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Crown Court s10A determinations in confiscation

Crown Court judgeThe Serious Crime Act 2015 has introduced a new power enabling a Crown Court judge when making a confiscation order to make a “determination” of the extent of the defendant’s interest in any property which is likely to be used to satisfy the order.

In other words, where more than one person has an interest in the property the judge may ‘determine’ what proportion of the property belongs to the defendant at the time the confiscation order is made.

That determination will then, subject to limited exceptions, be conclusive in further proceedings taken with a view to satisfying the order.

The objective of such a “determination” under the new s10A Proceeds of Crime Act 2002 appears to be to facilitate the enforcement of confiscation orders by a conclusive ruling at the time the confiscation order is made on competing interests in assets which might need to be realised to satisfy the order.  Previously such matters would not be resolved until a later stage – when enforcement proceedings against the defendant’s assets were underway.

But it remains open to the judge to make a confiscation order without making any “determination” – in other words to do precisely what he would have done before s10A was introduced.  It is envisaged that in many cases that is exactly what will happen.

 

The new law

The new law, which came into effect on 1 June 2015, is to be found in sections 1 – 4 Serious Crime Act 2015.

Section 1 is the key provision, inserting a new s10A into PoCA 2002 setting into law the power to make a “determination” and the requirement that, before doing so, the court must give any “interested person” (meaning any third party whom the court thinks has, or may have, an interest in the property) a reasonable opportunity to make representations to it.

So where a judge is considering making a “determination” an “interested person” can be represented at the confiscation hearing, which is a new development in confiscation law.

As always in confiscation law, “property” means an asset of any description – not just land & buildings.

Section 2 deals with the provision of information to the court by the defendant (amending s18 PoCA 2002), the prosecutor (amending s16) and the interested person (inserting a new s18A).

Sections 3 & 4 deal with appeals & reconsideration.  I deal with those aspects in ‘S10A PoCA 2002 determinations – appeals & reconsideration‘.

 

How is it supposed to work?

The idea is that when a convicted defendant is first required by a s18 order to provide information to the court for the purposes of confiscation proceedings he may also be required to provide information which would be relevant to a potential s10A determination.  In other words he may be required to set out his assertions concerning the extent to which he is interested in assets in which he has a less than 100% interest.  Presumably the court would wish at that stage also to be provided with the identities of any “interested persons”.

The court may at any stage require an “interested person” to provide information to it.  New s18A enables the court to place upon an “interested person” similar obligations to those placed on a defendant under s18 – and with the same danger that where an “interested person” fails to comply with the court order the court may draw appropriate inferences.

The prosecutor is required to include in his s16 statement any information known to him which he believes is relevant to a possible s10A determination.  This appears to be a mandatory requirement applying to all s16 statements issued after 1 June 2015.

Although there are no changes to s17, a defendant would be unwise not to respond to any relevant assertions in the prosecutor’s s16 statement with which he did not agree because his silence may be taken for agreement.

Prior to the confiscation hearing if the court was contemplating making a s10A determination any “interested persons” would need to be notified of the hearing to enable them to be represented at it.  (However it is far from clear whether any legal aid funding would be available to an “interested person” who wished to obtain legal advice or instruct a legal representative to appear at the hearing.)

At the conclusion of the confiscation hearing the court could make not only a confiscation order but also a s10A determination of the defendant’s interests in specified assets (i.e. the proportion of each asset which belonged to the defendant).

If the confiscation order was not satisfied & matters proceeded to enforcement then, subject to the provisions relating to appeals and reconsideration already mentioned, enforcement could then proceed on the basis of the defendant’s interests in those assets as had been determined.

 

A fictional case study

To better understand the issues let us consider a fictional case study.

Norman & Monica have been married for ten years & have two school age children.  They jointly own their matrimonial home (as joint tenants) subject to a building society mortgage (also in joint names).  They purchased their current home, Rose Cottage, 3 years ago.

Norman also owns a ‘buy to let’ property, Rainbow’s End, which is occupied by students at the local university.  Norman bought the property 5 years ago in his sole name with the help of a secured bank loan (also in his sole name).  Norman declares all the rents received from Rainbow’s End on his personal income tax returns.

Norman was recently convicted in connection with a drug trafficking conspiracy & is now subject to confiscation on the basis of a ‘criminal lifestyle’.  The figure of his ‘benefit’ is undoubtedly going to be very large so the confiscation order will be limited by his ‘available amount’.

Norman’s ‘available amount’ will include his interests in Rose Cottage & Rainbow’s End.  In relation to any s10A determination which the judge may be considering making in regard to those properties the “interested persons” appear to be Monica, the building society & the bank.

If the court is considering making a s10A determination it may issue s18A orders requiring Monica, the building society & the bank to supply information & must give each of them an opportunity to make representations to it.

In practice the interests of the commercial lenders are likely to be uncontroversial & it is unlikely that they will wish to be represented at the confiscation hearing.  However there is a danger that the interests of the lenders in the properties may change between the date the confiscation order is made & the date the order is enforced.  The new legislation does not appear to be designed to accommodate that possibility, particularly as the legislation refers to the defendant’s interest as a proportion of the value of the property itself, s10A(5).

An alternative approach might be for the court to define the ‘property’ to be dealt with by the determination as ‘Norman & Monica’s interests in Rose Cottage & Rainbow’s End’.  That may enable some potential complications to be side-stepped but arguably would run counter to the natural meaning of the wording of s10A.  Another option may be for the court to give a rather wide meaning to the word “proportion” in this context.

For the purposes of a s10A determination the court would then need to reach a conclusion as to whether Monica had any interest in the ‘buy to let’ property Rainbow’s End.  That might depend upon whether Rainbow’s End was regarded as ‘matrimonial property’ in the sense that term is understood in the Family Court.

As a quite separate matter the Crown Court would have to consider, in the context of deciding Norman’s ‘available amount’, whether Norman had made any ‘tainted gifts’.  It is possible that any interest Monica had in Rose Cottage and / or Rainbow’s End might be considered to have arisen by ‘tainted gift’ from Norman (which would mean that his ‘available amount’ would need to include the current value of the interest gifted by him & still held by Monica).

Suppose the Crown Court made a s10A determination that Norman had a 100% interest in Rainbow’s End, subject only to the interest of the bank as secured lender.  If Monica & Norman were later to divorce would the Family Court be able to take account of the value of Rainbow’s End in the divorce settlement?  Could it do so on the basis that, contrary to to the s10A determination in the Crown Court, Monica did have an interest in the property – whilst at the same time recognising Norman’s obligations under his confiscation order?

In such a case the Crown Court judge might consider the better course would be to decline to make any “determination” under s10A, leaving matters to be resolved if necessary in enforcement proceedings.  Indeed even when legislating the government envisaged that the Crown Court would only make s10A determinations in relatively straightforward cases.

 

Transitional provisions

There appear to be no relevant express transitional provisions in the Serious Crime Act 2015 or the commencement order.  However the practicalities are that a s10A determination cannot be made unless the “interested persons” have been identified & notified of the intention to make a “determination”.

For that reason, although the law came into effect on 1 June 2015, courts are unlikely to be making any s10A determinations just yet.

However I would suggest that all prosecutor’s s16 statements should now contain the information required by new subsection 16(6A) inserted by s2 Serious Crime Act 2015.

 

What will actually happen?

As yet I have detected no enthusiasm on the part of prosecutors for inviting the Crown Courts to make s10A determinations.  This may be because of the extra complexity that this would bring to the proceedings involved in obtaining a confiscation order.

It remains to be seen whether, in the event, this new power is employed often in practice or left to gather dust in the statute book.

 

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 – 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.)

OFT penalises estate agents under MLR 2007

Estate agents boards copyright David Winch 2014In one of its last acts the Office of Fair Trading has penalised three firms of estate agents for failures to comply with the Money Laundering Regulations 2007.

Estate agents based in the UK dealing with the sale or purchase of land or property fall within the ‘regulated sector’ for the purposes of MLR 2007 and, in the course of that work, are obliged to comply with MLR requirements.

 

What went wrong?

The OFT penalised Hastings International UK Ltd (an estate agent in south London) £47,966; Jackson Grundy Ltd (Northampton) £169,652; and Jeffrey Ross Ltd (Cardiff) £29,000.

The failures in all three cases were described by the OFT as significant and widespread and included failure to:

  • Apply adequate customer due diligence measures when carrying out estate agency work;
  • Conduct ongoing monitoring of business relationships;
  • Establish and maintain appropriate policies and procedures on adequate record-keeping, internal controls or risk assessments; and
  • Train relevant employees in how to recognise and deal with transactions and other activities which may be related to money laundering and terrorist financing.

The MLR 2007 provide civil penalties for such failures.

These penalties will provide a wake up call to any other estate agents who are not properly implementing the anti-money laundering requirements.  These penalties may be subject to appeal.

 

Goodbye OFT, hello HMRC

From 1 April 2014 the Office of Fair Trading has ceased to exist.  Its responsibilities in relation to monitoring estate agents’ compliance with MLR 2007 have been passed to HM Revenue & Customs.  HMRC already monitor the MLR compliance of certain other types of business including ‘money service businesses’, ‘high value dealers’ and those accountants who are not members of another supervisory body.

David

Appealing out of time after a change of law

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

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

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

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

 

The general rule

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

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

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

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

But there have been exceptions made to the general rule.

 

Substantial injustice

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

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

 

Failure to address a key issue

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

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

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

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

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

 

The impact of R v Waya

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

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

David

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

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

Unprosecuted mortgage fraud in criminal lifestyle confiscations

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

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

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

 

A worked example

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

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

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

 

The first assumption

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

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

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

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

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

 

The fourth assumption

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

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

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

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

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

 

The second assumption

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

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

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

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

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

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

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

 

Proportionality and serious risk of injustice

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

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

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

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

 

But . . .

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

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

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

David

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

R v Waya – the UK Supreme Court judgment

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

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

 

Mortgage fraud

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

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

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

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

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

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

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

 

Human Rights

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

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

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

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

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

  1. require the defendant to pay the whole of a sum which he has obtained jointly with others;
  2. require several defendants each to pay a sum which has been obtained, successively, by each of them; or
  3. require a defendant to pay the whole of a sum which he has obtained by crime without enabling him to set off expenses of the crime.

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

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

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

 

The practical effects

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

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

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

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

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

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

David

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

Confiscation – available amount

This article considers what is meant by a defendant’s ‘available amount’ and explains some of the rules the court must follow in determining the ‘available amount’.

In confiscation proceedings against a convicted defendant the Crown Court will ordinarily have to separately determine two figures – the ‘benefit’ obtained by the defendant and his ‘available amount’.  The court will then order the defendant to pay an amount equal to the lower of these two figures (see s7).

This article is based on the confiscation provisions of Part 2 of the Proceeds of Crime Act 2002, PoCA 2002, which apply in England & Wales.  Slightly different rules apply in Scotland and Northern Ireland.  In earlier confiscation legislation the ‘available amount’ was referred to as the ‘amount that might be realised’.

 

The ‘available amount’ is not the amount available

Like a lot of expressions used in confiscation, ‘available amount’ is defined by PoCA 2002 and has a specific meaning which is not the same as the meaning of the expression in everyday English usage.  A defendant’s ‘available amount’ is not simply the amount he has available to pay a confiscation orderSection 9 of PoCA 2002 defines ‘available amount’ as the total of the values (at the time the confiscation order is made) of all the free property then held by the defendant minus the total amount payable in pursuance of obligations which then have priority, and the total of the values (at that time) of all tainted gifts.

Typically a defendant’s ‘available amount’ is the total of all his assets less any liabilities secured on those assets, plus the value of any tainted gifts.  Take a simple example:  John and his wife jointly own their home which is currently valued at £300,000, there is an outstanding mortgage currently of £260,000 on it, John has £1,000 in a bank account in his own name, he owns shares quoted on the London Stock Exchange which have a current value of £12,000, he owes £15,000 on credit cards, and he has £80,000 in a pension scheme (which he cannot currently access as he is aged only 45), five years ago he gave £10,000 to his son Jake.  Let’s assume that for confiscation purposes John has a ‘criminal lifestyle‘.  What is John’s ‘available amount’?

John’s ‘available amount’ is £43,000.  This is made up of £20,000 as his half-share of the equity in his home, the £1,000 in the bank account, the shares worth £12,000 and the £10,000 gift to Jake.  The mortgage is taken into account because it is secured on the property and so reduces the value of John’s interest in the house, see s79(3).  The credit card debts are not secured on any asset and so are ignored.  The pension scheme has a realisable value of nil because John cannot access it at present (see R v Chen [2009] EWCA Crim 2669). The value of the gift to Jake is added in because it is a ‘tainted gift’ (see s77).

[NOTE: Since this article was written the circumstances in which a person may access monies in a pension scheme have changed. If, under current legislation, John were able to access a sum of money from his pension scheme then that sum would form part of his available amount.]

Let’s assume that the court has determined John’s ‘benefit’ to be £100,000.  The court will order John to pay £43,000 (because this is his ‘available amount’ which is lower than his ‘benefit’) and can initially allow him up to three* months to pay (see s11).  In default John may have to serve an additional term of imprisonment of up to 5 years*, because the amount does not exceed £500,000* (see s35(2A) PoCA 2002).

[NOTE: *The time to pay period was reduced to three months, from six months, by s5 Serious Crime Act 2015; the maximum default sentence in relation to an amount of £43,000 was increased to 5 years, from 18 months, by s10 Serious Crime Act 2015.]

In practice John will have difficulty paying the £43,000 because the only money he has readily available is the £1,000 in the bank account and the £12,000 he can raise from selling the shares.  He may need to sell the house in order to pay off the confiscation order in full.  He should talk to his solicitor about seeking further time to pay and about requesting reconsideration of the ‘available amount’ if the house and the shares cannot be sold for the full amount of their valuation.

 

Establishing the ‘available amount’

In law the burden is upon the defendant to satisfy the court that his ‘available amount’ is less than his ‘benefit’ (see s7 which says “if the defendant shows that the available amount is less than that benefit . . .”).

In practice the prosecutor will normally supply information about the defendant’s ‘available amount’ in his s16 statement.  The defendant may feel that the information supplied by the prosecutor is incorrect or incomplete, but it is up to the defendant to supply the correct information.

If the defendant fails to supply information about his ‘available amount’ to the court, or the court is not satisfied that the information supplied by him is correct and complete, then the court might simply make an order that the defendant should pay the whole amount of his ‘benefit’.  Indeed in the case of R v Barwick [2000] EWCA Crim 3551 the Court of Appeal went so far as to say “once the benefit has been proved, it is permissible and ought normally to be the approach of the court, to conclude that the benefit remains available until the defendant proves otherwise”.

That was exactly what the English courts did in the case of Mr Barnham, R v Barnham [2005] EWCA Crim 1049.  Mr Barnham ultimately appealed to the European Court of Human Rights contending that the burden placed upon him to satisfy the court of his ‘available amount’ involved a breach of his human rights, but the European Court found against him.

 

When the evidence is unsatisfactory

However it does not follow that in every case in which the court is not satisfied that the defendant has made a complete and accurate disclosure of his ‘available amount’ the court will make a confiscation order in the full amount of the benefit.

In the case of McIntosh v R [2011] EWCA Crim 1501 the Court of Appeal said, “there is no principle that a court is bound to reject a defendant’s case that his current realisable assets are less than the full amount of the benefit, merely because it concludes that the defendant has not revealed their true extent or value, or has not participated in any revelation at all  . . . The court may conclude that a defendant’s realisable assets are less than the full value of the benefit on the basis of the facts as a whole.  A defendant who is found not to have told the truth or who has declined to give truthful disclosure will inevitably find it difficult to discharge the burden imposed upon him.  But it may not be impossible for him to do so.  Other sources of evidence, apart from the defendant himself, and a view of the case as a whole, may persuade a court that the assets available to the defendant are less than the full value of the benefit.”

It appears therefore that a Crown Court judge has some scope to weigh the evidence as a whole in coming to his own determination of a defendant’s ‘available amount’ where there is uncertainty about the true position.

 

Inadequacy of available amount

Where, after the confiscation order has been made, it transpires that the defendant’s assets are less valuable than previously thought or, on realisation, they fail to produce the expected value, then the defendant may request the court to adjust his available amount.  That will involve the court reconsidering the entirety of the defendant’s available amount – so that the values all the defendant’s assets taken into account in the confiscation order are reconsidered by the court.

 

Appeals

It is possible for an appeal to be made against a confiscation order on the basis that the Crown Court judge has made an error in his determination of the defendant’s ‘available amount’.

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

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

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

David

(Note: There are a number of issues which could be relevant to a defendant’s ‘available amount’ in particular cases which it is not possible to deal with in a relatively short article such as this.  Appropriate professional advice should be sought in each individual case.)

Mortgage fraud – but by whom?

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

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

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

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

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

 

Gotcha!

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

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

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

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

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

 

Ted’s version of events

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

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

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

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

 

Cross-examination

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

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

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

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

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

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

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

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

 

The computer files

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

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

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

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

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

 

No case to answer

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

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

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

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

David

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

Just how is PoCA confiscation supposed to work?

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

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

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

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

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

 

The submissions of Mr Waya’s counsel

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

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

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

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

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

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

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

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

 

The submissions of other counsel

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

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

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

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

David

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

UPDATE:

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