Tag Archives: mortgage fraud

Appealing a confiscation order out of time

The Court of Appeal have now tackled issues relating to appeals against old confiscation orders which appear to be incorrect following the Supreme Court’s decision last year in R v Waya.

 

The conflicting principles

In a previous blog article I described the general background.  Briefly, an appeal against a decision in the Crown Court normally has to be initiated within 28 days of the decision being made (that involves some form filling).  An appeal can still be considered even where that deadline has been missed – but only if permission can be obtained from the Court of Appeal (either from a single judge or the full court).

In deciding whether to give permission the Court of Appeal has to consider two conflicting principles.  Firstly the outcome of proceedings should be just.  Secondly the outcome of proceedings should be final.  It would be chaotic if every time there was a new interpretation of the law all previous relevant decisions had to be reconsidered by the appeal courts.

The general rule is that the Court of Appeal will not allow an appeal to be made out of time if the only reason for the appeal is that subsequent cases have shown the previous perception of the legal position was mistaken.  But this has sometimes been subject to exceptions where the defendant has suffered a substantial injustice.

 

Wrong – but a substantial injustice?

But if the Crown Court has made a confiscation order which, whilst it appeared to be correct when it was made, in the light of more recent authority now is obviously wrong – is that enough to show a substantial injustice which the appeal courts should correct?

Most of the previous case law on appeals out of time in what are sometimes referred to as ‘change of law’ cases did not relate to confiscation orders.  It could be argued that confiscation cases are rather different from most other cases because a confiscation order involves payment of money and – if that money has been paid in error – then it would be a simple matter to pay it back.

Also in confiscation cases there is often a long delay between the order being made and it having a full effect.  This is because the defendant is ordinarily allowed time to pay and even more time will elapse before a default sentence will be activated.

So it could be argued that there is a greater opportunity for courts to, if you like, correct previous mistakes in relation to confiscation orders.

 

Mr Jawad’s case

The Court of Appeal took the opportunity in May 2013 to comment on the situation in the case of R v Jawad [2013] EWCA Crim 644 where, perhaps fearing a deluge of late appeals, the court commented at paragraph [29]: “We should make clear the general approach of this court, over many years, to change of law cases.  An extension of time will not be granted routinely in such a case simply because the law has changed.  It will be granted only if substantial injustice would otherwise be done to the defendant, and the mere fact of change of law does not ordinarily create such injustice”.

But in the case of Jawad leave to appeal out of time (by just a few days) had already been granted by the single judge before the matter came before the full court – so that judgment did not explore that issue more fully.

 

The cases of Mr Raza, Mr Bashir & Mr Bestel

More recently these issues have been fully explored in the judgment of the Court of Appeal in the case of Bestel & Others v R [2013] EWCA Crim 1305 (19 July 2013).

In essence this judgment confirms that, even in a confiscation case, the mere fact that the Crown Court confiscation order now seems incorrect is not, of itself, sufficient to persuade the court to allow an appeal to be heard out of time to correct the position.

This is most clearly demonstrated in relation to Mr Naim Raza who had pleaded guilty to two counts of mortgage fraud involving total loans of £237,505.  In subsequent confiscation proceedings the Crown Court had ruled in July 2011 (before the Supreme Court judgment in Waya had been made) that Mr Raza’s benefit was the total amount borrowed – £237,505.  Mr Raza had an available amount, based on the equity in the properties and the value of his business, of £203,069.  A confiscation order was therefore made for £203,069.

After the Supreme Court judgment in Waya in 2012, Mr Raza sought permission to make a late appeal against his confiscation order.  It was agreed by all parties that, on the basis of the law as explained by the Supreme Court in Waya, Mr Raza’s benefit should only have been £10,710 (rather than £237,505).

 

Permission refused

But the Court of Appeal refused to allow Mr Raza to appeal against the incorrect benefit figure.  The fact that the benefit figure now appears incorrect, simply as a result of subsequent developments in the understanding of the law, was not enough to warrant permission to appeal out of time to re-open the determination of Mr Raza’s benefit.

The appeal court noted that the confiscation order had been limited to Mr Raza’s available amount and that, if his assets in the event proved to realise less than the figure assessed by the Crown Court, he could seek an adjustment to the confiscation order under s23 PoCA 2002.  So the Court of Appeal did not consider that Mr Raza risked imprisonment unjustly as a result of the benefit figure being too high.

In the same judgment the Court of Appeal also refused permission to appeal the confiscation order which had been made against Mr Sahid Bashir in December 2011.  The Court of Appeal noted that, at the time of the Crown Court proceedings, Mr Bashir had agreed the benefit figure in his case.  The appeal court did not consider that a substantial injustice was done by holding him to that agreement.  So Mr Bashir was not permitted to make a late appeal against his confiscation order.

 

Permission granted

But in the case of Jean Pierre Bestel the Court of Appeal did give permission to appeal out of time and it referred his confiscation order back to the Crown Court for reconsideration.  This was because the appeal court found a number of issues in Mr Bestel’s case had not been dealt with properly by the Crown Court when his confiscation order was made in July 2012.  In particular the Crown Court judge had not given proper consideration to all the evidence which was before him at that time regarding Mr Bestel’s available amount.

Because Mr Bestel’s case has now to be reconsidered in the Crown Court both his benefit figure and his available amount may be amended.  The Crown Court will reconsider the position in the light of the law as it is now understood to be, having regard to the Supreme Court judgment in Waya.

 

Further appeals

These cases clarify the picture in relation to confiscation appeals out of time.  But no doubt further appeals will come before the courts – and these cases do not deal with the question which may arise on an application by the prosecution under s22 PoCA 2002 to pursue further amounts where a confiscation order has been limited to the available amount of the defendant at the time the order was made.  In considering whether it would be just to make an order under s22 will a court have to reconsider the circumstances in which the benefit figure was previously determined – and the changed legal position as a result of subsequent case law?  That remains to be resolved.

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.)

Appealing out of time after a change of law

When the law changes can an appeal be made to the Court of Appeal outside the normal time limits?

Normally an appeal against a decision of the Crown Court in England and Wales has to be submitted within 28 days of the decision. But the Court of Appeal can give leave for an appeal to be heard where the deadline has been missed – and has done so in some cases where the deadline has been missed by months or even years.

Where a defendant has suffered a decision which, though it appeared to be well founded at the time it was made, now appears to be incorrect in the light of subsequent case law, what is the position regarding the submission of an appeal out of time?

This is an issue which arises from time to time – and may be particularly topical following the decision of the UK Supreme Court in the case of R v Waya [2012] UKSC 51.

 

The general rule

The general rule is that the Court of Appeal will not allow an appeal to be made out of time if the only reason for the appeal is that subsequent cases have shown the previous perception of the legal position was mistaken.

This was set out many years ago in the case of R v Mitchell [1977] 65 CAR 185 when it was said that, “It should be clearly understood, and this court wants to make it even more abundantly clear, that the fact there has been an apparent change in the law or, to put it more precisely, the previous misconceptions about the meaning of a statute have been put right, does not afford a proper ground for allowing an extension of time in which to appeal against conviction”.

That rule has been reiterated many times since.  See, for example, the comment, “alarming consequences would flow from permitting the general re-opening of old cases on the ground that a decision of a court of authority had removed a widely held misconception as to the prior state of the law” from the case of Ramsden [1972] Crim LR 547 and repeated, with approval, in the case of R v Ramzan & Others [2006] EWCA Crim 197 at paragraph [30].

In the case of R v Cottrell [2007] EWCA Crim 2016 it was said, at paragraph [42], “there is a continuing public imperative that so far as possible there should be finality and certainty in the administration of criminal justice.  In reality, society can only operate on the basis that the courts administering the criminal justice system apply the law as it is.  The law as it may later be declared or perceived to be is irrelevant”.

But there have been exceptions made to the general rule.

 

Substantial injustice

It does appear to be the case that where the Court of Appeal can be satisfied that a defendant has suffered a substantial injustice then it can be persuaded to hear an appeal out of time. In the case of Hawkins [1997] 1 Cr.App.R 234 the Court of Appeal commented that “the practice of the Court has in the past, in this and comparable situations, been to eschew undue technicality and ask whether any substantial injustice has been done”.
So, for example, where a defendant has been convicted of an offence of which, under a new understanding of the law, he could not now be found guilty – but the evidence shows that he must have been guilty of another similar offence (of which he had not been charged), then the Court of Appeal will generally not allow an appeal to be heard out of time. This was the position of a Mr Malik who had been convicted of conspiracy to launder money prior to the ruling in R v Saik [2006] UKHL 18 (which changed the law regarding the conspiracy offence where there was merely a suspicion that monies were proceeds of crime). The Court of Appeal considered that there was ample evidence of the substantive offence of money laundering in Mr Malik’s case and refused him leave to appeal his conviction out of time.

In R v Charles [2001] EWCA Crim 1755 the Court of Appeal said, at paragraph [41], “In practice judges and courts are probably not as reluctant to grant extensions of time as the authorities may suggest. It has been the experience of the members of this Court that consideration will usually be given to the merits before declining to grant an extension of time. Both in Jones (No. 2) and Asraf, the merits were considered notwithstanding the absence of any proper explanation for the delay. There are some cases, such as those where the applicant wishes to rely on fresh evidence unavailable at trial, where the extension of time will be readily granted. There are cases such as those envisaged in Hawkins where it will not be”.

 

Failure to address a key issue

Perhaps slightly different are cases where, because the law was not properly understood at the time, a key issue in the proceedings was not recognised and addressed in the Crown Court. This is illustrated by the case of Bell & Others v R [2011] EWCA Crim 6.

Mr Bell was subject to a confiscation order made in 2007 after he had been convicted of being knowingly concerned in the fraudulent evasion of the duty chargeable on cigarettes contrary to section 170(2)(a) Customs and Excise Management Act 1979. The confiscation order was based on the amount of duty evaded when the cigarettes in question had been smuggled into the UK. But in fact it does not follow that a person committing this offence is himself liable for the duty and thus has ‘obtained’ a pecuniary advantage which would form the basis for a confiscation order. That had not been appreciated by the Crown Court at the time the confiscation order was made. In consequence the Crown Court had not addressed the question of whether Mr Bell was himself liable for the evaded duty and evidence relevant to that issue had not been obtained.

Subsequently the Court of Appeal had decided the case of White & Others v The Crown [2010] EWCA Crim 978 which highlighted this issue. Mr Bell then lodged an appeal against the confiscation order made against him three years earlier.

Before the Court of Appeal it was accepted that, in fact, Mr Bell had not been personally liable for the evaded duty. The Court of Appeal granted leave to appeal the confiscation order out of time because “it would be a grave injustice not to grant leave”.

In place of a benefit of £157,775 based on the evaded duty, Mr Bell was made subject to a confiscation order of just £950 based on the payment he had received for his role in the smuggling offence.

 

The impact of R v Waya

We have yet to see whether the Court of Appeal will grant leave to appeal confiscation orders out of time following the decision of the UK Supreme Court in the case of R v Waya [2012] UKSC 51.

The Waya case decided two points of principle: (1) confiscation orders should not be ‘disproportionate’ because that would infringe Article 1 of the First Protocol to the European Convention on Human Rights and (2) a mortgage applicant does not ‘obtain’ a mortgage advance (for confiscation purposes) if that advance is simply paid to a solicitor, acting on behalf of both the applicant and the lender, and then remitted to the vendor of the property being purchased (or his solicitor) – because the mortgage applicant does not at any stage gain ‘control’ of the monies advanced.
It may be that defendants who have been subject to a confiscation order which they consider is more severe than the Crown Court would have made had the decision in Waya been available at the time will now seek to appeal their orders. It will be very interesting to see how such appeals are dealt with by the Court of Appeal.

David

EDIT: A further article on the subject updates the position: Appealing a confiscation order out of time.

(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.)

Unprosecuted mortgage fraud in criminal lifestyle confiscations

After the UKSC decision in R v Waya, what is the position of a defendant subject to ‘criminal lifestyle’ confiscation who has obtained a mortgage advance by fraud but has not been prosecuted for that?

The November 2012 decision of the UK Supreme Court in R v Waya [2012] UKSC 51 dealt with confiscation under the Proceeds of Crime Act 2002 where the defendant had been convicted of mortgage fraud but did not have a ‘criminal lifestyle’ within the meaning of s75 PoCA 2002. But the implications of the judgment go far wider.

This article considers the relatively common situation in which a convicted defendant is subject to confiscation on the basis that he does have a ‘criminal lifestyle’ and it appears that he may have previously obtained a mortgage advance by fraud although he has not been prosecuted for that.

 

A worked example

Let’s take the example of William who is a self-employed engineer. Five years ago he purchased Rose Cottage, a four bedroomed house in an idyllic country location, for £775,000. He put up a 40% deposit from his own legitimate money, that’s £310,000. The remaining 60%, or £465,000, he obtained fraudulently by giving false details of his income to the mortgage lender. Two years ago William got involved in dealing in controlled drugs. He was arrested, charged and convicted of possession of a controlled drug with intent to supply. He is now subject to confiscation proceedings under PoCA 2002 on the basis that he has a ‘criminal lifestyle’.

William still owns Rose Cottage. The outstanding mortgage is still £465,000 – it is an ‘interest only’ mortgage and William has kept up the payments to the lender. The open market value of Rose Cottage is now £1,200,000.

We need to consider the impact of the statutory ‘criminal lifestyle’ assumptions on the calculation of William’s ‘benefit’ (if any) in connection with his ownership of Rose Cottage and the mortgage fraud.

 

The first assumption

The first assumption is found in s10(2) PoCA 2002 which says:
“The first assumption is that any property transferred to the defendant at any time after the relevant day was obtained by him (a) as a result of his general criminal conduct, and (b) at the earliest time he appears to have held it.”

Prior to the UKSC decision in Waya the likelihood is that the court would have treated the £465,000 mortgage advance as “property transferred to the defendant” and therefore an assumed benefit of £465,000 would have arisen from it in William’s confiscation.

However in the light of paragraph [53] of the Supreme Court judgment it now appears to be the case that the £465,000 was not “property transferred to the defendant” and so no benefit can arise under the first assumption in relation to the mortgage fraud.

Similarly any suggestion that Rose Cottage itself should be regarded as property transferred to the defendant “as a result of his general criminal conduct” would run counter to paragraphs [46] and [47] of the Supreme Court judgment in Waya.

But that is not the end of the story, as we need to consider the other assumptions of s10.

 

The fourth assumption

Let’s look at the fourth assumption next – because we need to get that out of the way.  The fourth assumption is found in s10(5) PoCA 2002 which says:

“The fourth assumption is that, for the purpose of valuing any property obtained (or assumed to have been obtained) by the defendant, he obtained it free of any other interests in it.”

But all the assumptions of s10 are subject to s10(6) which says:

“But the court must not make a required assumption in relation to particular property or expenditure if (a) the assumption is shown to be incorrect, or (b) there would be a serious risk of injustice if the assumption were made.”

It seems irrefutable that the mortgage lender has an interest in Rose Cottage and so, to that extent, the fourth assumption is negated because it has been “shown to be incorrect”.  That will be important when we consider the implications of the second assumption.

 

The second assumption

The second assumption is found in s10(3) PoCA 2002 which says:

“The second assumption is that any property held by the defendant at any time after the date of conviction was obtained by him (a) as a result of his general criminal conduct, and (b) at the earliest time he appears to have held it.”

William does hold Rose Cottage, subject to the mortgage lender’s interest in it, after the date of his conviction.  Rose Cottage is now worth £1,200,000 and the outstanding mortgage is £465,000 – so William’s interest in the property is now £735,000 (his ‘equity’ in the property).  That includes an increase in value, or “appreciation”, of £425,000 (the difference between the £775,000 purchase price and the current value of £1,200,000) .

Following the logic applied by (the majority judgment of) the Supreme Court in Waya in paragraphs [70] and [71] of the judgment we can say that, because 40% of the original purchase price was funded by William’s own legitimate funds and 60% was funded by the fraudulently obtained mortgage, only 60% of the “appreciation” is a ‘benefit’ for confiscation purposes.

In relation to the other 40% of the “appreciation” and William’s initial deposit (which was legitimate monies) the second assumption is “shown to be incorrect” on the facts.

So the benefit arising, under the statutory assumptions, in relation to William’s ownership of Rose Cottage and the mortgage fraud is 60% of the “appreciation” of £425,000, which amounts to £255,000.

Note that this conclusion does not depend upon whether the mortgage advance was obtained after the ‘relevant day’ (defined in s10(8) and normally six years prior to the date on which the defendant was charged with the offence of which he has been convicted).

 

Proportionality and serious risk of injustice

The final issue is whether such an outcome would be disproportionate and hence an infringement of William’s human rights under Article 1 of the First Protocol to the European Convention on Human Rights (‘A1P1’).  Since the outcome under the statutory assumptions is the same as that which would have arisen had William been charged with, and convicted of, the mortgage fraud and in the case of Waya the Supreme Court held that this outcome was not disproportionate, then it seems clear that William’s rights under A1P1 have not been infringed.

For similar reasons it appears that this calculation of assumed benefit does not involve a “serious risk of injustice” which would be relevant to s10(6)(b).

Happily this analysis leads to an outcome which is entirely consistent with the outcome in the rather different circumstances of Mr Waya’s case as I have described in an earlier blog article.

As an aside, I am bound to say that any conclusion that a defendant who had NOT been convicted of mortgage fraud should suffer a more severe outcome in confiscation, as a result of the operation of the statutory assumptions, in relation to that mortgage fraud than another defendant who had been convicted of mortgage fraud would be open to attack as involving an unacceptable “serious risk of injustice”.

 

But . . .

But what if the situation had been slightly different?  Suppose William had purchased Rose Cottage with his domestic partner Mary – and Mary had not been convicted of any offence and was not subject to confiscation?

Would Mary’s interest in the equity in Rose Cottage have the effect of halving William’s benefit under the statutory assumptions?  Would it make a difference whether William and Mary owned Rose Cottage as joint tenants or tenants in common?

These issues did not arise in the Waya case.  We may however see these issues aired in future confiscation hearings.

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.)

R v Waya – the UK Supreme Court judgment

The UK Supreme Court judgment in the confiscation case of R v Waya [2012] UKSC 51 has added another layer of complexity to confiscation cases in England & Wales.

The judgment addressed two issues: (i) Where a mortgage is fraudulently obtained how is the benefit of that fraud to be calculated for confiscation purposes? (ii) Is the confiscation scheme under Part 2 of the Proceeds of Crime Act 2002 in England and Wales compliant with Article 1 of the First Protocol to the European Convention on Human Rights (referred to as ‘A1P1’)?

 

Mortgage fraud

The Supreme Court’s answer to the mortgage fraud question is rather different from that previously adopted in the Crown Court and Court of Appeal.

It boils down to this.  No benefit arises from the actual obtaining of the mortgage itself, but a benefit can arise when the property purchased with that mortgage increases in value.

An example illustrates how this is to be worked out.  Suppose a defendant, call him Mark, buys a property for £775,000.  He puts up a 40% deposit from his own (legitimate) money, that’s £310,000.  The remaining 60%, or £465,000, he obtains fraudulently by giving false details of his income to the lender.  Mark is convicted of mortgage fraud and is then subject to confiscation proceedings.  At the time of the confiscation hearing the property has increased in value to £1,200,000 and there is still the original £465,000 outstanding on the mortgage.

The increase in the value of the property has been £425,000 (the difference between £775,000 and £1,200,000) and the fraudulently obtained mortgage was 60% of the purchase price.  So the benefit is 60% of the increase in value – which works out to be £255,000.

That is not the way that benefit in mortgage fraud cases was calculated before this judgment was published on 14 November 2012, but from now on this is the way that the calculation should be done.

But note that Waya was a case in which the defendant’s own money was legitimate and only the mortgage money was derived from crime.  A different approach is needed in cases where the defendant’s own money is derived from (other) crime and the mortgage advance is legitimately obtained.  A different approach would also have been needed if the property being purchased had been fraudulently over-valued in connection with the obtaining of the mortgage resulting in the mortgage advance being greater than the true market value of the property being purchased.

The calculations get more complicated where some of the original mortgage advance has been repaid before the date of the confiscation, or where the property has been subject to a re-mortgage and further borrowing.  It is not possible to deal with those complexities in a short article such as this.

 

Human Rights

The Supreme Court also addressed the issue of compliance with A1P1, Article 1 of the First Protocol to the European Convention on Human Rights.

Essentially the Supreme Court recognised that there are cases in which simply calculating the ‘recoverable amount’ (the amount that the defendant is ordered to pay by the confiscation order) by strictly following the wording of Part 2 PoCA 2002 produces a result which is disproportionate and would therefore infringe the defendant’s human rights.  That cannot be permitted.

The judgment makes it clear that in order to prevent that happening Crown Court judges must reduce the amount of a disproportionate confiscation order below the figure calculated in accordance with PoCA 2002.

However the Supreme Court said that a confiscation order should not be regarded as disproportionate simply because it would “involve the possibility of removing from the defendant by way of confiscation order a sum larger than may in fact represent his net proceeds of crime”.

In particular the Supreme Court said that it would not be disproportionate to:

  1. require the defendant to pay the whole of a sum which he has obtained jointly with others;
  2. require several defendants each to pay a sum which has been obtained, successively, by each of them; or
  3. 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.

In relation to ‘criminal lifestyle’ cases the Supreme Court drew particular attention to s10(6)(b) PoCA 2002 which requires that “the court must not make a required assumption in relation to particular property or expenditure if . . . there would be a serious risk of injustice if the assumption were made”.  As a result of applying s10(6)(b) the Supreme Court suggested that the courts ought not normally to be at risk of making disproportionate confiscation orders in ‘criminal lifestyle’ cases.  I have previously considered the operation of s10(6)(b) in ‘criminal lifestyle’ confiscation cases in my blog article Confiscation: a serious risk of injustice.

The new approach does not amount to the re-creation of a general discretion for judges in confiscation cases, nor does it introduce a new regime in which the confiscation order must be governed by the “real benefit” obtained by the defendant.

By way of example, the Supreme Court indicated that in, say, a theft case in which goods had been stolen but recovered intact and returned to their owners it might be disproportionate for a confiscation order to be made based on the value of those stolen goods, although a strict reading of PoCA 2002 would require that.

 

The practical effects

There is, in my view at least, a very real danger that this judgment will create more complexities and difficulties for the Crown Courts and Court of Appeal whilst doing very little to introduce more justice and common sense into the confiscation regime.

The judgment may breathe new life into s10(6)(b) in ‘criminal lifestyle’ cases and we may see judges adopting more frequently a broad brush reduction in the defendant’s benefit figure as exemplified by the case of R v Deprince [2004] EWCA Crim 524 (a case not referred to in the Supreme Court judgment).

I would suggest that if the confiscation case of Del Basso & Goodwin v R [2010] EWCA Crim 1119 were to be heard today the confiscation order against Mr Del Basso might be scaled back to a level related to the profit of the business (which was essentially legitimate) rather than its turnover, in the light of the comments at paragraph [34] of the judgment in Waya.

Of course the Court of Appeal now has power to send a confiscation case back to the Crown Court for rehearing under s140 Coroners and Justice Act 2009, particularly where it is appropriate to make further findings of fact.

In new cases the judgment may provide encouragement for defendants, and their legal representatives, to routinely argue in the Crown Court that a proposed confiscation order would be disproportionate and infringe the defendant’s A1P1 rights.  There would appear to be nothing to be lost by making that submission even where it may have little prospect of success.

On the other hand the judgment seems to offer nothing to encourage prosecutors – their lives are undoubtedly going to be made harder by it.

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.)

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.

Just how is PoCA confiscation supposed to work?

The UK Supreme Court recently heard 3 days of complex legal submissions about a straightforward confiscation case.  Four eminent counsel suggested half a dozen wildly differing figures for the benefit arising from a single mortgage fraud.  Obviously the operation of confiscation under Part 2, Proceeds of Crime Act 2002 is neither simple nor straightforward.  There is a conspicuous lack of clarity and certainty in the confiscation regime.

The appellant, Mr Waya, contested the finding of the Court of Appeal that he pay £1.11 million – R v Waya [2010] EWCA Crim 412.  That was a reduction on the figure originally ordered in the Crown Court of £1.54 million.  His counsel suggested the correct figure was nil – or on an alternative basis it might be £0.255 million.  Counsel for the prosecution contended the Court of Appeal had the correct figure.  But counsel for the Home Department proposed a figure of £0.6 million and counsel for the Attorney General put the figure at £1.0 million.  Each of these figures was said to be based on applying the same statute law to the undisputed facts of the case.

Mr Waya dishonestly obtained a mortgage advance which he used to purchase a flat.  The flat went up in value . . .

The facts are these.  Mr Waya dishonestly obtained a mortgage advance which he used to purchase a flat.  The flat went up in value.  He legitimately obtained a new and larger mortgage, repaying the first mortgage in full.  The flat continued to increase in value.  Mr Waya was convicted of mortgage fraud (in relation to the original mortgage), or more accurately he was convicted of obtaining a money transfer by deception contrary to s15A Theft Act 1968, and was then subject to confiscation under PoCA 2002.  The sole question before the court was the amount of his benefit from the mortgage fraud (referred to as the benefit of his ‘particular criminal conduct’).

There were striking differences of principle in the approach of different counsel to the interpretation of PoCA 2002 as well as some different interpretations of the facts of the case.

 

The submissions of Mr Waya’s counsel

Mr Waya’s counsel put forward four alternative arguments.  Firstly he said that, on careful consideration of the facts, Mr Waya had not obtained anything when the mortgage was advanced since he had never been in control of the monies advanced.  He was never in a position to use the monies for whatever he might have wanted (they could only be used towards the purchase cost of the flat).

Secondly, Mr Waya (if he did obtain something) had obtained something of no market value.  He had not obtained a gift, he had obtained a loan.  The obligation to repay was integral to the money transfer – and the market value of the combination of the monies advanced to him and the repayment obligation was nil.  This result flowed from s79(3) PoCA 2002.

The courts should not take a ‘snapshot’ view but instead “the entirety of the transaction” had to be considered

Thirdly the courts should not, Mr Waya’s counsel contended, take a ‘snapshot’ view (considering only what happened when the mortgage was advanced) but instead “the entirety of the transaction” had to be considered.  The lender had been repaid in full and had lost nothing as a consequence of Mr Waya’s dishonesty.  So, looking at the entirety of the transaction, there was no benefit for the purposes of confiscation.

Fourthly, as a final alternative, the courts should look to the ‘pecuniary advantage’ derived by Mr Waya in accordance with s76(5).  He had been assisted in the purchase of the flat which had subsequently increased in value.  His counsel had calculated the value of his ‘pecuniary advantage’ to be £255,000.

The House of Lords had taken a wrong turning many years ago when it was said that “subsequent events are to be ignored”

Mr Waya’s counsel conceded that his proposal that the court should look to “the entirety of the transaction” rested on his view that the House of Lords had taken something of a wrong turning many years ago in the confiscation case of R v Smith [2001] UKHL 68 when it was said at para [23] that “subsequent events are to be ignored”.  That may be correct where, in the drug trafficking legislation, the benefit for confiscation purposes was to be based on the ‘payment or reward received’ – but it was not the correct approach to confiscation under the Criminal Justice Act 1988 or PoCA 2002 provisions where benefit was based on what had been ‘obtained as a result of or in connection with the criminal conduct’.

In consequence, it was contended, very many confiscation cases had been wrongly decided by courts at every level in England & Wales since that time.

 

The submissions of other counsel

Counsel for the prosecution, on the other hand, contended that the Court of Appeal had come to the correct conclusion in respect of Mr Waya’s confiscation.  Furthermore, with a very few exceptions, appeal courts had come to correct conclusions in confiscation cases over the years.  It was right to ignore subsequent events.  In particular the Court of Appeal had correctly decided in the case of CPS v Rose [2008] EWCA Crim 239 that s79(3) should not have the effect of causing the victim’s interest in any property to reduce the defendant’s benefit in confiscation in connection with his criminal conduct – although there are no words to that effect in the statute.

A defendant should not be entitled to rely on his own crime to limit the benefit of that crime for the purposes of confiscation

Counsel for the Home Department and for the Attorney General suggested a slightly different principle to be drawn from the Rose case.  This was that a defendant should not be entitled to rely on his own crime to limit the benefit of that crime for the purposes of confiscation.  In consequence, it was contended a thief or handler of stolen goods was to be treated as if he had obtained the value of good title to the stolen goods and where, as a result of criminal conduct, property had been obtained jointly by offenders then each of them was to be treated as obtaining the value of the whole of the property jointly obtained.  Again, of course, there are no words to that effect in the statute.

It will probably be 2 or 3 months before we will learn the Supreme Court’s decision in this case.  [UPDATE – Judgment in the Waya case was handed down on 14 November 2012, see below.]  But whatever that decision is I suggest that there will continue to be serious difficulties with the practical application of the confiscation regime – not least because this case did not touch at all on the consequences of the statutory ‘criminal lifestyle’ assumptions.

David

P.S. I have prepared a summary of the detailed legal submissions by counsel to the UK Supreme Court in R v Waya which is on Criminal Solicitor Dot Net HERE.

UPDATE:

The Supreme Court has handed down its judgment in the case, which is discussed in a new blog post R v Waya – the UK Supreme Court judgment.

Residential property valuations for confiscation

I frequently see, in the course of confiscation proceedings under PoCA 2002 and earlier legislation, figures put on the value of residential properties by prosecution and defence.  Those figures are most often used in connection with determining the ‘available amount‘ of the defendant.  But they can also be relevant to determining the defendant’s ‘benefit’, for example where there are allegations of mortgage fraud or where the property in question is said to have risen in value after being purchased with funds tainted by criminality.

Although I am not a property valuer (and claim no expertise in the valuation of tangible assets) I am aware of the context in which issues of valuation arise.

The legislation

The key valuation legislation under PoCA 2002 in England & Wales is the segment on interpretation and in particular s79 which provides that in relation to property held by a person “its value is the market value of the property at that time”.  If another person has an interest in the property, then the relevant value “is the market value of his interest at that time”.  This means that a reduction will be made to reflect amounts due to lenders secured on the property, the legitimate interests of joint legal owners and the equitable interests (if any) of a spouse / domestic partner or others.

In relation to the value of property obtained from criminal conduct s80 indicates that “the material time is the time the court makes its decision” and for the purpose of determining the defendant’s ‘available amount’ s9(1) indicates that the values “at the time the confiscation order is made” are to be used.

But what do we mean by the “market value”?

the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion

In the case of R v Islam 2009 UKHL 30 Lord Hope of Craighead said at paragraph [6]: “The statute has refrained from defining precisely what is meant by the expression “market value”.  . . . The market value of goods . . .  is the price which a willing seller will accept for them from a willing buyer”.  This remark may well be obiter dicta and not strictly relevant to residential properties (the case was concerned with the value of illegal drugs) but it does not appear to be contentious.

The International Valuation Standards Committee defines “market value”  as “the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion”.   The Royal Institution of Chartered Surveyors (the RICS) adopts that same definition of “market value” in the ‘Red Book’ – the RICS Valuation Standards.  Valuations on this basis are sometimes referred to as being at ‘Red Book market value’.

But what is actually done about residential property valuations in confiscation cases?

The likelihood is that the prosecutor will have placed a value of some sort on the residential property in the course of his s16 statement.  He might have done that based on information obtained, probably from the Land Registry, concerning the date of purchase of the property and the price paid then – uplifted by a published index of movements in UK property prices since that time.  Alternatively he may have based his valuation on relatively recent data concerning the sales of local comparable properties.  He will then have deducted from that value a figure obtained from the mortgage lender (or from a credit check) for the current amount outstanding on the mortgage.

A danger is that these types of ‘desktop’ valuations may not reflect the value of the actual property in question

A danger is that these types of ‘desktop’ valuations may not reflect the value of the actual property in question, especially if it was purchased some years ago, may have been modified since it was purchased and may not be truly comparable to other local properties.  There may also be a long delay between the prosecutor undertaking this exercise and the hearing in court which results in the confiscation order.

The defence on the other hand will be informed by the defendant’s own view as to the value of the property.  They may also have obtained an independent valuation.  This may be a figure from a local estate agent based on the asking price he would recommend if he were to be asked to sell the property.  Such a valuation is sometimes referred to as a ‘market appraisal’ to distinguish it from a ‘Red Book market value’ valuation.

a figure from a ‘market appraisal’ may be in excess of the ‘Red Book market value’ because it is based on an estimated asking price rather than an estimated sale price.

The defence may rely upon the prosecution’s s16 statement for the amount of the secured liabilities.

It is immediately apparent that a figure from a ‘market appraisal’ may be in excess of the ‘Red Book market value’ because it is based on an estimated asking price rather than an estimated sale price.

 

What should be done?

In giving an opinion of value the valuer is acting as an expert witness in criminal proceedings.  The valuer ought to be a person who, either by qualifications or experience, or both, is in a position to give an authoritative expert opinion.  His written valuation ought to comply with Part 33 Criminal Procedure Rules.

The valuation should take into account the estimated costs of realisation of the property such as estate agent’s and legal fees, see R v Davies [2004] EWCA Crim 3380 at paragraph [15], and even, where appropriate, the costs of legal proceedings to force the sale by way of an application under s14 Trusts of Land and Appointment of Trustees Act 1996, see R v Modjiri [2010] EWCA Crim 829 at paragraph [23].

Of course the valuation needs to take account of the interests of persons other than the defendant in the property.  So, for example, if the defendant is one of four legitimate joint owners each having an equal interest in the property then the value of the defendant’s interest will be one-quarter of the value of a 100% interest in the property.  There should however be no additional adjustment to reflect the defendant’s minority interest (except by recognition of potential additional costs of realisation).

But subject to these adjustments, the value adopted should be the ‘Red Book market value’, that is to say the ‘market value’ as required by s79.

In practice a defendant subject to a confiscation order has a limited time to realise the monies required to satisfy that order.

In practice, of course, a defendant subject to a confiscation order has a limited time to realise the monies required to satisfy that order.  If he fails to satisfy the order on time the amount outstanding will attract interest  and he is at risk of the default sentence being triggered.  So he may not  be in a position to ensure “proper marketing” of the property and he is, to  a certain extent, “under compulsion”.  He is not a “willing seller”.

Should these factors be taken into account in the valuation of the property?

The law suggests that they should not, since to do so would be to adopt a basis which is not “market value”.  However it may be the case that the defence will request the valuer to produce two valuation figures, one on a  ‘Red Book market value’ basis and another on the basis of a need to obtain the proceeds of sale within 6 or 12 months of the confiscation order – a ‘quick sale’ basis.  In that way the court may be better informed of the likely sales proceeds.

But why is this not done in practice? 

I suggest that there are two reasons for this.  The cost of obtaining a ‘Red Book market value’ will act as a disincentive to both prosecution and defence (who would need to obtain a prior authority from the LSC to cover the valuer’s fees).  The other alternatives are cheaper or even free.

Also prosecutors and lawyers may not be fully acquainted with issues surrounding different bases of property valuations.

Does it matter?

If the value of the property is relevant to the defendant’s ‘benefit’ in confiscation then there is a danger of his ‘benefit’ being overstated in the confiscation order.  In that event it is not normally open to the defence to seek a downward revision to the ‘benefit’ figure if the property is subsequently sold for less than the valuation figure.

If there is no arm’s-length sale, for example if the ownership of the property passes to the defendant’s spouse or domestic partner, then there may be no basis on which to amend the valuation.

If the value of the property is relevant to the defendant’s ‘available amount‘ then this, and the consequent default sentence, may be excessive.  If the property is subsequently sold at arm’s-length and realises less than the valuation figure it may be possible for the defence to have the ‘available amount‘ adjusted downwards under s23.  However this involves the reconsideration of all the assets within the defendant’s ‘available amount‘.  Furthermore the actual sale may take place a long time after the making of the confiscation order – by which time the default sentence may have been triggered.

If there is no arm’s-length sale, for example if the ownership of the property passes to the defendant’s spouse or domestic partner, then there may be no basis on which to amend the valuation.

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

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

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

Conclusion

So there is something to be said for getting the most appropriate value recognised by the court at the time the confiscation order is made by appointing a properly qualified and experienced valuer to provide a ‘Red Book market value’ taking into account costs of sale, and supported perhaps by an alternative ‘quick sale’ valuation.  I would suggest that the amounts due to secured lenders (the current redemption figure, including any early repayment or arrears penalties) should also be checked shortly before the confiscation hearing.

David

Alleged mortgage fraudsters win money laundering appeals

A recent Court of Appeal judgment demonstrated the limits of the money laundering legislation.

It was alleged that mortgages had been obtained fraudulently by false statements on the mortgage applications.  A number of these allegedly fraudulent applications had been handled by the same mortgage broker.

The individual applicants could have been charged with fraud by false representation

The individual applicants could have been charged with obtaining a money transfer by deception, contrary to s15A Theft Act 1968, or fraud by false representation, contrary to Fraud Act 2006 (which replaced the earlier offence).  The broker could have been charged with the same offences (which apply equally to obtaining money or property for someone else) or perhaps with conspiracy to defraud.

All of these offences necessarily involve dishonesty.

But instead the applicants were charged with acquiring criminal property, contrary to s329 Proceeds of Crime Act 2002, and the broker was charged with entering into an arrangement to facilitate the acquisition of criminal property by another, contrary to s328 PoCA 2002.

The PoCA 2002 offences (which are both ‘money laundering’ offences) do not need to involve dishonesty.  The prosecution may therefore have thought it would be more straightforward to obtain convictions for these offences.

All the defendants were duly convicted and they appealed.  All the convictions were quashed on appeal.  But why?

they were not proceeds of crime until the applicants had received them

Well it was undoubtedly the case that, if the mortgage applications were fraudulent, the mortgage advance monies were proceeds of crime in the hands of the applicants.  But they were not proceeds of crime until the applicants had received them.

So the broker was not involved in an arrangement for the applicants to obtain proceeds of crime – the arrangement was to obtain legitimate monies belonging to the lenders.  It was only after the arrangement had been successful that there were proceeds of crime.

It was irrelevant that, had the defendants been charged under different legislation, they would very likely have been convicted.

The defendants’ conduct, said the judges in the Court of Appeal, did not fall within the s328 and s329 offences (which envisaged that crime of some sort had occurred before the arrangement was made or the money was obtained).

(Subsequent transfer or use of the monies fraudulently obtained by the applicants might well be money laundering offences – but there were not charged with that.)

Furthermore, by giving security for the mortgage advances, the applicants had provided adequate consideration for the monies which they had received – and therefore the exemption of s329(2)(c) applied to their acquisition of the monies (notwithstanding that false information regarding income and employment may have been entered on the mortgage application forms).

The judgment in the case is R v Amir & Akhtar [2011] EWCA Crim 146.

David

Confiscation, mortgage fraud and a ‘minus millionaire’

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

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

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

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

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

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

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

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

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

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

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

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

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

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

the prosecution had viewed these transactions as deeply suspicious

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

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

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

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

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

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

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

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

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

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

That makes Jake a ‘minus millionaire’.

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

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

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

David

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

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