Tag Archives: particular criminal conduct

Were the Court of Appeal right? A s22 POCA variation case

Scales of justiceA recent Court of Appeal decision on a s22 PoCA 2002 variation gives some food for thought.
The nub of the case presented to the Court concerned the Crown Court judge’s interventions in the cross-examination of a defence witness.  On appeal it was suggested that the judge had gone too far and had effectively become a second prosecution counsel.

But for me the more interesting issues lay elsewhere.

The defendant’s history

The defendant’s history was not in dispute. He had twice been the subject of a confiscation order under PoCA 2002.

On 24 August 2007 Carl O’Flaherty and another person were in a vehicle stopped by police.  The vehicle was searched and 20 small bags and one large bag of cannabis were found.  Mr O’Flaherty’s home was searched and cash contaminated with cannabis was found there.  The defendant pleaded guilty to possession of the cannabis in the vehicle with intent to supply.

On 1 November 2010 a confiscation order was made.  The benefit figure was £30,350.20 and the defendant’s available amount at that time was found to be £5,135.00.  He was ordered to pay £5,135.00.  This was paid in full.

Subsequently in February 2011 it was discovered that Mr O’Flaherty and others had loaded cash onto a Thomas Cook Cash Passport Account throughout 2010 and 2011 in order to launder money.  On 18 January 2013 he was convicted of conspiracy to convert, transfer and remove from England and Wales criminal property.

On 20 December 2013 Mr O’Flaherty was made the subject of a confiscation order comprising benefit of £27,556.06 and available amount of £871.51. This led to a confiscation order for £871.51.  This was paid in part.  At the time of the s22 hearing £120.00 remained outstanding.

In 2016 the Crown identified a residential property held in Mr O’Flaherty’s name.  A restraint order was obtained and an application was made for variation under s22 PoCA 2002.

The s22 hearing

At a hearing on 5 December 2016 the Crown argued that Mr O’Flaherty held a 100% equitable interest in the residential property, which had an agreed value of £65,000, and sought variation of both confiscation orders to require payment of additional amounts and provide new default sentences.

Mr O’Flaherty’s case was that he owed money to his employer, Mr Usta, which should be deducted from the equity in the property in arriving at his available amount.  Mr O’Flaherty had intended to purchase the property for £43,000 with a mortgage from Santander, but Santander pulled out after their surveyor had inspected the property.

Mr O’Flaherty then approached his employer who lent him £30,000 on the understanding that he would be repaid £40,000 after six months (when Mr O’Flaherty expected to have sold the property for £65,000).  There was no written loan agreement or legal charge document.

In the event the property sale did not go through as planned after the restraint order had been obtained.

Mr Usta and Mr O’Flaherty both provided written witness statements and gave oral evidence at the s22 hearing.

It appears that no documentary evidence was put before the Crown Court to confirm the original involvement of Santander, the payment of £30,000 from Mr Usta to the defendant, or the defendant’s employment with Mr Usta (of which apparently HMRC had no record).  Nothing had been filed at the Land Registry concerning Mr Usta’s interest in the property.

The Crown Court judge accepted the prosecution’s submissions, rejected the evidence of the defendant and Mr Usta, and varied both confiscation orders as requested by the Crown.

Mr O’Flaherty appealed, R v O’Flaherty [2018] EWCA Crim 2828.

The issue raised in the appeal

The issue raised at the appeal concerned the judge’s treatment of Mr Usta at the hearing.

When examined in chief Mr Usta had simply confirmed his written statement, setting out that he had lent the defendant £30,000 and expected £40,000 in return, to be true.

The Crown indicated it had no questions for Mr Usta in cross-examination.

Unusually, the judge then asked Mr Usta a series of questions.  The judge was polite, but sceptical.  He asked for clarification of the terms of the loan, why there had been no agreement in writing and no involvement of a solicitor.  The judge also enquired about the lack of evidence of the defendant being employed by Mr Usta and the extent to which Mr Usta was aware of the defendant’s criminal record.

On appeal it was submitted that the judge had acted improperly in challenging the witness on issues which could have been raised by the Crown in cross examination but had not.

The decision on the appeal

The Court of Appeal dismissed Mr O’Flaherty’s appeal (except to the extent that the s22 order was amended to correct a figure which both sides agreed to have been incorrect in the original order).

The Crown Court judge was entitled to efficiently and courteously seek clarification of the defendant’s case and to raise matters with Mr Usta which cried out for challenge.

The Court of Appeal found that the Crown Court judge had exercised considerable self-restraint and simply obtained from Mr Usta confirmation as to what his case was.

The judge’s questions related to matters referred to by Mr Usta in his witness statement.  Had Mr Usta been properly questioned by the prosecution no intervention would have been needed from the judge.  At the end of the judge’s questions he asked counsel for the defendant whether he had questions by way of re-examination and counsel did so.  There was therefore no apparent or real unfairness or bias in the proceedings.

A couple of obvious points

Let’s deal with a couple of obvious points first.

The defence case rested upon the assertion of certain facts, the most fundamental of which was that Mr Usta had lent £30,000 to the defendant – but not even the most basic documentary evidence (the bank statements of the defendant and Mr Usta showing the loan being made) were produced to the court.

A Crown Court deals every day with criminals who tell lies when it suits them.  So supporting evidence is vital.  All the more so when what is being asserted appears unusual.  Whatever relevant documents which could be found should have been produced to the court (in advance of the hearing).

Secondly, to be effective the defendant had to show that he had less than a 100% interest in the property because Mr Usta also had an interest in it.  But it seems that all that was being asserted was that the defendant owed a significant sum of money to Mr Usta.  That, on its own, would not have reduced the defendant’s ‘available amount’ for confiscation purposes (but the agreement of a loan secured on the property would have done).

The standard and burden of proof

It is settled law that at a confiscation hearing the burden is on the defendant to satisfy the court, on the balance of probabilities, that his available amount is less than his benefit.

But what is the position on an application for a variation under s22?

The Court of Appeal held that “The burden of proof was the balance of probabilities and lay with [Mr O’Flaherty]”.

But what does this mean?  I would suggest that what the Court of Appeal meant here was that the Crown had produced evidence sufficient to satisfy the court that the defendant now appeared to have an ‘available amount’ which exceeded the ‘relevant amount’ referred to in s22(8) – which in this case was the ‘available amount’ shown in the original confiscation order.  In that way the Crown had appeared to satisfy the ‘trigger condition’ of s22(4).

That having already been done, the burden of proof was then on the defendant to rebut that or to satisfy the court concerning the amount which it would be ‘just’ to order him to pay (which would normally be based on his current ‘available amount’) to enable the court to vary (or to decline to vary) the confiscation order.

The more interesting issue

The more interesting issue, to me at least, concerns the lack of attention to s8 PoCA 2002 by both the Crown Court (on more than one occasion) and the Court of Appeal.

Looking back at Mr O’Flaherty’s history we can see that the offences of which he was convicted in 2010 (possession of a controlled drug with intent to supply) and 2013 (conspiracy to convert, etc criminal property) were both Schedule 2 ‘criminal lifestyle’ offences.

Section 8 spells out how the court should deal with a defendant who is, for a second time, subject to ‘criminal lifestyle’ confiscation.

In effect the benefit found in the later confiscation order must include the benefit found in the earlier confiscation order, with a deduction for the amount which the defendant has previously been ordered to pay under that first confiscation order (to avoid double counting).

When making the new confiscation order the court also must not recognise any other alleged benefit obtained by the defendant prior to the date of the earlier confiscation order, see R v Chahal & Chahal [2014] EWCA Crim 101.

So in 2013 when making the new confiscation order the Crown Court should have proceeded in the following way.  Firstly, it should have identified all the benefit obtained by the defendant after 1 November 2010 (the date of the first confiscation order).

That would include both the benefit of his particular criminal conduct obtained after that day and the assumed benefit in relation to, for example, property transferred to the defendant after 1 November 2010.  In effect the ‘relevant day’ for the purposes of the s10 PoCA 2002 assumptions would be 1 November 2010, see s10(9).

In respect of benefit obtained by the defendant on or before 1 November 2010 the Crown Court would be obliged, when making the new order, to accept the benefit figure of £30,350.20 in the earlier order as being a correct statement of ALL the benefit obtained by this defendant from his criminal conduct up to that date.

This £30,350.20 should have been included as benefit within the second confiscation order, but subject to a deduction of £5,135.00 (which is the amount which the defendant had been ordered to pay under the original order).

So there would be £25,215.20 to include in Mr O’Flaherty’s benefit as his total benefit obtained up to 1 November 2010, and this should have been included in the benefit figure in the 2013 confiscation order.

The original order would then in effect cease to operate (except in respect of any action to enforce collection of the £5,135.00 previously ordered to be paid).

If subsequently the Crown wished to proceed under s22 it would do so only under the second confiscation order (as the unpaid benefit under the first order would be included within the benefit figure in the second order).

It seems clear that the Crown Court when making the second order in 2013 failed to do this.

When in 2016 the Crown Court considered the s22 application it could, in my view at least, have been argued that in consequence of s8 the 2013 order must be viewed as including ALL the benefit obtained by Mr O’Flaherty up to 20 December 2013.  On that basis it would not be open to the Crown Court to entertain any application under s22 in respect of the first confiscation order.

However there is nothing to suggest that this argument was put at that time or that the Crown Court’s attention was drawn to s8 on this occasion either.

Again when the s22 variation was appealed s8 could have been discussed.  But there is nothing in the Court of Appeal judgment to suggest that s8 was referred to in legal submissions or oral argument before the Court.

Perhaps if it had been the outcome would have been different.

As things have turned out it is difficult to conclude that Mr O’Flaherty has suffered any major injustice.  It might be more accurate to suggest that he has failed to gain the advantage of a peculiarity in confiscation law.

As an aside, it would have been open to the prosecution in 2013, before the second confiscation order was made, to have made an application to the Crown Court under s21 PoCA 2002 to have the benefit figure in the 1 November 2010 confiscation order increased to reflect new information (concerning the money laundering offending which apparently occurred throughout 2010) which had come to light.

Had that been done then the benefit to be included within the second order would have been able to fully reflect Mr O’Flaherty’s benefit obtained up to 1 November 2010.

In my view that would have been the proper way to deal with Mr O’Flaherty’s case.

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.)

Supreme Court caps confiscation enforcement

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

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

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

 

The problem

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

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

 

The simple answer

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

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

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

 

Potential complications

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

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

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

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

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

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

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

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

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

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

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

 

Default sentences

We also need to consider the implications for default sentences.

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

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

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

 

In conclusion

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

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

David

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

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.)

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.)

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.)

Criminal lifestyle in confiscation

image 75Frequently a convicted defendant will be shocked by reading that he has a ‘criminal lifestyle’. The assertion may be found in a prosecutor’s s16 statement in confiscation proceedings under the Proceeds of Crime Act 2002 in England and Wales.  The defendant may think he is being accused of being a career criminal – or even a gangster like Al Capone.  The reality is rather different.

But who has a ‘criminal lifestyle’? What are the implications of a ‘criminal lifestyle’?

 

Who has a ‘criminal lifestyle’?

A defendant has a ‘criminal lifestyle’ for confiscation purposes if at least one of the three alternative criteria of s75 PoCA 2002 are met.  But he does not have a ‘criminal lifestyle’ if none of the criteria are met.  So what are these three criteria – or alternative routes to a finding that he has a ‘criminal lifestyle’?

Route 1

The first is that the defendant has been convicted of one (or more) of the offences listed in schedule 2 PoCA 2002. Many of these offences are undeniably serious, such as arms trafficking and directing terrorism.  It should come as no surprise that drug trafficking offences are also listed (although the scope of these offences may be wider than is sometimes appreciated – the defendant who has a friend’s cannabis in his pocket may be convicted of possession of a controlled drug with intent to supply).

The scheduled offences also include some offences which are less self-evidently serious

The scheduled offences also include some offences which are less self-evidently serious.  A person convicted of selling fake ‘Levi’ jeans at a car boot sale, for example, may not be severely punished for that in the Magistrates’ Court but will have a ‘criminal lifestyle’ in confiscation proceedings as his offence features in schedule 2.  (Note that Schedule 2 has been subject to various amendments since PoCA 2002 was enacted.)

In relation to the schedule 2 offences just one conviction, however small the amount involved, is sufficient to establish that the defendant has a ‘criminal lifestyle’.

Route 2

this route is intended to deal with a person who has committed a number of offences

The second route involves multiple offences of any type or types providing that the total relevant benefit obtained by the defendant from the offences (including any offences ‘taken into consideration’ in sentencing for any of the relevant offences) is at least £5,000 and either he has been convicted in the same court proceedings of at least four offences from which he has obtained a benefit, or in the six years prior to being charged with the offence currently before the court he has been convicted on at least two separate occasions of offences from which he has obtained a benefit.

So this route is intended to deal with a person who has committed a number of offences – for example a person who has been convicted of multiple thefts.

Route 3

covers a person who has been convicted of an offence carried out over a period of at least six months

The third route covers a person who has been convicted of an offence of any type carried out over a period of at least six months from which he has obtained a benefit of at least £5,000 (including any benefit from other offences ‘taken into consideration’ in sentencing for the relevant offence).

So, for example, a person convicted of receiving state benefits to which he is not entitled over a period of at least six months who obtains at least £5,000 as a result of failing to notify the authorities of a change in his circumstances will have a ‘criminal lifestyle’ – even though he will have been convicted of only a single offence.

 

In some cases the Magistrates’ Court will deal with the offence itself – but confiscation proceedings are always conducted in the Crown Court and the Magistrates will send the matter on to the Crown Court to deal with that aspect of sentencing.

 

(This article deals with the law in England and Wales.  Similar rules apply in Scotland and Northern Ireland but with some important differences.)

 

What are the implications of a ‘criminal lifestyle’?

In the confiscation proceedings perhaps the most important effect of a ‘criminal lifestyle’ is that the statutory assumptions of s10 PoCA 2002 are triggered.  When assessing the defendant’s ‘benefit’ for confiscation purposes in a ‘criminal lifestyle’ case the prosecutor will typically investigate money and assets which have passed through the defendant’s hands or come under his control since the ‘relevant day’.  The ‘relevant day’ is normally the day six years before the day on which the defendant was charged with the offence of which he has been convicted.

In effect anything the defendant has had at any time since the ‘relevant day’ is assumed to be proceeds of crime

The prosecutor may in effect assume that anything the defendant has had at any time since the ‘relevant day’ is proceeds of crime (sometimes referred to as the defendant’s benefit from his assumed general criminal conduct).  It is then for the defendant (and his legal team, possibly with the assistance of a forensic accountant such as myself) to satisfy the court that those monies or assets are in fact not proceeds of crime, for example by showing that money has come from legitimate earnings.

There are other implications of a finding of a ‘criminal lifestyle’, for example in relation to gifts made by the defendant since the ‘relevant day’, but there is not space in this article to go into further details.

Other articles on this blog deal with other aspects of confiscation in more detail.

David

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.

Confiscation: what is obtained “as a result of or in connection with” a crime?

The courts in England and Wales in confiscation proceedings are wrestling with the question of the ‘benefit’ of particular criminal conduct.  This ought to be simple – but it’s not.  Recently the Court of Appeal has issued conflicting decisions and indeed the question will shortly be raised again in the Supreme Court.

This ought to be simple – but it’s not

The legislation sounds straightforward.  The Proceeds of Crime Act 2002 sets out: “A person benefits from conduct if he obtains property as a result of or in connection with the conduct”, s76(4).  “If a person benefits from conduct his benefit is the value of the property obtained”, s76(7).  It is accepted, following the House of Lords decision in CPS v Jennings [2008] UKHL 29, that this means “the property obtained by him“.

Where a person obtains a ‘pecuniary advantage’ he is deemed to obtain a sum of money equal to the value of the pecuniary advantage, s76(5).  References to property or a pecuniary advantage obtained in connection with conduct include references to property or a pecuniary advantage obtained both in that connection and some other, s76(6).  The term “property” is widely defined to include physical property, money and intangible property, s84.

But the statute does not describe in further detail what is meant by “as a result of or in connection with” conduct, such as criminal conduct.

 

What do we mean by that in everyday English?

Suppose I decide to take a holiday abroad.  On holiday I see and purchase a valuable painting by Salvador Dali.  After returning home with it I show it to an art dealer who informs me that it is an obvious fake.  I have been defrauded.  But was I defrauded “as a result of” taking the holiday?  I don’t think so – although it would be true to say that if I had not taken the holiday I would not have been defrauded.

So do we mean that X is “a result of Y” if Y is a necessary and sufficient condition which causes X, so that once Y has occurred X inevitably follows?  Or does that put it too strongly?

Suppose Y occurs and that will cause X unless something intervenes

Suppose Y occurs and that will cause X unless something intervenes?  In the event nothing does intervene and X occurs.  Can we say that X occurred “as a result of Y”?  I would say that we can.  But I am suggesting that Y must be a cause of X (although not necessarily the only cause) – but not merely an action or event which is necessary to enable X to occur.

The expression “in connection with” is even more tricky to explain – and there may be a danger of misinterpretation when we consider the phrase “in connection with” in isolation.

Suppose my friend John says he has a cheque to bank and asks if I would drive him to his bank as his car is being repaired.  I drive John to the bank and when he gets inside he pulls a gun and robs the bank.  Did I drive him to the bank “in connection with” the robbery?  Certainly the two events are connected and my action has facilitated the robbery.

What about Peter who illegally supplied John with the gun but had no knowledge of what John planned to do with it?  Did Peter supply the gun to John “in connection with” the bank robbery?

 

Let’s look at some examples which do relate to confiscation

Those examples of course have nothing to do with confiscation in the criminal courts.  Let’s look at some examples which do relate to confiscation in relation to the defendant’s benefit from the crime of which he has been convicted (on the basis that the statutory criminal lifestyle assumptions are not applicable or are not to be invoked).

although these items were purchased for the purpose of the criminal conduct they were not obtained in connection with the criminal conduct

In the case of James & Blackburn v R [2011] EWCA Crim 2991 Mr Blackburn purchased some weighing scales and cardboard boxes from a legitimate seller.  Mr Blackburn intended to use (and did use) these items in the course of a criminal conspiracy to evade the duty on hand rolling tobacco.  He was caught and convicted and confiscation proceedings followed.  The prosecution asserted that Mr Blackburn had obtained the scales and boxes “in connection with” the criminal conduct.  The Court of Appeal held that, although these items were purchased for the purpose of the criminal conduct they were not obtained in connection with the criminal conduct. His criminal conduct in participating in the conspiracy formed no part of the transactions by which he acquired the various items.  As a consequence the value of these items was not part of Mr Blackburn’s benefit for confiscation purposes.

But in the case of R v Waller [2008] EWCA Crim 2037, Mr Waller had arranged with some friends that he would go overseas (taking his own money and theirs) and purchase a large quantity (250 kilograms) of tobacco which he would smuggle back into the UK without paying the duty.  Again he was caught, convicted of being knowingly concerned in the evasion of duty and subject to confiscation.  In his case it was held that the tobacco had been purchased by Mr Waller both as a result of and in connection with the criminal conduct.  He had purchased the tobacco for himself and his friends with the intention of evading the duty on it.  On that basis the cost of the tobacco (as well as the duty evaded) was an element in Mr Waller’s benefit for confiscation purposes.

 

Was Waller wrongly decided?

Very recently the Court of Appeal has delivered its judgment in Ahmad & Ahmed v R [2012] EWCA Crim 391.  Here the Court stated, quite bluntly, that the earlier decision in Waller “was clearly wrong”.  In Ahmad the court highlighted from Jennings the words, “The rationale of the confiscation regime is that the defendant is deprived of what he has gained or its equivalent”.  Mr Waller had not gained anything from the purchase of the tobacco – his gain was limited to the duty evaded.

In Ahmad the Court of Appeal has provided a lengthy analysis of the decision in Waller although it would appear that Waller was “not referred to during the course of argument before us”.  One wonders whether the court might have benefited from counsels’ fully argued contributions on this topic in oral submissions.

I have to say I am not comfortable with the Ahmad decision in this respect

I have to say I am not comfortable with the Ahmad decision in this respect.  It seems to me that here the court (having an understandable desire to ameliorate the harshness of the confiscation regime) may have focussed too much upon the precise wording of the House of Lords’ judgment in Jennings and not enough on the wording of the underlying statute – with its repeated emphasis on what has been obtained (rather than what has been gained).

In Waller it was accepted, on the evidence, that, “for the purposes of the confiscation proceedings, the operative time for calculating the intention is when he purchased the tobacco”.  It follows, in my view, that the purchase was made (at least) “in connection with” the criminal conduct – the tobacco purchase was at the heart of the intended evasion of duty – and so the tobacco was property obtained by Mr Waller falling within s76(7).

Arguably what should have been further investigated in Waller was the value of the defendant’s own interest in that tobacco (which he had purchased in part with monies which his friends had entrusted to him for that purpose) bearing in mind s79(3).  But it seems that aspect of the matter may not have been raised.

There are other debatable aspects of the decision in Ahmad to which I intend to return in a future blog article.  [EDIT: That blog article has since been written and can be found HERE.]

David

UPDATE:

The Supreme Court handed down its decision in the confiscation case of R v Waya [2012] UKSC 51 on 14 November 2012.  In the light of that it may be that it would have been appropriate for the decision in Waller to be considered in terms of whether the Appeal Court judgment resulted in a confiscation order which was disproportionate and hence an infringement of the defendant’s human rights under Article 1 of the First Protocol of the European Convention on Human Rights.  The Supreme Court decision in Waya is considered in a blog article R v Waya – the UK Supreme Court judgment.