Tag Archives: drug trafficking act 1994

Benefit in confiscation: gross receipts or profit?

Antique coin copyright David Winch 2014For many years lawyers acting in confiscation cases on behalf of convicted defendants have sought to limit ‘benefit’ for confiscation purposes to the ‘true benefit’ or ‘profit’ arising from the criminal activity – and for just as many years lawyers acting for the prosecution have sought to argue that the ‘benefit’ is the gross amount received. This article traces the development of this argument through the history of the various different Acts of Parliament which have provided for confiscation and right up to the present.

 

Drug Trafficking Offences Act 1986

One of the earliest cases to focus on the issue of gross receipts or profits in confiscation was R v Smith (Ian) [1989] 1 WLR 765. This was a drug related confiscation under the provisions of the Drug Trafficking Offences Act 1986. The defendant’s counsel argued that the benefit should reflect only the profit derived from drug trafficking. The Court of Appeal countered, “it seems to us that the section is deliberately worded so as to avoid the necessity, which the appellant’s construction of the section would involve, of having to carry out an accountancy exercise, which would be quite impossible in the circumstances of this case”.

It is true that the wording of the relevant Act referred to “any payments or other rewards received by a person . . . in connection with drug trafficking carried on by him or another”. It is difficult to see how these words could be considered to refer to the profit from drug trafficking rather than the gross amounts received.

 

Drug Trafficking Act 1994

But the Smith case set the tone for many subsequent confiscation cases. So, for example, in the case of R v Banks [1996] EWCA Crim 1799, a drugs case based on the confiscation provisions of the Drug Trafficking Act 1994, the Court of Appeal reaffirmed the decision in Smith. Again it may be relevant that the 1994 Act had repeated the wording of the 1986 Act with regard to “payments or other rewards received”.

 

Criminal Justice Act 1988

Away from drug offences, confiscation had been introduced more generally by the Criminal Justice Act 1988. The provisions of that Act were consider by the House of Lords in R v (David Cadman) Smith [2001] UKHL 68. This case concerned evasion of duty on the import of cigarettes. In that respect issues of what had actually been received were sidelined, since the benefit for confiscation purposes was held to be the duty which had not been paid – rather than any monies which had actually been received.

But the House of Lords took the opportunity to refer with approval to the 1989 judgment in Smith – indicating that legislators had “adopted a similar approach” in relation to drug related and non-drug related confiscations, notwithstanding the different form of words used in the 1988 Act.

 

Proceeds of Crime Act 2002

Some years later, in the case of CPS Nottinghamshire v Rose [2008] EWCA Crim 239, the Court of Appeal gave detailed consideration to the separate strands of confiscation legislation in respect of drug offences and non-drug offences, and the newer legislation in the Proceeds of Crime Act 2002 dealing with confiscation in relation to all types of offences.

Whilst the Court of Appeal did not consider that when drafting PoCA 2002 the legislators had chosen to adopt the confiscation provisions from one branch of earlier statute law rather than another, it did consider that “it can safely be assumed that Parliament did not intend to weaken the application of the confiscation regime (or regimes) when bringing the existing provisions within a single framework”.

 

Confiscation and business activities

The Court of Appeal decision in the case of R v Scragg [2006] EWCA Crim 2916 had dealt with confiscation in relation to a (relatively) legitimate business. Mr Scragg bought and sold motor cars. But Mr Scragg was dishonest and he was convicted of ‘fraudulent trading’ contrary to s458 Companies Act 1985. In the confiscation proceedings which followed under the Proceeds of Crime Act 2002 the question arose, “where a defendant obtains by deception a vehicle valued at £10,000 and sells it for £8,000, how is his benefit to be quantified?”.

It was not suggested that only Mr Scragg’s profit was his benefit – rather the issue was whether his benefit in relation to that purchase and sale would be £10,000 or £18,000. The Court of Appeal found his benefit to be limited to the greater of the purchase price and the sale price in respect of each vehicle (so the benefit would be £10,000 in respect of the car in this example).

 

Gross receipts

But one needs no imagination to see that the implications of confiscation for a business could be harsh indeed. This is graphically illustrated by the decision in Del Basso & Goodwin v R [2010] EWCA Crim 1119 which concerned a business offering long term car parking on land not far from Stansted Airport. The business was a legitimate one except that it was carried on in contravention of an enforcement notice stemming from an absence of any planning permission for the land in question to be put to that use.

The confiscation order in that case was based on the gross receipts of the business – not on the profits arising. In arriving at that conclusion the Court of Appeal referred to the House of Lords decision in R v May [2008] UKHL 28 in which, when summarising the key features of confiscation their Lordships had said, “the benefit gained is the total value of the property or advantage obtained, not the defendant’s net profit after deduction of expenses”.

In the case of R v Waya [2012] UKSC 51 the Supreme Court, consistent with May, had noted that, “a legitimate, and proportionate, confiscation order may . . . require a defendant to pay the whole of a sum which he has obtained by crime without enabling him to set off expenses of the crime”.

 

Accounting exercises unwelcome

More recently in the case of R v Harvey [2013] EWCA Crim 1104 the Court of Appeal upheld a confiscation order based on a percentage of all gross receipts of a business notwithstanding the fact that those gross receipts included some demonstrably legitimate sums and Value Added Tax on invoiced sales, which had been properly accounted for to HM Revenue & Customs. The court commented that, “it is repugnant and contrary to the principles stated in May paragraph 48 and Waya paragraph 26 to carry out an accounting exercise in respect of those monies” obtained as a result of criminal conduct.

From this history it might appear that courts in England & Wales have taken a consistent, and harsh, line that confiscation orders are to be made on the basis of the gross amounts obtained as a result of, or in connection with, crime.

 

A softer line?

But there is an alternative and more nuanced interpretation.

In the case of Waya the Supreme Court acknowledged that there may in some circumstances be a danger of a disproportionate outcome which, “will have to be resolved case by case as the need arises. Such a case might include, for example, the defendant who, by deception, induces someone else to trade with him in a manner otherwise lawful, and who gives full value for goods or services obtained. He ought no doubt to be punished and, depending on the harm done and the culpability demonstrated, maybe severely, but whether a confiscation order is proportionate for any sum beyond profit made may need careful consideration”.

 

Confiscation and profits

Perhaps illustrating that approach, the Court of Appeal in R v Sale [2013] EWCA Crim 1306 allowed an appeal against a confiscation order based on the total receipts generated from contracts obtained illegally and substituted an order based on the gross profits arising from those contracts, noting that, “it would have seemed to us proportionate to limit the confiscation order to the profit made”.

In that case the court would also have wished to reflect in the confiscation order, “the pecuniary advantage gained by obtaining market share, excluding competitors, and saving on the costs of preparing proper tenders” but it had no information enabling it to uplift the confiscation order to reflect this aspect of the “true benefit” obtained by the defendant.

 

True benefit

But, arguably at least, the cases of Waya and Sale have opened the door for defendants in future confiscation proceedings in some cases to ask Crown Courts to restrict the confiscation order to be made against them to the ‘true benefit’ obtained from their criminal conduct rather than the gross amounts obtained, in order to arrive at a confiscation order which is proportionate and compliant with Article 1 of the First Protocol to the European Convention on Human Rights.

 

A fuzzy line

It might be said however that the effect of recent decisions has been to create some uncertainty. On first sight it seems difficult to reconcile the full-bloodied and harsh outcome in Harvey with the more generous approach adopted in Sale in circumstances where both cases related to essentially legitimate business activities tainted by an illegitimate ingredient. It will be interesting to see how these types of cases are dealt with in future.

David

 

UPDATE:  Since this article was written the Court of Appeal has dealt with the case of R v King [2014] EWCA Crim 621.  It was argued on behalf of the defendant, on appeal, that following the logic in Sale the defendant’s benefit should have been based on his profit from trading in used cars rather than his gross receipts.  The selling of used cars was not of itself criminal activity, it was argued.  Mr King’s offence was in purporting to act as a private individual rather than as a motor trader when selling 58 cars (and thereby attempting to sidestep consumer protection legislation).  However, with one exception, the purchasers had apparently been satisfied with the cars they had purchased from him.  His appeal was dismissed.  The Court of Appeal found that Mr King’s benefit was the gross amount received and that “this business was founded on illegality”.

It may be considered however that in Sale, since the contracts in question were obtained by illegal bribes, it might equally have been said that the gross receipts were “founded on illegality”.  To the writer it remains far from clear in which circumstances the court will consider it appropriate to restrict the amount of the confiscation order to the profit arising.  There appears to be no hard and fast line nor a single determinative factor and, as the Court of Appeal noted at paragraph [32] of King, “cases differ to a great extent”.

 

FURTHER UPDATE:  See my later article Confiscation & legitimate businesses for further discussion of this topic.

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