Tag Archives: forensic accountant

Confiscation and Trading Standards offences

Cumbria Trading Standards officerTrading standards officers these days deal with a wide range of offences.  Years ago trading standards work centred on checking that retailers were using correct weights and measures.  That is still an element of the work, but trading standards officers today also deal with scams, frauds, dishonest overcharging, trade mark and intellectual property offences and transgressions of the Consumer Protection from Unfair Trading Regulations 2008 and other legislation.

Consumer protection

The essence of trading standards work is the protection of consumers.  So it is not surprising that in criminal prosecutions trading standards departments will focus on the loss to the consumer.  That includes losses which the offender intended but failed, for one reason or another, to bring about.

For sentencing purposes it is unquestionably correct for the court to have regard to both the actual and the intended losses to consumers.

But a different approach is required in confiscation.

Confiscation

It should not be overlooked that the principal objective of confiscation is to deprive a wrongdoer of the financial benefit obtained by him from his criminal conduct.  Self-evidently benefit which the convicted defendant had intended to obtain but did not, cannot be the subject of a confiscation order.

But equally importantly, the focus of a confiscation order is on the benefit obtained by the convicted defendant – not on the loss suffered by the consumer.  As it was put succinctly in the case of R v Reynolds & Others [2017] EWCA Crim 1455 at para [58(vi)] “the amount lost by the loser is generally irrelevant”.

But how is the benefit to be established for the purposes of the confiscation provisions of the Proceeds of Crime Act 2002?

Benefit

The first step has to be the correct identification of the convicted defendant.  This is particularly important where there is more than one defendant (where it is necessary to determine if each element of benefit was obtained singly by one defendant or jointly by more than one) and where a limited company is involved (where it may be necessary to consider whether the corporate veil should be pierced or to differentiate between benefit obtained by the company and benefit obtained by a director or employee).

This may involve careful consideration of matters of fact and issues of law.

Of course when there is more than one convicted defendant quite separate s16 statements are required for each defendant.

The next step is careful consideration of the precise offence(s) of which the defendant has been convicted and – if possible ‘criminal lifestyle’ is in issue – the period of time over which each offence occurred, and the number of offences of which this defendant has been convicted.

It is sometimes the case that a defendant will be prosecuted for a number of individual offences but the trading standards officers regard these specific charges as merely representative of a more widely operated illegal method of business.

In assessing the benefit of ‘particular criminal conduct’ the court will have regard only to matters which have been the subject of a charge which has resulted in conviction (and other offences taken into consideration in sentencing).

Where the offences do not appear in Schedule 2 PoCA 2002 and the aggregate benefit obtained by a convicted defendant is less than £5,000 (in England and Wales) then that defendant will not be deemed to have a ‘criminal lifestyle’ and the statutory assumptions of s10 cannot be employed.

When quantifying the benefit obtained by a convicted defendant it may, depending upon the circumstances, be appropriate to use the amount of the his profits (i.e. net proceeds), permitting him to deduct the expenses incurred in supplying the goods or services in question.

It may also be necessary to reduce the amount of benefit in respect of VAT charged to the consumers and any amounts refunded to them.

For all these reasons the benefit obtained by the convicted defendant may be very much less than the losses suffered by consumers as a result of the criminal conduct in which he engaged, or even the amount referred to by the judge when sentencing him.

So what are the key points to remember?

Key points

For the prosecution, great care needs to be taken at the charging stage regarding who to charge (and, for example, whether to charge a limited company as well as charging a director), what offence(s) to charge, and how many charges to bring.

For the defence, it is important to challenge the s16 statement appropriately having regard to applicable statute and case law and the relevant facts.

In many trading standards cases it will be useful for the defence to instruct a forensic accountant to critically review the prosecution s16 statement.

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.)

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.)

A confiscation case study – the career fraudster

Books - copyright David Winch 2014On 16 June 2014 the Court of Appeal in London heard the appeal of Mr Sam Ernest against a confiscation order in the sum of £308,380 made against him at Kingston-upon-Thames Crown Court.  The Appeal Court judgment R v Ernest [2014] EWCA Crim 1312 makes interesting reading.

Mr Ernest purported to run a business as an events organiser.  He would claim to have contacts from whom he could obtain sought-after tickets to popular high profile events, such as Wimbledon, the London Olympics, rock concerts or film festivals, in return for money.

Mr Ernest sometimes provided the tickets for which he had been paid, but often he would not.  When tickets were not provided he would usually promise refunds – on some occasions refunds were given, but on others they were not.

 

The victims

His victims were in the main either wealthy people or organisations who could afford to pay substantial sums of money for prestige events, or men whom he had befriended or women with whom he entered into relationships.

One woman with whom he was having a relationship got a party of 18 people together, some from the USA, to attend events at the London Olympics.  She paid almost £4,000 to Mr Ernest.  He continued to promise that the tickets would arrive right up until after her friends had arrived in the UK.

In total Mr Ernest defrauded his victims of over £48,000.

 

The police investigation

Mr Ernest’s activities had first been reported to the police in 2009, but they took no action at that stage.  It was not until 2012, when a special team of police officers were investigating fraud associated with tickets for the London Olympics, that attention was focused on his activities.

On discovering that the police wished to speak to him, Mr Ernest prevaricated and would not agree to attend for interview.  No doubt this was in part because he was a United States citizen who had entered the UK on a six month tourist visa in 2005 and was an illegal over-stayer. His passport had expired in 2010.

However in December 2012 Mr Ernest pleaded guilty to 17 counts of fraud and was sentenced to 4 years imprisonment.  Confiscation proceedings followed.

 

The confiscation proceedings

Mr Ernest was subject to confiscation proceedings on the basis that he had a ‘criminal lifestyle‘ having been convicted in the same proceedings of more than 3 offences from which he had obtained a benefit and had, in aggregate, obtained a benefit of at least £5,000, s75 Proceeds of Crime Act 2002.

The Appeal Court judgment does not, of course, give a full history of the confiscation proceedings.  We do not know what was in the prosecution’s s16 statement or in Mr Ernest’s response.  We do know, however, that the confiscation went to a full hearing in the Crown Court which heard evidence from a Detective Constable Knowles and from Mr Ernest.

 

The prosecution assertions

DC Knowles referred to bank accounts held by a Ms Barbara Howell which had apparently been used by Mr Ernest (and by Ms Howell for legitimate purposes).  There was also a bank account in the name of J Bailey Morgan which apparently Mr Ernest controlled.  DC Knowles considered the movements on these bank accounts since the ‘relevant day’, which it was agreed was 29 August 2006 (six years prior to the date on which Mr Ernest had been charged).

DC Knowles calculated the amount of money in these accounts paid in by known victims together with all of the unexplained credits to the accounts, that is all the monies deposited during the relevant period other than those which represented Ms Howell’s legitimate earnings and funds. This figure came to £209,980. This figure included sums specifically identified as being monies paid into that account by persons identified as victims of Mr Ernest’s activities.

The prosecution invited the court to assume all these sums credited to the various bank accounts to be benefit of Mr Ernest’s general criminal conduct pursuant to s10(2).  Presumably to avoid risk of double counting the prosecution did not seek to assert, as benefit of particular criminal conduct, any additional benefit of the 17 offences of which Mr Ernest had been convicted.

However the prosecution did assert that a further assumed benefit arose, under s10(4), in respect of Mr Ernest’s day to day living expenses over the period since the ‘relevant day’.  These were estimated at £16,400 per year for 6 years, so £98,400 in total.  The prosecution accepted that to some extent Mr Ernest had been financially supported over this period by a succession of girlfriends but contended that, even so, he would have incurred this £98,400 expenditure himself.

In consequence, the prosecution’s total benefit figure was £308,380.  The prosecution apparently did not accept that Mr Ernest’s ‘available amount’ would be less than his benefit.

 

The defence evidence

Mr Ernest asserted that on at least some occasions he had supplied tickets for which he had been paid and on other occasions he had made refunds to customers.  So it would not be correct, in his view, to treat the entirety of the sums banked as benefit.  He also asserted that he had no assets available and no hidden assets.

However the defence produced no books and records of the business and no report of a forensic accountant, nor did the defence produce documentary evidence of Mr Ernest’s current ‘available amount’.  The defence relied upon the oral evidence of Mr Ernest.

 

The judgment in the Crown Court

The Crown Court judge entirely rejected the oral evidence of Mr Ernest.  He was, the judge concluded, a “career fraudster” who had used the bank accounts of others and had produced no documents in support of his oral evidence.  The judge concluded that he was a dishonest man who had lied repeatedly under oath.

The judge accepted the benefit figure of £308,380 asserted by the prosecution and found that the defendant had not discharged the burden upon him to show that his ‘available amount’ was less than his benefit.

Accordingly he ordered Mr Ernest to pay £308,380 within 6 months, with a default sentence of 3 years consecutive to the prison term he was already serving.

 

The Court of Appeal judgment

On appeal it was argued that the judge should have reduced the benefit figure to reflect legitimate business activities conducted by Mr Ernest where he had provided tickets or had made refunds.  Furthermore Mr Ernest had incurred expenditures in obtaining the tickets which he had supplied.

The Court of Appeal would have none of this.  It noted the absence of evidence in support of the asserted legitimate activities and commented that “the fact that some unidentified proportion of that money might conceivably be referable to some specific (but unidentified) business transaction does not render the making of the assumption incorrect”.

The Court was not prepared to make any reduction in the benefit figure in respect of expenses which Mr Ernest might have incurred.  It regarded the occasional provision of tickets by Mr Ernest as a means of furthering his fraudulent purpose by luring customers to do more business with him.

The £209,980 assumed benefit arising from credits to the bank accounts was therefore upheld.

But the Court of Appeal did accept that the bank statements showed expenditures by Mr Ernest on his living costs.  These expenditures had therefore been met from monies already included in assumed benefit.  This undermined the prosecution’s assertion that Mr Ernest would have incurred £98,400 of living expenditure funded entirely by additional assumed criminal conduct.  There was no other suitable figure before the court, so this head of benefit was omitted on appeal.

In consequence the benefit figure was reduced to £209,980.  The court ordered Mr Ernest to pay this lower figure and reduced the default sentence to 2 years 6 months.

 

Commentary

One doesn’t know whether in this case the defence had instructed a forensic accountant or not.  It is possible that a forensic accountant’s report had been obtained but had not been disclosed as part of the defence evidence (perhaps for good reason!).

However it should come as no surprise to find a Crown Court judge entirely rejecting the unsupported oral evidence of a convicted defendant.  Possibly if a forensic accountant had given evidence in the Crown Court confiscation hearing the judge might have accepted that the defendant, having incurred the expenses shown on the bank accounts, would not have had an ‘available amount’ equal to the total of his assumed benefit.  Such a conclusion would have been consistent with the Court of Appeal decision in McIntosh & Marsden v R [2011] EWCA Crim 1501.

In the event this defendant seems destined to serve his default sentence in due course.

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 – challenging the prosecutor’s s16 statement

Legal wig copyright David Winch 2014How should the defence challenge the prosecutor’s assertions concerning the defendant’s benefit and available amount?

The prosecutor’s s16 Proceeds of Crime Act 2002 statement is a key document in confiscation proceedings.  In preparing the s16 statement the prosecution will have considered the offence(s) of which the defendant has been convicted; the evidence at trial (or readied for trial where there has been a guilty plea) and other information collected during investigation of the offence; information provided by the defendant in any statement under s18 or in response to any requirement in a restraint order under s41(7); information obtained from banks and others (perhaps by way of a production order under s345); and the results of the prosecution’s own investigations – probably undertaken by an accredited financial investigator.

 

Variety

Prosecution s16 statements are prepared in a wide variety of circumstances.  No two s16 statements will be the same – though they all have some similarities.  In any event the s16 statement will need careful study.  Typically the body of the s16 statement will run to between 10 and 30 pages with supporting appendices which could run to several hundred pages, and may include spreadsheets.

The s16 statement is likely to include some background narrative which sets the confiscation proceedings into context, including a description of the court proceedings resulting in the conviction and any restraint order which has been obtained.   There may also be information about the defendant (date of birth, previous convictions, etc) and information about his known legitimate income.

The defence legal team will wish to challenge any incorrect factual assertions in that narrative – but this narrative background is not at the heart of the s16 statement.

 

Financial investigations and ‘benefit’

The s16 statement will then move on, probably providing some details about the financial investigations undertaken by the prosecution and their findings about the defendant’s financial affairs.  That leads to the prosecution assertions about the defendant’s ‘benefit’ for confiscation purposes.

In this context ‘benefit’ has a special meaning based on the statutory provisions – it does not refer to what might be the defendant’s benefit in the everyday sense of the word.

 

‘Benefit’ of the offences

The first element of the defendant’s ‘benefit’ which the s16 statement will deal with is the ‘benefit’ of the offences of which the defendant has been convicted, sometimes referred to as the ‘direct benefit’ or the ‘benefit of particular criminal conduct’.  Here the prosecution are considering what the defendant ‘obtained’ as a result of the offences of which he has been convicted in the proceedings which triggered the confiscation.

This may be very easy to establish.  If the defendant has been convicted of, say, stealing a cheque for £10,000 payable to someone else and paying it into his own bank account then the ‘benefit’ of that offence is £10,000 (possibly uplifted for changes in the Retail Prices Index since the date of the theft).

But in many cases the ‘benefit’ of the offence will be less clear cut.  For example there may be theft of cash where there are inadequate records to quantity the amount of cash stolen, or supply of controlled drugs where there are no records of the monies received for the drugs, or the defendant may have been a member of a conspiracy (meaning it will be necessary to ascertain the amount ‘obtained’ by this particular defendant in his role in that conspiracy).

In rare cases the ‘benefit’ may be based on the profit deriving from fundamentally legitimate business operations which have been tainted by criminality, as in the case of R v Sale.

The ‘benefit’ asserted by the prosecution may also include assets which need to be valued, such as controlled drugs seized at the time of the defendant’s arrest.

In other cases the ‘benefit’ may be based on a ‘pecuniary advantage’ arising from the evasion of a liability – for example evasion of income tax, VAT or duties on goods.

In a minority of cases the prosecution may not be asserting that the defendant has obtained any benefit at all from the offences of which he has been convicted.

 

Assumed ‘benefit’

If the prosecution assert that the defendant has a ‘criminal lifestyle’ then the s16 statement will also deal with additional assumed ‘benefit’ which arises under the statutory assumptions of s10 PoCA 2002.  The statutory assumptions apply to the defendant’s receipts and expenditures since the ‘relevant day’ (which is usually 6 years prior to the date on which the defendant was charged with the offences of which he has been convicted) and to any assets held by the defendant since the date of his conviction.

Typically the prosecution will have obtained bank and credit card statements for all known bank and credit card accounts held by the defendant and will have reviewed all deposits to those accounts since the ‘relevant day’.  They may also have information about the defendant’s expenditures since the ‘relevant day’ – for example as a result of examining documents seized from searches of the defendant’s premises or considering information provided by the defendant in recorded interviews or in his s18 statement.  In addition the prosecution may have obtained Land Registry records or solicitors’ conveyancing files regarding property purchases, and mortgage account statements.

These same sources of information may be the basis for assertions of assumed ‘benefit’ in respect of any assets held by the defendant after the date of his conviction.

 

‘Available amount’

Finally the prosecutor’s s16 statement will deal with the defendant’s ‘available amount’.  Again this is a term defined by statute which does not mean simply the amount which the defendant has available to meet the confiscation order.  It refers to the current market value of the defendant’s assets, less any mortgage or other liability which is secured on those assets, plus the current value of any ‘tainted gift’ which the defendant has made.

However many of the defendant’s liabilities, such as unsecured borrowings and unpaid bills, will be ignored when computing the defendant’s ‘available amount’.

 

Default sentence

The s16 statement may conclude with an indication of the range of default sentences applicable where a confiscation order remains unpaid.

 

Challenging the s16 statement

The defence will wish to scrutinise in detail the prosecution assertions in relation to both the defendant’s ‘benefit’ and his ‘available amount’.  The focus of the defence challenge to the prosecutor’s figures will depend very much on the details within the s16 statement.

In relation to the ‘benefit’ of the offences of which the defendant has been convicted the defence will wish to consider the existence of the asserted ‘benefit’; whether it has been ‘obtained’ by the defendant himself, solely or jointly; and whether it is correctly valued.

Regarding the assumed ‘benefit’ the defence will wish to consider whether the criteria for a ‘criminal lifestyle’ have been met; whether the ‘relevant day’ has been correctly identified; the existence of the asserted receipts, expenditures and assets of the defendant himself (which may involve careful consideration of bank accounts and assets held in joint names and consideration of ‘lifting the corporate veil’); any evidence of the legitimate nature of those receipts and legitimate funds used to finance those expenditures and the purchase of those assets; any overlap or double counting between the various heads of asserted ‘benefit’ including, for example, where monies have been withdrawn from one of the defendant’s bank accounts and paid in to another; and the valuation of the various items reflected in the assumed ‘benefit’.

In relation to the asserted ‘available amount’ the defence will again consider the existence of those assets; the ownership of them by the defendant himself so as to exclude any interest of third parties; the current market value of those assets; and the amount of any liabilities secured on those assets.

Particular difficulties may arise where the ‘available amount’ is said to include any ‘tainted gifts’ or ‘hidden assets’.

Ultimately the defence will also wish to consider whether the use of the statutory assumptions involves a ‘serious risk of injustice’ or the confiscation order sought by the prosecution would be disproportionate and so infringe the defendant’s human rights.

All of these matters will feed in to the drafting of a s17 statement to be signed by the defendant and filed in response to the prosecution’s s16 statement, and the defence preparation for the confiscation hearing in the Crown Court.

 

Use of a forensic accountant

A forensic accountant may be able to assist the defence in challenging a number of aspects of the s16 statement.  This is likely to be particularly important in cases involving ‘assumed benefit’ under the ‘criminal lifestyle’ assumptions.  A forensic accountant may be better placed than the solicitor to undertake detailed examination of the figures and financial documents underlying the prosecution’s s16 assertions.

The cost of a forensic accountant’s report will normally be met by criminal legal aid under prior authority arrangements.

As a first step it is advisable to ask the forensic accountant to provide a fee quotation (to be forwarded to the Legal Aid Agency with an application for prior authority).  In order to prepare his quotation the forensic accountant should ideally be provided with a copy of the body of the prosecutor’s s16 statement, an approximate page count of the appendices to that statement, a copy of the defendant’s s18 statement, any advice which may have been obtained from counsel in relation to the s16 statement, and a note of the court timetable for the submission of the defendant’s response in the form of a s17 statement.

Where the appendices to the s16 statement include spreadsheets it is usual to ask the prosecution to supply electronic copies of the Excel spreadsheets (not the PDFs) either on disc or as email attachments.

Once the prior authority has been obtained the forensic accountant’s work can get underway!

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.)

Accountant sentenced to 7 years for cheat & fraud

Legal wig copyright David Winch 2014An accountant has been sentenced to 7 years’ imprisonment for cheating HMRC and defrauding his clients.

Simon Terry Pearce, 48, who held no recognised accountancy qualifications, ran S T Pearce Accountants from offices in St Austell, Cornwall.  He was convicted on 26 charges after a ten week trial at Truro Crown Court.  The prosecution evidence assembled by HM Revenue & Customs ran to approaching 40,000 pages and, in total, 51 prosecution witnesses were called to give evidence.

 

The allegations

It was alleged that over a period of several years Mr Pearce had operated his practice dishonestly by preparing tax returns for his clients which overstated their business expenses and the tax which they had suffered under the Construction Industry Scheme (CIS tax), overclaimed capital allowances particularly in relation to cars and – in relation to Capital Gains Tax – understated the sales proceeds of properties.  In many cases Mr Pearce had revised previous years’ tax returns for new clients.  The result of all this was that his clients’ tax liabilities were dishonestly understated and tax refunds were generated falsely.

It was further alleged that Mr Pearce had forged clients’ signatures and dishonestly abused HMRC’s Structured Action Request online system for taxpayers and their authorised agents with the result that clients’ tax refunds were paid by HMRC into his bank account rather than to the clients.  Whilst in some cases these refunds were forwarded to clients fully and reasonably promptly, in many cases refund payments were delayed (sometimes by a period of years), or paid on only in part, or not paid on at all.

Finally it was alleged that in relation to Mr Pearce’s own tax returns he had dishonestly understated his fee income and that he had failed to register his business for VAT at the appropriate time.

 

Mr Pearce’s defence

Mr Pearce said that he had not been dishonest. The tax returns which he had prepared for clients reflected the information which clients had provided to himself and his staff at interviews with them.  He had included fair estimates of expenditures for which the clients had no documentary evidence, particularly in relation to travelling and subsistence.  He had misunderstood tax law in relation to motor cars, believing that 100% first year allowances or annual investment allowances were available, and the abolition of CGT taper relief in 2008 had not come to his attention.

He had arranged for clients’ tax refunds to be paid to his bank account when fees were due to him.  His failure to pass the balance of refunds on to clients was as a result of inadequate and misleading information received from HMRC, poor record keeping in his office and pressure of work resulting from having taken on too many clients.  He had fobbed off clients who had enquired about their refunds and had given them excuses and explanations for delays which were untrue.  He accepted that he had used HMRC’s online Structured Action Request facility to arrange refunds to be paid to him but believed he was entitled to do so.

He asserted that clients’ income tax returns were only submitted to HMRC after clients knew what was on them, albeit that the clients may have received and signed paper copies of the returns only after they had been filed online with HMRC.

 

My role

I was instructed by Mr Pearce’s solicitors and counsel to advise them on generally accepted conduct by accountants in relation to the preparation of accounts and tax returns for clients, relevant tax law and practice, the proper treatment of clients’ tax refunds, and to examine Mr Pearce’s own business records and those of certain of his clients, together with the associated accounts and tax computations, to advise whether tax liabilities had been understated.

I attended court and advised the defence team throughout the presentation of the prosecution case but I was not myself called to give evidence.  The only witness called by the defence was Mr Pearce himself.

 

The clients’ evidence

The clients typically gave evidence to the effect that they relied upon and trusted Mr Pearce as their accountant to deal properly with their accounts and tax affairs.  In many cases they denied providing Mr Pearce with information which he claimed to have received from them.

They did not themselves understand accounts or tax and believed that their tax returns were being correctly prepared and that they were entitled to any refunds which they had received.  They were devastated when they learned that they were required to repay substantial sums to HMRC.

 

The outcome

The jury found Mr Pearce guilty on 26 of the 30 counts which he faced.  Clearly the jury considered him to have been thoroughly dishonest over a period of years.

 

The lessons to be learned

Mr Pearce frequently received tax refunds on behalf of clients but did not operate a client bank account.  In practice refunds received were swallowed up by business and private expenses leaving Mr Pearce unable to pass on to clients the monies which were due to them.

The firm’s working papers and interview notes in support of figures in the accounts and tax returns were inadequate to demonstrate persuasively which figures were based on information that had been provided by clients and which were based on estimates made by Mr Pearce apparently based on his general knowledge of his clients’ activities – or to refute the allegations that some increases in claimed expenses arose purely from fabrications by Mr Pearce.

In many cases business expenses in accounts and returns had apparently been compiled based only on an examination of paid bills and discussions with clients – and without examination of clients’ bank statements.  In the majority of cases which I examined Balance Sheets had not been prepared.  Had the accountancy work been more thorough then many mis-statements which were made on tax returns, for example from duplication of genuine expenditures, could have been avoided.

Either Mr Pearce’s knowledge of tax law and practice was faulty and out of date in important respects or he was claiming allowances and reliefs for his clients which he knew were not available to them.

 

Overview

This was a very significant prosecution by HMRC, the biggest case ever prosecuted by them in Cornwall, and a major case by any standards.  Few Crown Court trials run to ten weeks or involve over 50 witnesses and few criminal investigations generate approaching 40,000 pages of exhibits.  The prosecution asserted that Mr Pearce had ultimately retained £170,000 in refunds due to his clients and that overall HMRC had lost between £1 million and £2 million as a result of his activities.

I have no doubt that my advice was valuable to the defence in professionally examining the prosecution evidence and ensuring that it was appropriately challenged.  Ultimately the weight of evidence against Mr Pearce was overwhelming and the jury were sure that he had been dishonest.

David

(Note: This article refers to a criminal prosecution in England and Wales. There are a number of additional issues which could be relevant to criminal proceedings in particular cases which it is not possible to deal with in an article such as this. Appropriate professional advice should be sought in each individual case.)

Criminal lifestyle confiscation and output VAT

The Court of Appeal have recently handed down a judgment in the ‘criminal lifestyle’ confiscation case of R v Harvey [2013] EWCA Crim 1104.

This was a case in which I had been instructed by the defendant’s solicitors in the confiscation proceedings in the Crown Court.

 

Background

The defendant was a director and majority shareholder in a limited company engaged in hire of plant and equipment (sometimes with drivers, sometimes just the plant itself).

A number of items of plant used by the company were found to be stolen property and the defendant pleaded guilty to 9 counts of ‘handling’ contrary to s22 Theft Act 1968.  A further 30 counts were left to lie on the file.

The defendant was subject to confiscation under PoCA 2002 on the basis that he had a ‘criminal lifestyle’ and that the veil of incorporation of the company should be pierced.

 

Benefit for confiscation purposes

The prosecution contention initially in a statement under s16 PoCA 2002 was that the entirety of the gross receipts of the company (inclusive of VAT) since the ‘relevant day’ constituted assumed ‘benefit’ of the defendant for the purposes of confiscation.

By the time of the hearing in the Crown Court the prosecution had changed its position.  Whilst it was unable to put a figure on the proportion of company receipts which were derived from criminal conduct, it was significant that the police had inspected 91 items of plant (both large and small) and considered 39 of those items to be stolen property (that is approximately 42.8% on an ‘item count’ basis).

 

The decision in the Crown Court

At Crown Court the judge held that 38% of the company’s gross receipts (inclusive of VAT) since the ‘relevant day’ were to be regarded as ‘benefit’.  Those gross receipts included not just trading income but also receipts from the sale of plant.

This 38% figure was based on the 42.8% on an ‘item count’ basis, reduced to recognise the greater earning power of the (legitimate) larger and more expensive items of plant.  The judge concluded that the defendant had known that all 39 items of plant (not just the 9 items in relation to which he had pleaded guilty to ‘handling’) were stolen property.

The Crown Court judge did not accept that he should be guided by a detailed analysis of a representative sample of company sales invoices over the period since the ‘relevant day’ which appeared to show a much smaller proportion of the company’s income was derived from the stolen plant.  He concluded that the defendant was dishonest and his company records did not reflect the entirety of the transactions of the business and so figures based on company records were not persuasive.

The benefit found by the judge was calculated accordingly at approximately £2.2m (based on the value of the 39 stolen items plus 38% of gross receipts of the company since the ‘relevant day’) and he set a default term of 10 years.

 

The appeal to the Court of Appeal

The defendant appealed on the grounds that:

  1. VAT charged to customers and accounted for to HMRC should be excluded from the gross receipts figure.
  2. Stolen plant had been recovered by the police and returned (sometimes after many years of use) to its rightful owners, but no reduction had been made in the benefit figure to reflect this.
  3. The 38% figure was too high on the facts and, in particular, had been applied to all receipts including demonstrably legitimate income from the sale of legitimately acquired plant.
  4. The default sentence of 10 years was excessive.

The Court of Appeal reduced the default term to 8 years but otherwise upheld the confiscation order in full, dismissing the appeal on each of the first three grounds.

The Court of Appeal took the opportunity to review and comment upon various confiscation cases – some very recent, some older – in the light of the decision of the Supreme Court in R v Waya.  In particular the Court of Appeal opined that the decision in R v Del Basso and Goodwin [2010] EWCA Crim 1119 now “does seem excessively harsh and may arguably be characterised as disproportionate”.

Defendants and accountants may be disappointed to note the Appeal Court’s decision (even after the Waya case) that output VAT charged on the (assumed) illegitimate receipts of a legitimate business is to be regarded as a component of benefit in a ‘criminal lifestyle’ confiscation – even where that output VAT has been properly accounted for and paid over to HMRC.  The Court of Appeal considered that there was nothing in Waya which called into question the manner in which the Court of Appeal in Del Basso dealt with VAT and that therefore Del Basso was binding authority on that point.

But the Court of Appeal in any event approved this approach, commenting, “It would be wrong in principle to carry out an accounting exercise in respect of VAT which [the business] collected through the use of stolen property”.  The total monies paid by customers, including the VAT charged, constituted property obtained by criminal conduct.

[UPDATE:  On 16 December 2015 the UK Supreme Court upheld Mr Harvey’s appeal against this element in the calculation of his benefit for confiscation purposes.  The UKSC held that where VAT has been accounted for to HMRC it would be disproportionate under A1P1 to make a confiscation order calculated on the basis that the VAT, or a sum equivalent, was “obtained” by the defendant for the purposes of PoCA 2002.]

The Court of Appeal’s view must, by implication, be taken to be that they did not consider the confiscation order of £2.2m to be disproportionate in all the circumstances.

David

(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.)

A book-keeper accused of stealing

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

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

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

 

The police

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

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

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

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

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

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

 

The solicitor

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

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

 

Our involvement

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

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

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

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

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

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

 

The outcome

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

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

David

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

(Note: This article relates to a criminal prosecution in England and Wales. There are a large number of additional issues which could be relevant to criminal proceedings in particular cases which it is not possible to deal with in a relatively short article such as this. Appropriate professional advice should be sought in each individual case.)

Mortgage fraud – but by whom?

Police lamp copyright David Winch 2014Ted Kelly was no stranger to the inside of a police station or the Crown Court dock. He had had many brushes with the law, but being charged with financial crime was a new experience.

Ted’s home had been searched by the police more than once in the course of an investigation into serious crimes and the police had found documents concerning a buy-to-let property in Liverpool which Ted owned. A search at the English Land Registry turned up a mortgage from Borset Building Society and enquiries there revealed the mortgage application had been submitted online by a mortgage broker, Adrian Broke.

Attached to the application were two years accounts for the business prepared by Peter Addit & Co

The mortgage application indicated that Ted was a self-employed joiner, trading as Kelly’s Joinery Services. Attached to the application were two years accounts for the business, prepared by Peter Addit & Co – members of a leading professional body of accountants, and signed both by Mr Addit and by Ted.

Ted’s self-employment came as a surprise to the police (who understood him to make his living from less legitimate activities) and, sure enough, a check with HM Revenue & Customs revealed that they had no knowledge of Ted’s self employment either.

 

Gotcha!

“Gotcha!” said DC Lund to himself. To assemble his case DC Lund interviewed Adrian Broke and Peter Addit concerning their dealings with Ted

“Gotcha!” said DC Lund to himself. To assemble his case DC Lund interviewed Adrian Broke and Peter Addit concerning their dealings with Ted. They confirmed that Ted had approached Mr Addit in June 2008 to have accounts prepared – just a simple Profit & Loss Account. Mr Addit had not been instructed to do any tax work for Ted. He assumed Ted wanted the accounts for his bank or was dealing with his tax himself. Ted produced his passport and driving licence (which Mr Addit photocopied) and had handed Mr Addit a list of work done and expenses from which Mr Addit had prepared the P & L account. The fee was less than £200.

The following year Ted had returned with a similar schedule and Mr Addit had produced the 2009 accounts for him then and there, for a similar fee. The net profit each year shown on the accounts was in the region of £40,000. At the June 2009 meeting there had been some discussion of a property purchase and Mr Addit had recommended the services of Mr Broke the mortgage broker (who was also a client of his).

Mr Broke confirmed that in July 2009 Ted had contacted him about obtaining a mortgage to buy a home for himself. He had produced his passport and driving licence (which Mr Broke photocopied) and two years accounts prepared by Mr Addit. Mr Broke had carried out a fact find and then recommended a mortgage from Borset Building Society and some life and critical illness policies as well as property and contents insurance. Ted had accepted these recommendations and Mr Broke had completed the mortgage application online based on the information and accounts Ted had provided.

Armed with these facts DC Lund arrested Ted, interviewed him, and then charged him with fraud by false representation in that he had dishonestly made a false representation to Adrian Broke that the accounts were true, with the intention of obtaining the mortgage advance, contrary to s2 Fraud Act 2006.

 

Ted’s version of events

But Ted’s version of events was very different. He said he had never met Mr Addit, had never instructed him to prepare any accounts, and had never been self employed as a joiner

But Ted’s version of events was very different. He said he had never met Mr Addit, had never instructed him to prepare any accounts, and had never been self employed as a joiner. He had been wanting to buy a property in Liverpool to let out and his cousin had recommended the mortgage broker Mr Broke. Ted went to see Mr Broke. Although Ted had no regular employment Mr Broke had assured him this would be no problem. All that would be needed would be his passport and driving licence. Ted took these to a second meeting with Mr Broke who asked him to sign numerous documents – all of which he signed, without reading, where Mr Broke pointed. Mr Broke also took photocopies of his passport and driving licence.

Shortly afterwards the mortgage came through and Ted was able to purchase the property and let it out to tenants. The rental income more than covered the mortgage payments (which he always paid on time). Ted also found he was paying for some insurances by direct debit, and he cancelled those.

When the matter came to court DC Lund, Mr Broke and Mr Addit were called by the prosecution and gave evidence.

 

Cross-examination

Under cross-examination Mr Broke confirmed that Mr Addit was his accountant, that he and Mr Addit referred clients to each other from time to time (but without any referral fee) and that he knew Ted’s cousin. He also confirmed that as a result of Ted’s property purchase he would receive payments from Borset Building Society, from the conveyancing solicitor whom he had recommended to Ted, and from the insurance companies. Had the mortgage not gone ahead he would have received none of these payments, which he estimated at less than £2,000 in total. But he confirmed the statement he had given to DC Lund.

Mr Addit also confirmed the evidence in the statement he had given DC Lund. But under cross-examination he accepted that he had at first given the police a statement saying Ted had approached him initially for two years accounts to be prepared. That had been based on a mistaken recollection which he had corrected in his second statement. Mr Addit had not asked for, nor seen, any bills or receipts in relation to Ted’s self employment. He had relied on the schedule presented to him by Ted. He had returned the schedule to Ted and not kept a copy. Mr Addit had believed the accounts to be true based on the information supplied to him by Ted.

Mr Addit had recently moved to a new computerised system and had not retained his diaries for 2008 and 2009

Indeed since Ted was no longer a client his files had been destroyed. Mr Addit had not sent Ted an engagement letter. Mr Addit had recently moved to a new computerised system and had not retained his diaries for 2008 and 2009. He had not contacted HM Revenue & Customs in relation to Ted’s self employment as he was not instructed to deal with Ted’s tax affairs.

It transpired that Ted had not paid Mr Addit for the preparation of either the 2008 or the 2009 accounts. In fact Mr Addit had not invoiced Ted for these accounts as he expected Ted to pay without an invoice. The only documentary evidence which Mr Addit held in relation to his dealings with Ted was the photocopies he had of Ted’s passport and driving licence (the same documents which Mr Broke had copied in July 2009).

He accepted that the date on which the 2008 accounts were shown as having been signed in June 2008 was a Sunday. He said the actual date of signing would be within a day or two of that.

The accounts were not prepared for tax purposes. The word “Allowable” which appeared against certain expense headings was on his standard word processing template for such accounts.

He denied however that he had backdated the accounts, or that he had prepared them on the instructions of Mr Broke rather than Ted, or that Mr Broke had paid him anything in connection with Ted’s accounts.

 

The computer files

Immediately after Mr Addit had completed his evidence DC Lund asked him if he would still have on his computer system the Microsoft Word files for the 2008 and 2009 accounts. Mr Addit thought he could have and that he would be able to access them there and then using a Wi-Fi link from the court building.

The Word files for both the 2008 and 2009 accounts showed a ‘creation date’ on the evening before the day on which Mr Broke had filed Ted’s online mortgage application in July 2009

When he did so it was discovered that the Word files for both the 2008 and 2009 accounts showed a ‘creation date’ on the evening before the day on which Mr Broke had filed Ted’s online mortgage application in July 2009. The creation dates were approximately two minutes apart.  These files also each had a later ‘modified date’.  In one case the modified date was approximately two hours later the same evening.

DC Lund passed this information to prosecuting counsel, and then it was passed on to defence counsel and the judge.

Mr Addit was recalled to the witness box and questioned about this. He maintained that in fact the accounts had been prepared earlier and that perhaps what was now being seen were Word files for later copies of the accounts. He denied that the later ‘modified dates’ showed that these were in fact the original working copies of the accounts.

 

No case to answer

That brought the prosecution case to a close. Whilst the jury were excluded defence counsel asked the judge to dismiss the case on the basis that Ted had ‘no case to answer’.

The judge agreed that the trial should be halted and Ted should be acquitted

The judge agreed that the trial should be halted and Ted should be acquitted. The case against him had become so weak and tenuous that the jury could not possibly find that Ted had dishonestly represented to Mr Broke that the accounts prepared by Mr Addit were true – which was the basis on which Ted had been charged.  What’s more there was a danger that the jury might convict Ted because they did NOT believe the prosecution witnesses and that was a possibility the judge was unwilling to countenance.

So, as things turned out, it was not necessary to hear any evidence from the defence witnesses (including myself).  In any event the matters and issues which I had drawn to the attention of the defence team – and which had been set out in an expert witness forensic accountant’s report filed at court in advance of the trial – had largely been aired before the court already by defence counsel in his cross-examination of Mr Addit.

David

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

Criminal lifestyle confiscation – a case study

Brian considered himself unlucky.  Some friends of his had come under police observation.  He had been having a coffee with them in Starbucks in Wolverhampton one morning when the police swooped and arrested everyone, Brian included.

Then the police searched the car in which Brian and some of his friends had driven to Starbucks – finding £24,000 in a bag in the boot.  The police also searched the homes of all the persons arrested.  Brian had had £2,000 worth of cocaine (with an 8% purity) in a kitchen drawer at home, which he had foolishly agreed to look after for a friend.  There was also another £10,000 in cash at Brian’s house and a couple of valuable watches.  The police seized the drugs, the cash, the watches and Brian’s mobile phone.

Brian and the others from Starbucks were charged with a serious drugs conspiracy involving an organised criminal enterprise importing and supplying drugs over a wide region.

But the cash in Brian’s house was not contaminated with drugs and there were no suspicious messages on Brian’s mobile phone.  Although the alleged conspirators had been under observation for some time, Brian had not been observed with any of them prior to that morning at Starbucks.  Brian had no criminal record.

Brian was advised to plead guilty to possession of the cocaine with intent to supply

Brian was advised to plead guilty to possession of the cocaine found in his kitchen with intent to supply and possession of the cash found in the car boot (possession of criminal property).  The serious conspiracy charges against him were dropped.  He was sentenced to 3 years imprisonment.

Confiscation proceedings followed.  Although he had no previous criminal convictions Brian was deemed to have a ‘criminal lifestyle’ for confiscation purposes because he had been convicted of the cocaine offence.

The prosecution had obtained copies of Brian’s bank statements, from the two banks he had accounts with, going back to the ‘relevant day’ (which was 6 years prior to the date on which Brian had been charged) and his tax records from HMRC.  They also had Land Registry records showing the purchase of his home, the price he had paid and the mortgages on it (Brian had taken out a second mortgage because his business was struggling).

A prosecutor’s s16(3) PoCA 2002 statement was prepared which, to Brian’s amazement, showed Brian’s benefit from criminal conduct to be over £500,000 and his available amount to be over £100,000.  Brian told his solicitors that he had, in truth, had no benefit from crime and he was broke.  Now he was faced with a demand for £500,000 with the threat of an additional 5 year default sentence for non-payment.

Attached to the prosecutor’s statement were, amongst other things, spreadsheets listing all the deposits in Brian’s bank accounts since the relevant day (both cash and cheques), a valuation of the two watches of £900 in total, and a calculation of the value his home based on the price he had paid for it some years ago uplifted by a national house prices index.

Brian’s solicitors contacted me for help.  I submitted a fee quotation to them for them to obtain a prior authority from the Legal Services Commission

Brian’s solicitors contacted me for help.  I submitted a fee quotation to them for them to obtain a prior authority from the Legal Services Commission.  I asked them to obtain from the prosecution electronic copies of the spreadsheets of bank credits and to obtain a professional valuation of Brian’s home.  I also asked them to obtain from Brian his explanations of the credits to his bank accounts (with any supporting evidence he could provide) and a letter of authority to enable me to obtain further detailed information from his accountant (who had prepared his tax returns).

Brian had been a self-employed electrician.  It transpired that his accountants had prepared tax returns for him based on limited business records and Brian’s verbal explanations concerning his earnings and expenditures.  They had seen his bank statements for one of his accounts but not the other.  They had not prepared annual Balance Sheets as these were not required for tax purposes.

Brian told his solicitors that not all his earnings had been banked in the account for which he had shown the statements to his accountants, but he had told them of all his earnings (or at least he had given them a fair estimate of them).  He sometimes had to juggle money between the two banks to keep within overdraft limits and have sufficient to pay his mortgage and other direct debits.  So he would take cash out from one bank and put cash in the other.  On these occasions the dates and amounts of cash drawn and deposited would be more or less the same, but the amounts drawn and deposited might not be identical and, although the transactions would be within a few days of each other, they would probably not be on the same day.

Also he had done some work as an electrician for builders who had paid him cash in hand and not bothered to go through the cumbersome CIS (construction industry scheme) tax procedures.  Those builders would probably not want to come forward and give evidence of this in court.

Brian was confident that he could ‘prove’ at least three-quarters of the deposits were legitimate.

Nevertheless Brian confirmed that none of the bank deposits were drug related and he was confident that he could ‘prove’ at least three-quarters of them were legitimate.

The watches seized by the police had belonged to his late father and were of considerable sentimental value.  Brian did not think the watches would have been listed in his father’s probate papers.

I obtained further details from Brian’s accountants, checked the prosecution’s s16(3) statement figures and looked for evidence of deposits in one bank account possibly being linked to withdrawals from another.

I prepared a report bringing together all the defence evidence in relation to benefit and available amount.  The property valuation had shown that Brian’s home was in negative equity – the current value being far below that indicated by the national house prices index used by the prosecution.

When the matter came to be heard I attended the Crown Court ready to give evidence.  However, as is usual in such cases, negotiations got underway that morning with both sides exploring the possibility of reaching an agreement that would avoid a lengthy hearing before the judge.

The Crown were persuaded to considerably reduce their benefit figure

The Crown were persuaded to considerably reduce their benefit figure to recognise that cheque deposits were unlikely to be proceeds of crime and that at least part of the cash was likely to be from Brian’s work as an electrician.  They accepted that there was no evidence of tax evasion as Brian had given his accountants information in addition to the bank statements on the one account.

The Crown also accepted, to a limited extent, that some cash deposits could be cash drawn from the other bank.  As a result Brian’s benefit figure would be reduced to £180,000.

In relation to Brian’s available amount the Crown accepted that there was no equity in Brian’s house and they agreed that Brian’s mother could purchase the watches back (at their expert’s valuation).

Brian accepted, for the purposes of confiscation, that his available amount included the cash seized from the car and from his house (which was already in police possession), the balances in his bank accounts and the market value of the watches and his car.  In total this was nearly £45,000.  This would be the amount Brian would be ordered to pay.

Brian was not happy with the outcome – but he did recognise that things could have been a great deal worse!

A brief hearing followed in which the judge was invited to make a confiscation order in the agreed figures.  Brian was given 6 months to pay (although in practice he signed over the cash already held by the police at the conclusion of the hearing, meaning there was only £11,000 left to pay) with a 15 month sentence in default (although in practice that would be reduced pro-rata to reflect the £34,000 already effectively paid).

Brian was not happy with the outcome – but he did recognise that things could have been a great deal worse!

David

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

A club treasurer called to account for the money

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

David

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