Tag Archives: prosecution

The Court’s discretion under s22 PoCA 2002

Crown Court judgeThe revisiting of old confiscation orders by prosecutors under section 22 Proceeds of Crime Act 2002 is becoming more frequent but as yet few variations made under s22 have been appealed.

In stark contrast to the position when a confiscation order is first made, on a s22 revision the court – in other words the judge – has discretion concerning what variation to make to the original confiscation order and even whether to refuse to make any variation at all.

[NOTE: A longer article on s22 is HERE.]

Section 22 is headed “Order made: reconsideration of available amount”.

 

Reconsideration of available amount

Section 22 PoCA 2002 empowers the Crown Court to vary an existing confiscation order made under s6 of the Act. In effect it allows the prosecution to apply to the court for a further payment to be required from the defendant under an existing confiscation order where his available amount has increased since the original order was made.

We are considering the position of a defendant who was made subject to a confiscation order, perhaps some years ago, and the court ruled then that he had a figure of benefit which was higher than his available amount. At that time the court would not have ordered him to pay the full amount of his benefit. Instead the amount he was then ordered to pay would have been restricted to his available amount at that time. The figures of the defendant’s benefit, available amount and the amount he was ordered to pay should all be spelled out in the original confiscation order.

Under s22 the prosecutor returns to court and asks it to consider the available amount which the defendant has now and to order him to pay a further amount now towards his total benefit.

But the court is required under s22(4) to do what “it believes is just”.  In the case of Padda v R [2013] EWCA 2330 the Court of Appeal noted, at para [45] that it is entirely appropriate on a s22 application for the court to bear in mind any “consideration which might properly be thought to affect the justice of the case”.

At the same time the court must have regard to the underlying policy behind confiscation – that offenders should be stripped of the benefit of their offending.

So could there ever be a case where the court would simply refuse the prosecution’s application to order the defendant to pay a further amount?

 

Mr Mundy’s case

Ian Mundy had been convicted in Cardiff Crown Court in 2008 of drugs offences (involving cocaine and cannabis) and money laundering.  He had been subject to confiscation with a benefit of £172,365 and an available amount of £9,275.  He was ordered to pay £9,275 and did so by 19 March 2009.

There was therefore an excess benefit of £163,090 which Mr Mundy had never been ordered to pay.

In 2016 or 2017 it came to the attention of prosecutors that the property owned by Mr Mundy (which had a negative equity in 2008) now had a positive value.  In addition Mr Mundy now had a car, a van and two motorcycles and had over £8,000 in bank accounts.  He seemed an ideal candidate for a s22 application.

A restraint order was obtained on 21 February 2017 and a s22 application was lodged on 26 May 2017.  The Crown sought a further payment of £29,791.  Mr Mundy disputed the Crown’s valuation of his assets and, following exchanges of documents, the Crown reduced its figure to £22,061.  Mr Mundy put the figure at only £2,561 arguing, amongst other things, that the monies in the bank accounts were to pay for various items and to support his family. He said the motorcycles had little value and were his hobby; the van was used for work; the car was jointly owned with a third party and the value placed on the property was excessive.

The application was heard on 13 September 2017.  The Crown Court judge refused to order that Mr Mundy pay any further amount.  The judge said, “I have read the application and the information in support of the application to make the order. I have also read the detailed response to the section 22 application in which the explanation is provided on behalf of the defendant, firstly, to the circumstances in which he acquired the various vehicles and also the circumstances and the use to which the savings which were gathered were to be put. I have absolutely no doubt that it would not be just in these circumstances to make the order under section 22 and I decline to do so.”

The Crown appealed.

 

The appeal

The Court of Appeal heard the case in January 2018, R v Mundy [2018] EWCA Crim 105.

On appeal the court noted that what was “just” required a consideration of what was “just” for the prosecution as well as for the defendant.  The court noted that the judge in the Crown Court had expressly referred to the public interest in confiscating the proceeds of crime.

The court considered that the judge’s reasoning had been rather too “abbreviated”.  At para [33] it remarked “If the judge had gone through the list and given brief reasons for rejecting each element in it, and if he had added that there must be an element of proportionality in the disposition of court resources, then we doubt there could have been any proper basis for challenging the order.  Judges are entitled summarily to dismiss applications that they regard as being substantially without merit, but the Crown had spent considerable time and effort preparing for the application and both it and the public were entitled to know why the judge rejected the application.”

But the Court of Appeal went on to conclude that the Crown Court judge had a discretion to refuse to vary the order and that on the facts it was properly open to him to do so in Mr Mundy’s case.  The court dismissed the prosecution’s appeal.

It follows that – at least for now – Mr Mundy is not required to pay anything further under the confiscation order.

 

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.)

S10A PoCA 2002 determinations – appeals & reconsideration

Scales of justiceOnce the Crown Court has made a ‘determination’ for the purposes of confiscation of the extent of a convicted defendant’s interest in an asset can that ‘determination’ be altered on an appeal or reconsideration?

The short answer is ‘Yes’.  A previous article ‘Crown Court section 10A determinations in confiscation‘ considered the new power to make a ‘determination’ introduced by s1 Serious Crime Act 2015 which inserted new s10A into the Proceeds of Crime Act 2002.

This article goes on to consider appeal & reconsideration of s10A determinations.

 

Appeal

A s10A determination may be appealed either by the prosecutor or by a person whom the Court of Appeal thinks is or may be a person holding an interest in the asset in question, but different eligibility rules apply, see s3 SCA 2015.

Whoever wishes to appeal to the Court of Appeal will not be permitted to do so where a receiver has already been appointed under s50 PoCA 2002, or where the Court of Appeal believes that an application is to be made by the prosecutor for the appointment of a receiver, or where such an application has been made but has not yet been determined.

In addition where the intended appeal is to be made by a person who claims to hold an interest in the asset the appeal must be on the basis that either the person was not given a reasonable opportunity to make representations when the determination was made, or that giving effect to the determination would result in a serious risk of injustice to that person, or both.

But what is meant by “a serious risk of injustice”?  I would suggest that this is not restricted to a risk of serious injustice – what is serious is the risk, not the injustice.  When considering the meaning of the same phrase in earlier confiscation legislation the Court of Appeal in the case of R v Benjafield [2000] EWCA Crim 86 held, at paragraph [41.4]: “any real as opposed to a fanciful risk of injustice can be appropriately described as serious”.

It is doubtful whether an error which had an insignificant impact on the outcome would be regarded as creating an “injustice”.  However it may prove to be the case that the need to show “a serious risk of injustice” will not be an especially difficult hurdle for a potential appellant.

On hearing an appeal against a determination the Court of Appeal may confirm the determination, or make such order as it believes is appropriate.  The decision of the Court of Appeal may be further appealed to the Supreme Court.

 

Reconsideration in the Crown Court

When the Crown Court is appointing a receiver under s50 it may confer various powers upon the receiver including (but not limited to) power to manage or realise any realisable assets, and the court may may order a person holding an interest in a realisable asset to make payment to the receiver in respect of a beneficial interest in that asset held by the convicted defendant or the recipient of a tainted gift, see s51(2) & (6).

Where a s10A determination in respect of an asset has not previously been made the Crown Court must not exercise those powers without giving any person holding an interest in the asset a reasonable opportunity to make representations to it, s51(8).

Where a s10A determination in respect of an asset has previously been made that will bind the Crown Court when appointing the receiver, unless the Crown Court finds on an application by a person holding an interest in the asset that either the person was not given a reasonable opportunity to make representations when the determination was made and has not appealed against the determination, or that giving effect to the determination would result in a serious risk of injustice to that person, or both – see s51(8B) inserted by s4 SCA 2015.

The effect therefore is that the s10A determination can be undone by the Crown Court when it is appointing a receiver (unless that determination has already been subject to an appeal to the Court of Appeal).

 

The combined effect

The combined effect of these provisions is that a person with an interest in the asset will have an opportunity either to appeal to the Court of Appeal against the determination or an opportunity to ask the Crown Court to reconsider the determination (but cannot do both).

In either case the person with the interest will have to satisfy the court that either he was not given a reasonable opportunity to make representations when the determination was made, or that giving effect to the determination would result in a serious risk of injustice to him, or both.

He will need to do that on or before the appointment of a receiver under s50.

It remains the case that the powers of the receiver must be exercised with a view to allowing a person other than the defendant or a recipient of a tainted gift to retain or recover the value of any interest held by him, see s69(3)(a).

A s10A determination is a determination of the defendant’s interest in the asset rather than a determination of the interests of others but clearly has a relevance to issues arising under s69(3)(a).

 

Conclusion

The existence of these opportunities to challenge the previous ‘conclusive’ s10A determination may be thought to go a long way to nullify the perceived attractions of inviting the Crown Court to make a s10A PoCA 2002 determination when making a confiscation order.

 

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 default sentences under the new law

BewareThe law relating to the default sentence which may be triggered by a failure to satisfy on time a confiscation order made under Part 2 Proceeds of Crime Act 2002 has been amended by s10 Serious Crime Act 2015 with effect from 1 June 2015.

The government’s objective in making the changes seems to be to make default sentences more effective in securing payment by both simplifying & increasing the severity of sentencing.

So what has changed & what has not?

 

Comparing the old & new tiers

It might be helpful to compare the old tiers & the new.  There were twelve tiers previously – now there are only four.  The four new tiers include a new break point at £500,000.  The following table shows all the tiers with both the old & new maximum default terms.

Old New Change
An amount not exceeding £200 7 days 6 months Increased
An amount exceeding £200 but not exceeding £500 14 days 6 months Increased
An amount exceeding £500 but not exceeding £1,000 28 days 6 months Increased
An amount exceeding £1,000 but not exceeding £2,500 45 days 6 months Increased
An amount exceeding £2,500 but not exceeding £5,000 3 months 6 months Increased
An amount exceeding £5,000 but not exceeding £10,000 6 months 6 months No change
An amount exceeding £10,000 but not exceeding £20,000 12 months 5 years Increased
An amount exceeding £20,000 but not exceeding £50,000 18 months 5 years Increased
An amount exceeding £50,000 but not exceeding £100,000 2 years 5 years Increased
An amount exceeding £100,000 but not exceeding £250,000 3 years 5 years Increased
An amount exceeding £250,000 but not exceeding £500,000 5 years 5 years No change
An amount exceeding £500,000 but not exceeding £1 million 5 years 7 years Increased
An amount exceeding £1 million 10 years 14 years Increased

It can be seen that the maximum default sentences are increased for all amounts except for amounts exceeding £5,000 but not exceeding £10,000 & amounts exceeding £250,000 but not exceeding £500,000, for which the maximums are unchanged.

Because in each case the specified sentence for each tier is a maximum sentence, any default sentence which may have been set on or after 1 June 2015 using the old tiers will not be an unlawful sentence under the new tiers.

However when operating the new tiers it seems likely that in very many cases Crown Court judges will be minded to fix a higher default sentence than the one which they would have fixed under the old tiers.

In the author’s view this is particularly likely in relation to higher value confiscation orders.  For example a defendant ordered to pay £400,000 will be subject to a statutory maximum of 5 years (which is unchanged).  But whereas previously the ‘5 year tier’ was from £250,000 to £1 million it is now from £250,000 to £500,000.  Therefore a sum of £400,000 is now much closer to the ceiling of the tier and therefore likely to attract a default sentence which is also closer to the ceiling for that tier.

 

Previous case law

The setting of a default term will always be, in the author’s view at least, dependent upon the particular facts relevant to the defendant & the case.  But previous case law has established a principle that the default term will normally be not less than the maximum term applicable to the tier immediately below.

So, for example, under the old tiers one would expect a default term in respect of an amount of £110,000 to be not less than two years (which was the maximum for sums not exceeding £100,000).

That principle may be a less useful guide under the new regime as there are now four tiers rather than twelve.

It remains to be seen how far, if at all, Crown Court judges will have some regard to the old tiers when setting a default sentence under the new regime.

 

Transitional provisions

The amendment made by s10 SCA 2015 came into effect on 1 June 2015 as set out in regulation 3 Serious Crime Act 2015 (Commencement No 1) Regulations 2015.  But neither the 2015 Act nor the commencement regulations tell us anything useful about transitional arrangements for the new four tiers.

Typically confiscation proceedings (in the broadest sense) might pass through nine significant stages en route to activation of the default sentence:-

  • The offence is committed
  • The defendant is charged
  • The defendant is convicted
  • A prosecution s16 statement is issued or amended
  • A confiscation order is made in the Crown Court
  • Default in payment occurs
  • Interest accrues on the outstanding amount
  • The confiscation order might be varied in the Crown Court
  • The defendant is committed to prison by the Magistrates’ Court

But which of these must occur on or after 1 June 2015 for the new regime to be applicable?  The legislation gives no clue.

One approach is to suggest that whenever the Crown Court makes or varies a confiscation order on or after 1 June 2015 the new regime applies.  I understand that to have been the government’s intention & there is a certain logic to it.

An alternative approach is to suggest that the new regime can only apply where the offence is committed on or after 1 June 2015.  The basis of that is an argument that the setting of the default sentence, and the confiscation proceedings in the Crown Court, are an integral part of the sentencing for the offence.  Since legislation cannot retrospectively impose a greater penalty for an offence than was in operation when the offence was committed, the old regime (it is argued) must apply if the offence was committed before 1 June 2015.

Which is the correct approach may become clearer over the coming months.

 

Pro-rata release

Questions have been raised as to whether early release of the defendant from his default sentence on the basis of part-payment still operates.  The short answer appears to be “Yes”.

Pro-rata release for part payment applies by virtue of a rather complex chain of statute law from s35(2) PoCA 2002 to s140(3) Powers of Criminal Courts (Sentencing) Act 2000 to s79(2) Magistrates’ Court Act 1980.  That chain of legislation is unaffected by the changes made by the Serious Crime Act 2015.

This means that, for example, a defendant who is given a 2 year default sentence in respect of an amount of £100,000 will have his sentence effectively reduced to one year if he makes payment which reduces the amount outstanding to £50,000.

[UPDATE: See a more detailed article about reductions for part payments HERE.]

 

Early release on licence

Similarly – but with one important exception – early release from a default sentence at the half-way stage on licence under s258 Criminal Justice Act 2003 continues to apply.

The exception is that the early release provision is disapplied where “the sum in question” exceeds £10m, see s10(3) SCA 2015.  It appears that “the sum in question” refers to the amount ordered to be paid by the confiscation order or any variation of that order, rather than to the amount currently remaining unpaid under the order (taking into account interest accrued & payments made).  In a sense therefore this provision creates a further tier of default sentence in respect of orders for sums in excess of £10m.

This disapplication of early release in respect of sums exceeding £10m applies where the default occurs on or after 1 June 2015 and so can apply where a confiscation order was made prior to the implementation of the new regime, see s86(2) SCA 2015.

 

Variation of the confiscation order

Application may be made in various circumstances by the defendant or by the prosecution to vary the confiscation order, for example where the available amount proves inadequate (s23), where new assets come to light (s22), or where accrued interest has increased the amount outstanding & the prosecution wish the court to consider increasing the default sentence (although in practice such applications are understood to have been rare).

 

Impact on future proceedings

It might be considered that the increased severity of default sentences under the new regime could have an impact upon the way that prosecutors pursue & settle confiscation proceedings.

For example it may prove to be the case that prosecutors will be less willing to settle confiscation proceedings by compromise agreement, or more willing to pursue assertions of ‘tainted gifts’ or ‘hidden assets’, in the hopes that heavier default sentences may strengthen their hand in negotiations prior to the making of an order & in persuading defendants (& perhaps their families or third parties) to disgorge assets to satisfy an order which has been made.

Similarly prosecutors might have greater expectation of reward from revisiting older PoCA 2002 confiscation orders & pursuing s22 applications.

 

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.)

UK Supreme Court rules on money laundering arrangements

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

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

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

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

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

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

 

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

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

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

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

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

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

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

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

 

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

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

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

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

 

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

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

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

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

 

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

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

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

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

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

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

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

 

Contacting us

Our contact details are here.

David

(Note: This article applies to prosecutions under the provisions of Part 7 of the Proceeds of Crime Act 2002 in England and Wales.  There are a number of additional issues which could be relevant to a defendant’s trial in particular cases which it is not possible to deal with in a relatively short article such as this.  Appropriate professional advice should be sought in each individual case.)

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Contacting us

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Interest on an unpaid confiscation order

8 per cent roadsignWhen a confiscation order is made in the Crown Court under the Proceeds of Crime Act 2002 the order will specify the amount to be paid & the due date for payment.

Section 11 PoCA 2002, as originally enacted, envisages the whole amount becoming due by the same date which will be not later than six months after the date of the order.  But there is scope for that date to be postponed, on further application to the court, to a date not later than 12 months after the date of the order.

The Serious Crime Act 2015 (on 1 June 2015) substituted a new section 11 which expressly permits the amount payable to fall due by instalments due by different dates, each of which is to be not later than three months after the date of the order.  But there is scope for those dates to be postponed, on further application to the court, to new dates not later than six months after the date of the order.

An application for a further postponement must be made (but not necessarily heard) before the initial period expires.

No further postponement of the due dates is possible beyond the limits set out above.

 

Interest

If any amount payable is not paid by the due date then interest is added under s12 (which is correspondingly amended by s5 Serious Crime Act 2015).  Interest is calculated on the amount which is overdue. Interest is charged at the rate applicable to civil court judgments under s17 Judgments Act 1838, which is currently 8% per annum.  That interest rate is not changed frequently – it was last amended in 1993.

So, for example, where there is an overdue outstanding amount of £150,000 interest of £1,000 per month will be added to that.

But interest is chargeable only for periods after the due date for payment.  So the effect of a postponement is not only to delay any enforcement proceedings and the possible imposition of a default sentence but also to delay the date from which interest starts to run.

 

Effect on default sentence

Interest can have an impact on the default sentence.  An illustrative example may make this clear.

[UPDATE: Note this section of the article was updated on 25 January 2018 to reflect a decision by the UK Supreme Court.]

John is subject to a confiscation order in the sum of £150,000 with a default sentence of 30 months.  He has paid £15,000 under the order, but interest of £5,000 has been added.  When John is being committed to prison under the default sentence the balance outstanding is £140,000 (including the interest) and the default term will be 27 months.  This is because £135,000 (the original £150,000 less the amount paid to date of £15,000) is 90% of £150,000 and 90% of 30 months is 27 months.  (In practice the interest will have been calculated up to the day when the Notice of the Enforcement Hearing was issued and the default sentence would be calculated in days rather than months.)

The relevant case law is R (Gibson) v Secretary of State for Justice [2018] UKSC 2.

However interest will not normally increase the default term beyond the figure originally set by the court.

So, for example, Peter is subject to a confiscation order in the sum of £400,000 with a default sentence of 48 months.  He has paid £25,000 under the order, but interest of £34,000 has been added.  When Peter is being committed to prison under the default sentence the balance outstanding is £409,000 but Peter’s maximum default term will be unchanged at 48 months.  Peter’s actual default term will be reduced in proportion to his £25,000 payment and the £400,000 amount originally ordered to be paid (so will be reduced by 3 months).

The prosecution may apply to the Crown Court to have a default sentence increased to reflect added interest – but this is very rare in practice.

 

Contacting us

Our contact details are here.

David

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

PoCA section 22 – unfit for purpose?

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

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

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

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

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

 

Genesis of s22

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

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

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

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

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

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

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

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

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

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

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

 

Context of s22

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

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

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

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

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

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

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

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

 

Case law

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

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

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

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

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

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

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

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

 

Operation of s22

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

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

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

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

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

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

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

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

 

Problems

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

Suggested solutions

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

Contacting us

Our contact details are here.

David

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

Confiscation – after-acquired property

Money imageUnpaid benefit from an old confiscation order may be pursued by the prosecution under s22 Proceeds of Crime Act 2002 where the original order was made under s6 of the Act.  (A similar provision, differently worded, was included at s16 of the Drug Trafficking Act 1994 in relation to confiscation orders made under that Act.)

But how does s22 PoCA 2002 work and does it achieve the intended result?

 

The wording of s22

The wording of s22 initially appears complex and baffling.  To the best of the author’s knowledge there is no authoritative case law dealing with the detail of some of the provisions of this section.

The section is headed “Order made: reconsideration of available amount“.  It may be assumed that one of the objectives of s22 was to permit prosecutors to follow up benefit on old confiscation orders which the defendant had not previously been ordered to pay in consequence of his limited available amount at the time.

The intention, it may be presumed, was to permit the court, on an application by the prosecutor (or a receiver appointed under the Act), to make a further confiscation order when the convicted defendant had subsequently acquired additional assets (referred to sometimes as “after-acquired property”).  It is this general principle, rather than the detailed operation of the statutory provisions, which has been addressed in case law (see R v Tivnan [1998] EWCA Crim 1370Saggar, Re Drug Trafficing Act 1994 [2005] EWCA Civ 174, Peacock, Re [2012] UKSC 5 and Padda v R. [2013] EWCA Crim 2330).

But the wording of s22 does not refer to a further confiscation order – it refers to a variation of the original order and, potentially more significantly, it fails to take account of the payment already made by the convicted defendant when limiting the overall impact of the confiscation proceedings on him.  Furthermore the statutory test in relation to his current available amount is, in the author’s view at least, misconceived.

The wording of the section is appropriate to the case of a defendant who has not been ordered to pay any amount under the original confiscation order but does not correctly address the situation of a defendant who has made payment previously.  In consequence the section in practice may not have the intended outcome.  For a more detailed discussion of unresolved problems with the legislative wording of s22 see my article PoCA section 22 – unfit for purpose?

Perhaps the best way to explain some of the difficulties which can arise from the wording of this section is by a couple of illustrative worked examples.

 

Worked example – Edward

Edward is a convicted defendant who was consequently subject to a confiscation order under s6 PoCA 2002 in May 2006.  The order made then showed his benefit to be £500,000 and his available amount to be £200,000.  Edward was accordingly ordered to pay £200,000 and he paid this amount on time and in full.

In recent years Edward has operated a successful legitimate business and now (January 2015) has an available amount of £400,000.  The prosecution apply for an order under s22.

Under s22 the court will undertake an examination of Edward’s current available amount (referred to as the “new calculation”) and, if this exceeds the ‘relevant amount’, can order Edward to pay such amount as it believes is just, but does not exceed the amount found as the defendant’s benefit from the conduct concerned, see s22(4).

The ‘relevant amount’ is Edward’s available amount as previously determined by the court, s22(8).  Edward’s benefit from the conduct concerned is his benefit as previously determined by the court, s22(9).

But when deciding whether one amount exceeds another the court must take account of any change in the value of money, s22(7).

 

Change in the value of money

For the purpose of taking account of any change in the value of money we are going to use inflation index figures published by the Office for National Statistics known as RPIJ (which stands for Retail Prices Index Jevons).

(See the article Confiscation – which inflation index? for an explanation of the use of the RPIJ rather than the Retail Prices Index or any other measure of inflation.)

At the time the prosecutor’s s22 application in Edward’s case is being finalised (January 2015) the latest available figure for the RPIJ is that for November 2014.

Figures from the Office for National Statistics show that the RPIJ values (in Table 35a) were

May 2006 191.6 Date of confiscation order
November 2014 238.3 Latest available index

 

Calculating the uplifts

Edward’s available amount of £200,000 was determined by the court in May 2006 when the RPIJ was 191.6. The latest RPIJ is 238.3 so the uplift is

£200,000 x (238.3 – 191.6) / 191.6 = £48,747

So the equivalent available amount now, referred to in s22(4) as the ‘relevant amount’, is £248,747.

The £500,000 benefit of the offence was also determined by the court in May 2006 so by a similar computation the uplift to that benefit is

£500,000 x (238.3 – 191.6) / 191.6 = £121,868

So the equivalent benefit figure now is £621,868.

 

The court’s powers

We can now see that Edward’s current available amount of £400,000 does exceed the ‘relevant amount’ of £248,747.  So the court may order Edward to make a further payment, but this must not exceed £621,868 (Edward’s total benefit uplifted for changes in the value of money).

As Edward currently has an available amount of only £400,000 the court will presumably not order him to pay an amount in excess of that because that would contravene the spirit of s7 and would not be “just”.

However the defence may argue that an order for £400,000 would not be just because Edward has previously paid a confiscation order of £200,000 in respect of the same benefit.

The defence may argue that the new order should be limited to £300,000 or perhaps to £373,121.

The £300,000 is the amount of the benefit that was determined, but not ordered to be paid, by the court in May 2006 (that is the difference between the £500,000 benefit and £200,000 ordered to be paid at that time).

In the alternative, the defence may argue that the order should be limited to that £300,000 of unpaid benefit in May 2006 uplifted for changes in the value of money since that time.  The uplift of that amount may be calculated as

£300,000 x (238.3 – 191.6) / 191.6 = £73,121

So the equivalent unpaid benefit figure now is £373,121.

If the court were now to order Edward to pay a further £400,000 he will have been required to pay a total of £600,000 (including the £200,000 paid many years previously under the original order) in respect of a benefit of only £500,000.

Because the court has, under s22, a wide discretion to order payment of the amount it believes is just, the court may order Edward to pay any amount between nil and £400,000 (but subject always to an appeal to the Court of Appeal).

The court will in practice assume the usual powers to allow Edward time to pay and to set a default sentence (reflecting the new amount ordered to be paid) in the event of non-payment (although there is no express provision in s22 to vary the time to pay and default sentence in the original confiscation order).

 

Worked example – Stephen

Now let’s consider a second worked example. Stephen’s circumstances are identical to Edward’s in every way except that his available amount in May 2006 was £350,000.  Stephen was accordingly ordered to pay £350,000 and he paid this amount on time and in full.

The benefit that Stephen was not ordered to pay at the time was therefore £150,000.

Stephen’s available amount of £350,000 was determined by the court in May 2006 when the RPIJ was 191.6. The latest RPIJ is 238.3 so the uplift to that figure is

£350,000 x (238.3 – 191.6) / 191.6 = £85,308

So the equivalent available amount now, referred to in s22(4) as the ‘relevant amount’, is £435,308.

Since Stephen’s current available amount of £400,000 does not exceed the ‘relevant amount’ of £435,308 the condition in s22(4) is not met and the court cannot make any further order against Stephen.  The prosecutor’s application under s22 will fail on this occasion.

 

Unintended consequences

In the author’s view neither the possibility of a new order against Edward which would result in the total amounts confiscated from him exceeding the total amount of his benefit (when all amounts are uplifted for changes in the value of money), nor the impossibility of the court making any further order against Stephen when he has unpaid benefit on an old confiscation order and the means to pay it, appear to be the consequences likely to have been intended by parliament when s22 was legislated.

Section 22 was not discussed when the detailed provisions of the (then) Proceeds of Crime Bill were considered by a House of Commons committee as part of the normal legislative process, nor was there any debate on the section in the House of Lords (although subsections 8 & 9 were added to s22 at that late stage there was no debate).  Perhaps this section should now be revisited by parliament.

 

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 – calculating the inflation uplift

Inflation graphConfiscation legislation in the Proceeds of Crime Act 2002 requires the Crown Court when making a confiscation order to take account of changes in the value of money where appropriate.

This article sets out, with a couple of worked examples, the mathematical details of the computations which may be required under s80 PoCA 2002 in relation to a defendant’s benefit.

 

Worked example – Peter

Take the case of Peter who was convicted in May 2013 of an offence of possession of a controlled drug with intent to supply.  Those drugs were seized from him on his arrest in June 2012 and had a value of £100,000.  Peter has a ‘criminal lifestyle’ for confiscation purposes.  He was charged with the offence on 5 January 2013, so the ‘relevant day’ for the purposes of the ‘criminal lifestyle’ assumptions is 6 January 2007.

A s16 PoCA 2002 statement is now being prepared (in January 2015).  The latest information concerning Peter’s financial affairs covers the period to April 2014.  Examination of this indicates that Peter has an assumed benefit from transfers received in the period from January 2007 to April 2014 of £400,000.  For simplicity let’s say that no assumed benefit arises in respect of Peter’s expenditures since January 2007 or his assets held since the date of his conviction.

Before adjustment for changes in the value of money Peter’s benefit for confiscation purposes is £500,000, comprising the £100,000 value of the drugs seized in June 2012 and the £400,000 assumed benefit of transfers received between January 2007 and April 2014.

 

Inflation index

At the time the s16 statement is being finalised the latest available figure for the RPIJ is that for November 2014.

(See the article Confiscation – which inflation index? for an explanation of the use of the RPIJ rather than the Retail Prices Index or any other measure of inflation.)

Figures from the Office for National Statistics show that the RPIJ values were

January 2007 195.1 Date of start of assumed benefit
June 2012 227.1 Date of benefit of actual offence
April 2014 237.4 Date of end of assumed benefit
November 2014 238.3 Latest available index

 

Calculating the uplift

The £100,000 benefit of the offence was obtained in June 2012 when the RPIJ was 227.1.  The latest RPIJ is 238.3 so the uplift is

£100,000 x (238.3 – 227.1) / 227.1    =  £4,932

The £400,000 assumed benefit arose over a period from January 2007 to April 2014.  We could identify the benefit obtained in each month from January 2007 onwards and perform separate uplift calculations for each month.  However in many cases we can get a reasonable approximation of the correct uplift if we take an arithmetic average of the index figures for the start and the end of the period (January 2007 and April 2014) and apply that to the whole of the assumed benefit obtained over that period.

(Note that this method has a tendency to overstate the true inflation uplift, as compared to separate computations undertaken for each month in the period, where the amount of benefit arising is greater towards the end of the period and / or annual inflation rates are lower towards the end of the period.)

The average index figure is

(195.1 + 237.4) / 2  =  216.25

Using that we can calculate the uplift on the £400,000 assumed benefit as

£400,000 x (238.3 – 216.25) / 216.25    =  £40,786

So the total uplift on the entire benefit is £45,718 and Peter’s total benefit figure, adjusted for changes in the value of money, is £545,718.

 

Worked example – Brian

Let’s consider a slightly more complex example.  Suppose Brian’s position is exactly identical to Peter’s except that Brian owns a house, subject to mortgage.

Brian bought the house for £80,000 in September 2000 with the aid of a (legitimately obtained) mortgage of £60,000 (so his equity in it at that time was £20,000).  The house is currently worth £200,000 and the outstanding mortgage currently stands at £30,000.

Brian’s assumed benefit arising from his ownership of the house will be the higher of (A) the current value of his equity in the house and (B) the value of his equity in the house at September 2000 uplifted for subsequent changes in the value of money.

Clearly (A) will be £170,000 (which is the £200,000 current value less the £30,000 currently outstanding mortgage).

To calculate (B) we need the RPIJ index figure for September 2000, which was 169.4.  We can then uplift Brian’s equity in the property in September 2000 (which was £20,000) by changes in the value of money.  The calculation for the uplift is

£20,000 x (238.3 – 169.4) / 169.4    =  £8,135

So (B) is £28,135 (which is the £20,000 original equity uplifted for inflation).

Since (A) is the higher figure Brian’s additional assumed benefit in relation to the house he owns is £170,000.

Brian’s total benefit is therefore £715,718 (including the £545,718 actual and assumed benefit from the drugs seized and transfers received since the ‘relevant day’).

 

Conclusion

Hopefully these detailed worked examples will assist prosecutors to perform, and defendants to check, computations of the effect of changes in the value of money for confiscation purposes.

 

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 – which inflation index?

RPI v CPI graphConfiscation legislation in the Proceeds of Crime Act 2002 requires the Crown Court when making a confiscation order to take account of changes in the value of money where appropriate.  For example s80(2) refers to this in the context of evaluating the ‘benefit’ obtained by the convicted defendant and s22(7) refers to “any change in the value of money” in the context of reconsideration of a confiscation order where a convicted defendant has acquired further assets since the original confiscation order was made.

But the legislation does not spell out how the court is to quantify the “change in the value of money”.  It seems obvious that this should be done using a UK index of inflation – but which one?

I would suggest that there are four potential candidates for the appropriate index – the Retail Prices Index (RPI), the Consumer Prices Index (CPI), and modified versions of these two indices which are known as RPIJ and CPIH.  All of these are published monthly by the Office for National Statistics.  But the figures produced by using these alternative indices may be significantly different.  Which of them is to be preferred?

 

RPI & RPIJ

The Retail Prices Index is perhaps the most well known UK inflation index.  It has been published continuously since 1947.  It forms the basis of certain contractual arrangements and the amounts paid on some investments (such as index-linked gilts).

However in recent years it has been recognised that some of the underlying mathematics in the computation of the RPI is flawed and RPI has fallen out of favour.  Since 2013 RPI has ceased to be formally recognised as a ‘National Statistic’ by the Office for National Statistics (ONS).  The RPI does not satisfy international standards as a measure of inflation.  The ONS continue to publish the RPI however because it remains relevant where it has been written into contracts and investments.

The mathematical flaw in the calculation of RPI causes it to systematically overstate inflation in times of rising prices.  Best practice therefore appears to be not to rely on RPI for the purpose of preparing figures adjusted for changes in the value of money.

In order to address the flaw in the calculation of RPI a revised index, known as RPIJ, is now calculated and published by the ONS.  Unlike RPI, RPIJ is recognised as a ‘National Statistic’ and does satisfy international standards as a measure of inflation.  Figures for RPIJ going back to 1998 have now been published by the ONS.

Because of the different underlying mathematics, in times of rising prices RPIJ will always indicate a lower rate of inflation than RPI.

 

CPI & CPIH

The Consumer Prices Index (CPI) has been published by the ONS for each month from January 1998 onwards.

The CPI was originally developed to address aspects of RPI which were perceived as misleading as a measure of the impact of changing prices on UK consumers.  The CPI does not suffer from the mathematical flaw which affects RPI.

Another significant difference between CPI and RPI (and RPIJ) is that CPI does not reflect housing costs whereas RPI (and RPIJ) do.

However the CPI is formally recognised as a ‘National Statistic’ and is a measure of consumer price inflation produced to international standards and in line with European regulations.   It is recognised as the leading index of inflation in the UK for the purpose of the government’s management of the economy, for example when setting an inflation target.

The lack of any element of housing costs in CPI has caused some concern which has resulted in the publication by the ONS of a further index known as CPIH.  In effect this is an index of consumer prices including an element of housing costs.

But CPIH is still regarded as under development and, as yet, is not formally recognised as a ‘National Statistic’ and it is not accepted as satisfying international standards as a measure of inflation.

Whilst that remains the case it would appear to be not best practice to rely on CPIH for the purpose of preparing figures adjusted for changes in the value of money.

 

Comparative figures – a worked example

Suppose that a convicted defendant who has a ‘criminal lifestyle’ has obtained an actual benefit of his offence in June 2012 of £100,000, was charged in January 2013 and has an assumed benefit of £400,000 between January 2007 and April 2014.  Using each of the four different indices what figure would be calculated for his total benefit?

(When these calculations were undertaken the latest available inflation indices were those for November 2014.  In each case the uplift has been calculated using only the index figures for January 2007, June 2012, April 2014 and November 2014 on the assumption that the base for the uplift of the assumed benefit arising between January 2007 and April 2014 is the arithmetic mean of the index figures for January 2007 and April 2014.)

Clearly without any indexation the benefit would be £500,000.  Using RPI the benefit works out at £556,098.  Under RPIJ it is £545,718.  Based on CPI £548,231 and finally employing CPIH it would be £545,085.  (For more detail on the computations behind these figures see Confiscation – calculating the inflation uplift.)

The overstatement which would be caused by RPI is clearly illustrated by the figures in this example.

As only RPIJ and CPI are formally recognised as ‘National Statistics’ one might expect that the court would (given the option) be likely to prefer one of these two figures.  In this example those two figures are reasonably similar, although the prosecution may prefer CPI whilst the defence would prefer RPIJ.

An independent observer might consider that the CPI carries greater authority than the RPIJ.

 

Case law

In a somewhat confused and confusing judgment the Court of Appeal when asked to examine the use of RPI (rather than CPI or some rather vague alternative) in a confiscation case said this:-

“We reject the invitation of Mr Sutton to provide a definitive ruling as to the competing claims of the RPI and CPI as indices or indeed as to the consideration of any other factor. We have concluded that no material which he has placed before us calls for any consideration or reconsideration of the established practice in the Crown Court in confiscation proceedings of reliance upon the RPI . . . We emphasise this court’s view that consistency and certainty is imperative and for that reason the use of the RPI in our judgment continues to be appropriate.

. . .

We note that a decision has been taken recently by the Serious Fraud Office and the CPS to adopt an improved variant of the RPI, known as the RPIJ in confiscation proceedings in the future. The revised index which meets international standards will result in a slightly lower increase in the change in the value of money.”

R v Shepherd [2014] EWCA Crim 179

So it would appear that the Court of Appeal considers that RPI continues to be appropriate but does not rule out the use of CPI or RPIJ.

 

Conclusions

In my view prosecutors, defendants and courts should not be using the RPI as a basis for calculating changes in the value of money in confiscation cases because the ONS no longer regards RPI as a ‘National Statistic’ fit for purpose as an index of UK inflation.  The UK national statistic for inflation which carries most international approval is the CPI and, in the author’s view at least, the CPI is currently the most appropriate index to adopt as the basis for calculating changes in the value of money in confiscation proceedings.

However if prosecutors are now adopting RPIJ, which like CPI is recognised as a ‘National Statistic’ by the ONS, then neither defendants nor courts are likely to object.  In consequence RPIJ is now likely to become the de facto standard as the basis for calculating changes in the value of money in confiscation proceedings.

 

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.)