilty’ or ‘Not Guilty’ is made by the jury, then in the case of a ‘Guilty’ verdict the sentencing is carried out by the judge.

But in confiscation proceedings there is no jury.  All the decisions are made by the Crown Court judge.  Having said that, in many cases the figures of ‘benefit‘ and ‘available amount‘ are in practice settled by negotiation resulting in an agreement between counsel for prosecution and defence which has been reached outside the courtroom.  The judge will then be invited to make an order in the agreed figures and fix a default sentence.

 

6 The factors in sentencing

In relation to sentencing following trial key factors will often include the nature and gravity of the conduct of the defendant in committing the offence, whether he pleaded guilty, his previous convictions, and his conduct since the offence in terms of showing remorse or making reparation.

In contrast a confiscation order is not strictly speaking regarded as punishment for the offence at all.  So those factors (other than reparation) will have no impact on the confiscation.  A relatively minor offence (in terms of sentencing) might be followed by a very substantial confiscation order, whilst conviction for a relatively serious offence might be followed by a minimal confiscation order.

By way of example, in the case of Waya [2012] UKSC 51 the mortgage fraud offence attracted 80 hours community punishment but the eventual confiscation order was in the very substantial sum of £392,400.

It has been said that confiscation is intended, not to punish the convicted defendant for the crime, but to deprive him of the benefit he has obtained from relevant criminal conduct, up to the limit of his available means.

 

7 Appeals

The prosecution have, with very limited exceptions, no opportunity to appeal the verdict or sentence in a criminal trial.

However prosecution and defence are each permitted to appeal a confiscation order (or a decision to make no confiscation order).

 

Conclusions

Confiscation proceedings are very different from the criminal trial which precedes them. They demand a different approach from instructed lawyers and an extensive examination of financial evidence.  That examination may be assisted by the work of a forensic accountant, particularly where it is alleged that the convicted defendant has a ‘criminal lifestyle‘.

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.)

Confiscation – the basics

photo 123 - copyright David Winch 2014This post aims to be an introduction to the basics of confiscation under the Proceeds of Crime Act 2002 in England & Wales.  It includes links to more detailed articles dealing with particular elements of confiscation law (shown like this).

A word of warning.  An introduction like this can be broadly correct but cannot cover the full detail of the legislation nor can it cover those unusual circumstances which may be exceptions to the general guidance contained here.

Be warned too that words and phrases used in confiscation often have a specific technical meaning which is not the same as their meaning in everyday English conversation.  That applies particularly to terms such as ‘benefit’, ‘criminal lifestyle’ and ‘available amount’.

 

When does confiscation apply?

Confiscation proceedings can only be commenced when a defendant has been convicted (either in the Crown Court or Magistrates’ Court) of one or more offences from which he has obtained a benefit.  All confiscation proceedings in England & Wales are conducted in the Crown Court in front of a judge but without a jury.

A wide range of offences can form the basis for confiscation proceedings, including offences such as theft, fraud, drugs offences, money laundering and tax evasion. However confiscation orders are not imposed in every case in which a defendant obtains a benefit. In the year to 31 March 2013 approximately 673,000 persons were convicted of an offence (not all of which involved any benefit being obtained) but only 6,392 confiscation orders were imposed.

Confiscation proceedings are initiated by the prosecution.  There are no published criteria specifying when confiscation proceedings will be initiated.  Where the defendant has obtained a benefit from an offence of which he has been convicted and the prosecution ask for confiscation proceedings to be initiated the court has no discretion to refuse.

The legislation is intended to deprive defendants of the benefit they have gained from relevant criminal conduct, whether or not they have retained such benefit, within the limits of their available means.  The benefit gained is the total value of the property or advantage obtained, not the defendant’s net profit after deduction of expenses.

 

The court procedure

Whilst the judge can make a confiscation order at the time of sentencing a convicted defendant, in many cases the judge will at that time simply set a timetable for further steps towards confiscation.

This normally involves firstly a requirement for the defendant to supply detailed information about his financial affairs; secondly the prosecution to provide a report identifying the amount of benefit said to have been obtained by the defendant and (usually) identifying his ‘available amount‘ (this is referred to as the s16 statement); thirdly the defendant is required to respond to the prosecution’s report indicating the extent to which he agrees and disagrees with it; and finally there will be a hearing scheduled which will culminate in the making of the confiscation order.

In practice the initial timetable may be revised if difficulties or delays arise so these steps may take months, or even years, to complete.

Evidence which would be inadmissible at trial may be admitted in confiscation proceedings.

 

The three decisions

Assuming that the defendant has obtained a benefit from an offence of which he has been convicted, the court then has three key decisions to make.

  • Firstly what benefit has the defendant obtained from the offence or offences of which he has been convicted (including any other offences ‘taken into consideration’ when sentencing)?
  • Secondly, if the defendant has a ‘criminal lifestyle‘, what benefit is he to be assumed to have obtained in addition to the benefit obtained from the offence or offences of which he has been convicted?
  • Thirdly what is his ‘available amount‘?

In confiscation proceedings the burden of proof generally rests upon the defendant rather than the prosecutor – particularly in rebutting the statutory assumptions where the defendant has a ‘criminal lifestyle‘ and in satisfying the court that the defendant has an ‘available amount‘ which is less than his ‘benefit’.  In each case the court will make its decision on the basis of the ‘balance of probabilities’, see s6(7) PoCA 2002.

 

Benefit obtained from the offence

The legal position is that a person obtains a benefit from criminal conduct if he obtains ‘property’ (which means an asset of any description) or a pecuniary advantage as a result of or in connection with that criminal conduct, see s76 PoCA 2002.

Sometimes the benefit obtained from the offence is quite obvious.  If I steal £10,000 from your bank account I have obviously obtained a benefit of £10,000.

But in many cases the benefit obtained will be less obvious.  For example if John is a member of a group of people and is convicted of conspiracy to supply controlled drugs there may be a number of issues arising concerning the extent of John’s involvement in the conspiracy and the valuation of the drugs.  If Peter has obtained a mortgage advance dishonestly his benefit will be a proportion of the increase in value of the property since he purchased it.

However the courts will always be looking to the benefit “obtained” – not the benefit “retained”.  Where the court is satisfied that a particular benefit has been obtained jointly by more than one person it will treat each person as having obtained the whole of that benefit – but will place a cap on the overall recovery of jointly obtained benefit from the different defendants.

 

Assumed benefit of criminal lifestyle

In many cases the defendant will be held to have a ‘criminal lifestyle‘ and this will trigger the statutory assumptions set out in s10 PoCA 2002.  The effect may be to increase very substantially the defendant’s total alleged benefit.

These assumptions relate to the defendant’s receipts and payments since the ‘relevant day’ (normally the day six years before the day on which he was charged with the offence) up to the day on which the court makes the confiscation order (but in practice the assumptions are usually applied only up to an earlier date for convenience) and the defendant’s assets held at any time after the date of his conviction (whenever they were first obtained).

A defendant has a ‘criminal lifestyle‘ if the criteria set out in s75 are satisfied, but not otherwise.  The criteria relate to the offence or offences of which the defendant has been convicted – they do not relate to his ‘lifestyle’ in the everyday sense of that word.

It is in ‘criminal lifestyle‘ cases in which the services of a forensic accountant may prove particularly valuable in challenging the prosecutor’s s16 statement.

There is an obvious danger of excessive benefit figures and double counting where the ‘criminal lifestyle‘ assumptions are made.

 

The defendant’s available amount

The defendant’s ‘available amount‘ includes all his assets currently held (with a deduction for liabilities secured on those assets) and the current value of any ‘tainted gifts’ he has made, see s9 and s81 PoCA 2002.

The court will not consider, for the purpose of determining the defendant’s ‘available amount‘, whether those assets which he currently holds were obtained legitimately or not – that does not matter at this stage.

 

The confiscation order

In order to reach its decisions the court may hold a hearing at which oral and written evidence from both sides will be presented.

However in many confiscation cases the prosecution and defence will negotiate agreed figures for ‘benefit’ and ‘available amount‘ prior to the scheduled hearing of oral evidence.  In that event there will be only a brief hearing before the judge at which he will be invited to approve the agreed figures which then become the basis for the confiscation order.

Before finalising the order the court may need to consider whether the application of the statutory assumptions has created a serious risk of injustice and whether the proposed order would be disproportionate and infringe the defendant’s human rights.

Only very rarely will the amount of the confiscation order be limited to the profit arising from the criminal conduct.

The court will normally order the defendant to pay, within a specified period of time, a sum of money equal to the lower of (a) his total benefit and (b) his available amount.

If the court has no information from which it is able to conclude on the balance of probabilities that the defendant has an ‘available amount‘ which is less than his total ‘benefit’ it will make a confiscation order in the amount of the ‘benefit’.

Where the court accepts that the defendant’s ‘available amount‘ is less than his total ‘benefit’ a brief list of the assets which form the defendant’s ‘available amount‘ should be appended to the confiscation order issued by the court.

The court will typically allow up to six months for payment (from 1 June 2015 this is limited to three months as a result of amendments to confiscation law).  The court will also set a default sentence, which is a period of imprisonment the defendant may be required to serve if he does not pay the required sum.

The defendant may subsequently return to court to ask for a six month extension to the time to pay, making a maximum of 12 months in all from the date of the confiscation order (from 1 June 2015 this is limited to a further three months making six months in all from the date of the confiscation order).

Interest is charged on any amount which remains outstanding after the due date for payment, s12.

 

Appeals

Either prosecution or defence may appeal against the confiscation order.  Appeal is to the Court of Appeal (Criminal Division) and ultimately to the Supreme Court.  An appeal ought to be initiated within 28 days of the confiscation order but late appeals may be heard in some circumstances.

 

Subsequent events

Where a confiscation order has been made in the amount of the defendant’s ‘available amount‘ and subsequent realisation of his assets identified in the confiscation order produces a lesser amount than anticipated, the defendant (or the prosecution) can apply to the court under s23 to have the amount of the defendant’s confiscation order reduced to reflect his revised ‘available amount‘ based on the actual amounts realised.

Where evidence comes to light which was not available to the prosecution at the time of the confiscation hearing which indicates that the defendant’s benefit was greater than that found by the court at that hearing the prosecution can, within 6 years of the date of conviction, apply to the court for the benefit figure to be increased under s20 or s21.

Where a confiscation order has been made in the amount of the defendant’s ‘available amount‘ (which was less than his benefit) the prosecution can apply to the court, at any time, for an order under s22 requiring the defendant to pay a further amount where he has a current ‘available amount‘ which would enable him to satisfy a new order – but he may not be required to pay an amount more than the court believes to be just.  In that sense a confiscation order may be regarded as a ‘life sentence’.

Where only a small balance remains outstanding on a confiscation order the court may discharge the order under s24 or  s25.

Where, following a fresh conviction on a subsequent occasion, a defendant finds himself subject to confiscation proceedings a second time the usual rules may be modified on the second time around.

 

Other confiscation topics

Other confiscation topics, such as restraint orders, the impact of bankruptcy on confiscation and adjustments for changes in the value of money are covered in further articles in this blog.  A full list of confiscation articles is here.

 

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.)

Supreme Court caps confiscation enforcement

Supreme Court logoThe UK Supreme Court has capped confiscation enforcement in cases where more than one confiscation order covers the same joint benefit.  The result is that the State will be unable to recover in excess of 100% of the benefit jointly obtained.  It is as if the confiscation order created a joint and several liability of the defendant to ‘repay’ the benefit jointly obtained.

The principle is simple – but the practical implications may on occasion be complex.

In fact the Supreme Court judgment on 18 June 2014 in the cases of R v Ahmad & Ahmed and R v Fields & Others [2014] UKSC 36 dealt with another point too – confirming that under the law of confiscation if two or more persons obtain a benefit jointly they each obtain the whole of it.  That point is considered in a separate blog article.

 

The problem

The problem may best be understood by a simple example.  Suppose John and Jim get a couple of guns, walk into a bank together and rob it of £10,000.  Subsequently they are caught and convicted and are made subject to confiscation orders.  In those confiscation orders each of John and Jim will have a benefit of £10,000.  Assuming each of them has sufficient assets it seems that in total they will be required to ‘repay’ £20,000 into court.  So, it appears, the court will recover twice the amount stolen.

The Supreme Court concluded that that could not be right.  Recovering double the amount stolen would be disproportionate.  It would not serve the real aims of the Proceeds of Crime Act 2002 and it would be a violation of the defendants’ rights under Article 1 of the First Protocol to the European Convention on Human Rights.

 

The simple answer

The simple answer is to require each of the confiscation orders against John and Jim to provide that it is not to be enforced to the extent that a sum has been recovered by way of satisfaction of another confiscation order made in relation to the same joint benefit.

This is what the Supreme Court held in its judgment at para [74].

So if the court recovers £5,000 from John it will only recover a further £5,000 from Jim.  Of course that means if the court recovers £10,000 from John then it will recover nothing from Jim, but the Supreme Court said that criminals have to accept that risk of unfairness.

 

Potential complications

Although the principle is clear and the reason for it is straightforward, its application in practice may be more complicated.

Suppose that as well as John and Jim robbing the bank there was a getaway driver, Jack.  Let’s suppose Jack was not caught at the time, but a good while later he is caught and convicted.  If he is subject to confiscation then presumably he cannot be liable to pay anything if the court has already received £10,000 from John and Jim.  So that is a bit of luck for Jack!

Let’s consider some other defendants.  Peter and Phil are fraudsters operating a fake business in which they order goods on credit, sell them and disappear – pocketing the money and never paying their suppliers.  Peter and Phil had a joint bank account for the fake business which received £50,000 from customers over a period of just under one year.

Peter and Phil are caught, convicted of fraudulent trading contrary to s9 Fraud Act 2006 and subject to confiscation.  In the confiscation proceedings each of them has a ‘criminal lifestyle‘ having been convicted of an offence carried on for at least 6 months from which a benefit of at least £5,000 has been obtained, s75 PoCA 2002.

Peter and Phil each have a benefit of £50,000 from the offence of which they have been convicted.  But that is not the end of the story.

The separate personal bank accounts which Peter and Phil have are examined and the statutory criminal lifestyle assumptions are applied.  There are £70,000 unexplained credits in Peter’s bank account and £25,000 unexplained credits in Phil’s bank account.  In consequence the court finds Peter’s total benefit for confiscation purposes to be £120,000 and Phil’s total benefit to be £75,000.

Peter’s available amount is £80,000 and Phil’s is £45,000.  So the court makes confiscation orders against Peter for £80,000 and against Phil for £45,000.

If Peter pays the £80,000 and Phil pays nothing, can enforcement proceedings still be taken against Phil?  If they can, how much can be enforced against Phil?  I do not think the Supreme Court judgment helps me answer these questions because I need to know how much of the £80,000 recovered from Peter relates to the £50,000 benefit jointly obtained and how much of it relates to the other £70,000 assumed benefit of Peter’s.

For example if the £80,000 recovered from Peter includes all the £50,000 jointly obtained benefit of the fraud then the most that can be enforced against Phil is his additional assumed benefit of £25,000.

But, at the other extreme, if the £80,000 recovered from Peter comprises £70,000 re his additional assumed benefit and only £10,000 re the jointly obtained benefit then it would appear that the whole £45,000 can be enforced against Phil (because he still has unrecovered amounts of £40,000 joint benefit and £25,000 additional assumed benefit).

Looking at this another way, if we make a presumption that in each case the first £50,000 of the amounts ordered to be paid by Peter and Phil related specifically to the jointly obtained benefit then the £80,000 paid by Peter has repaid all of the jointly obtained benefit and so (arguably) there can be no enforcement action against Phil.  But that would seem to be a nonsensical outcome.

 

Default sentences

We also need to consider the implications for default sentences.

Going back to John and Jim.  They each had a benefit of £10,000 from the bank robbery.  Let’s assume the confiscation orders against each of them specified a default sentence of 6 months.  If the court recovers £5,000 from John – so it can then only enforce a maximum of £5,000 against Jim – does that result in a corresponding reduction in Jim’s default sentence if he fails to pay?

My guess is that Jim will indeed have his default sentence effectively reduced.  But the Supreme Court judgment does not provide the answer.

Presumably Jack, the getaway driver, cannot be made to serve any default sentence if the court has already recovered the £10,000 from John and Jim.  And what about Phil the fraudster – what is the position regarding his default sentence?

 

In conclusion

It seems to me that in solving one problem the Supreme Court have risked creating further problems in relation to the enforcement of confiscation orders.

If it were decided that any ambiguity should be resolved in favour of the defendants then (i) all recoveries from any defendant should be applied against his benefit jointly obtained in priority to his other benefit, and (ii) each defendant’s default sentence ought to be reduced pro-rata when the amount enforceable against him reduces (whether this arises as a result of a recovery from him or as a result of a recovery from another person relating to benefit obtained jointly with him).

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.)

UK Supreme Court rules on benefit obtained jointly

Supreme Court logoThe UK Supreme Court has finally and firmly ruled out apportionment of benefit obtained jointly in its judgment on 18 June 2014 in the cases of R v Ahmad & Ahmed and R v Fields & Others [2014] UKSC 36.

The Supreme Court confirmed that where benefit is jointly obtained by more than one defendant then each defendant obtains the whole of the benefit obtained jointly, for the purpose of confiscation proceedings.

 

Benefit “obtained”

Benefit arises where a person “obtains” an asset or evades a liability as a result of or in connection with criminal conduct, see s76 Proceeds of Crime Act 2002.  But the Supreme Court points out, in para [42] of Ahmad, whilst a criminal may sometimes become the owner of property obtained through crime, in many cases he does not do so.  When a person “obtains” a chattel, money, a credit balance or land through criminal dishonesty, he does not acquire title to, or ownership of, the item in question, although he does acquire control over it.

As was pointed out by Lord Walker and Hughes LJ in Waya [2012] UKSC 51, para [68], a person who dishonestly obtains property has “at most a possessory interest good against third parties, and thus of no significant value”.

 

Contrasting “obtaining” and “ownership”

The Supreme Court considered that cases under the 2002 Act involve “obtaining” not “ownership”, and, even if they did involve ownership, the Court were doubtful whether that ownership would be technically joint, para [55].

In paras [60] to [62] of Ahmad the Supreme Court set out their thinking in rejecting arguments for apportionment of benefit.  The argument for apportioned valuation is that s79(3) requires the valuation of the property obtained to take into account the interests of accomplices.  This argument misunderstands the purpose and effect of s79(3) said the Supreme Court.  A defendant who steals property or obtains it by deception does not acquire ownership of that property.  Likewise if two defendants jointly misappropriate property, neither of them obtains a legal interest in it and neither has an “interest” for the purpose of s79(3).  In relation to each of them, the value obtained is the value of what they have taken, which is the market value of the misappropriated property.  Thus, once a defendant has obtained the property, whether solely or jointly, that market value is the value of what he has obtained.

The “interests” of a defendant’s co-conspirators are not to be taken into account when valuing the property for the purpose of assessing the value of the property which the defendant “obtained”.  Furthermore when one is valuing the property which a conspirator, including a defendant, has “obtained”, one is not normally valuing an “interest” at all.

 

Whether benefit was obtained jointly

However the Supreme Court also confirmed, by references at paras [41] and [46] to [51], that Crown Courts should not be too quick to conclude that benefit has been jointly obtained when there is evidence which suggests that it may not have been.  Judges in confiscation proceedings, said the Supreme Court, should be ready to investigate and make findings as to whether there were separate obtainings.

David

P. S.  A separate blog article “Supreme Court caps confiscation enforcement” deals with the cap on enforcement of confiscation orders which was also dealt with in the UK Supreme Court judgment in R v Ahmad & Ahmed and R v Fields & Others [2014] UKSC 36.

(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.)