Tag Archives: statutory assumptions

UK Supreme Court split on confiscation

Supreme Court logoIt is perhaps surprising and a little troubling to find in 2018 the UK Supreme Court split 3 – 2 on the application of confiscation legislation which is 15 years old.

The issue was a simple one – but its resolution involved consideration of some fundamental principles of statutory interpretation.

The issue & the relevant legislation

There were two defendants, who were husband and wife, R v McCool (Northern Ireland) [2018] UKSC 23.  Each of them had pleaded guilty to four offences in connection with false applications made for state benefits.  In each case one offence occurred prior to 24 March 2003, and the other three after that date.

When it came to confiscation the prosecution wished to proceed under Proceeds of Crime Act 2002 rather than Criminal Justice Act 1988 confiscation provisions – but should they be permitted to do so?

That was the issue the Supreme Court was tasked to determine.

The Proceeds of Crime Act 2002 confiscation provisions apply to offences committed after 23 March 2003, by virtue of the Proceeds of Crime Act 2002 (Commencement No 5, Transitional Provisions, Savings and Amendment) Order 2003.

The prosecution had sought to disregard for each defendant the offence committed before 24 March 2003, relying in each case on the benefit from only the three later offences.

The prosecution did not seek to invoke the ‘criminal lifestyle’ assumptions against the defendants.

One might ask why the prosecution did not wish to proceed under Criminal Justice Act 1988 provisions, which could have allowed the s72AA statutory assumptions to be invoked.  The answer is not spelled out in the judgment but it is clear that, in any event, each defendant’s ‘available amount’ was less than his or her ‘benefit’.  So the statutory assumptions under CJA 1988 would not have produced any useful result in practice.

On the other hand, the CJA 1988 legislation has no provision similar to s22 PoCA 2002, which provides for the upward variation of a confiscation order in later years when a defendant has an increased ‘available amount’.

It may have been the potential for a future s22 application which attracted the prosecution to the PoCA 2002 confiscation provisions (even though this involved a reduction in ‘benefit’ because in each case any ‘benefit’ arising under the earliest offence could not be recognised at all under PoCA 2002).

Although this was a Northern Ireland case very similar legislation applies in England and Wales, so the decision of the Supreme Court is equally relevant in that jurisdiction.

The legislation

The transitional provisions provide that “Section 6 of the Act (making of confiscation order) shall not have effect where the offence, or any of the offences, mentioned in section 6(2) was committed before 24th March 2003″ (but with the substitution of s156, the equivalent section, in Northern Ireland).

Subsection (2) (in England and Wales) provides:-

“The first condition is that a defendant falls within any of the following paragraphs —

    (a) he is convicted of an offence or offences in proceedings before the Crown Court;
    (b) he is committed to the Crown Court for sentence in respect of an offence or offences under section 3, 3A, 3B, 3C, 4, 4A or 6 of the Sentencing Act;
    (c) he is committed to the Crown Court in respect of an offence or offences under section 70 below (committal with a view to a confiscation order being considered)”.

The Northern Ireland legislation is similar, but with (b) omitted.

Here the two defendants had been committed to Crown Court with a view to a confiscation order being considered.

Lord Kerr’s view

Lord Kerr’s view was that it would be “a wholly anomalous result” if this legislation were interpreted to mean that where a defendant had been convicted, in the same proceedings, of offences committed both before and after 24 March 2003 all of those offences had to be dealt with under the earlier confiscation statutes.

In Lord Kerr’s opinion, it was Parliament’s intention that all offences committed after 23 March 2003 which could generate confiscation orders under the Act should be dealt with under PoCA 2002.

“It cannot have been intended that a swathe of post-2003 offences should be removed from the Act’s purview simply because the defendant was convicted of an associated offence before the relevant date”, he said.

Since the courts will generally seek to find an interpretation of legislation which does not produce an anomalous or absurd result, and which gives effect to Parliament’s intention, subsection (2) must be interpreted as referring to the “offence or offences” to which PoCA 2002 applied.  That is the “offence or offences” committed after 23 March 2003.

It follows that the “offence or offences mentioned” in subsection (2) were all committed after 23 March 2003.

On that basis the defendants’ offences committed before 24 March 2003 could be ignored and confiscation could proceed under PoCA 2002 as sought by the prosecution – relying only upon those offences committed after 23 March 2003.

The views of Lord Hughes and Lady Black

Lord Hughes and Lady Black arrived at the same conclusion as Lord Kerr.

“If the appellants’ contention were correct, and the earlier confiscation regime has to be applied wherever there is a single pre-commencement offence on the indictment (or before the magistrates) even if it is not relied on for confiscation, it would follow that that rule would have to apply even if the pre-commencement offence could never, even arguably, have generated a benefit, and thus could never, even arguably, have had the slightest relevance to the issue of confiscation,” said Lord Hughes.

Because this outcome “might well be termed absurd” this could not be the appropriate interpretation of the legislation.

Since three of the five judges had reached this conclusion the prosecution’s approach had prevailed.

The dissenting minority

The dissenting minority, Lord Reed and Lord Mance, disagreed with the majority about the intention of Parliament and did not agree that it would be “absurd” for the earlier confiscation legislation to have been required to apply where one or more offences dealt with in the same proceedings had been committed before 24 March 2003.

They considered that the words in the legislation should be given their natural meaning and that the interpretation placed on the words by the majority was “strained beyond breaking point”.

“It seems to me to be much more likely that the drafter of the transitional provisions intended to bring all the offences in any set of proceedings into one statutory confiscation scheme or the other. Then, at least, no offences would fall outside all confiscation regimes”, said Lord Reed.

Conclusions

The prosecution won the day and it is now undeniable that the prosecution may opt, in confiscation proceedings, to entirely disregard offences committed before 24 March 2003 in order to proceed under PoCA 2002.

It is also true that none of the Supreme Court justices considered it appropriate in this case to “read into” the legislation additional words in order to give a clear and unambiguous meaning to that legislation.

However the sharp differences in opinion in these judgments underline the dangers of seeking to divine the intentions of Parliament – and the complexities of the law around confiscation.

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.)

7 key differences between trial & confiscation

Legal booksIn many respects confiscation proceedings exist in a different world from criminal trials.  It is almost as if, like Lewis Carroll’s Alice, we have stepped through a looking glass into a parallel universe.

It is important that lawyers recognise this and adjust their approach to the work accordingly.  This article points up, briefly and in the most general terms, seven key differences between Crown Court trials and confiscation proceedings.

 

1 The question

In a Crown Court trial the key issue is whether the defendant is ‘Guilty‘ or ‘Not Guilty‘ of the offence or offences of which he is charged.

In confiscation proceedings the question is ‘How much?.  The proceedings are concerned primarily with the quantification, in money terms, of the convicted defendant’s ‘benefit‘ and ‘available amount‘ (as defined in Part 2 of the Proceeds of Crime Act 2002).

 

2 The standard & burden of proof

In the trial the burden of proof rests upon the prosecution to the ‘criminal standard’.  They have to make the jury ‘sure’ of the guilt of the defendant.

In confiscation proceedings the standard of proof is the ‘civil standard’ – the balance of probabilities – and, in many respects, the burden of proof is on the convicted defendant; particularly in rebutting the statutory s10 assumptions in a ‘criminal lifestyle‘ case and in satisfying the court that the convicted defendant’s ‘available amount‘ is less than his ‘benefit‘.

 

3 The focus & scope of the proceedings

In the trial the focus is on the offence or offences of which the defendant is charged.  In confiscation proceedings the focus is on the convicted defendant under consideration.

Where, as is often the case, in confiscation proceedings the convicted defendant is alleged to have a ‘criminal lifestylethe scope of the proceedings can range far beyond matters relevant to the offence or offences of which he has been convicted.  The entire financial affairs of the convicted defendant over a period of many years may be subject to scrutiny.

Consideration of the convicted defendant’s ‘available amount‘ involves matters unconnected with any offence.

The indictment in a criminal trial may cover a number of co-defendants, but the s16 statement in confiscation proceedings deals only with a single convicted defendant.  A confiscation order reflects the ‘benefit‘ obtained, solely or jointly, and the ‘available amount‘ of only that particular convicted defendant.

 

4 The evidence

In a criminal trial the prosecution may call a number of witnesses who may have, quite literally, witnessed the alleged crime being committed.  The defence may call evidence from the defendant himself.

In confiscation proceedings the prosecution are unlikely to call evidence from anyone other than the financial investigator who is the author of the s16 statement (which sets out the prosecution assertions regarding the convicted defendant’s ‘benefit‘ and ‘available amount‘).  The likelihood is that little or no weight will be given by the court to unsupported oral evidence from the convicted defendant since, by that stage, he has been found guilty and his credibility thereby undermined.

The defence will therefore seek to present other witnesses, perhaps including a forensic accountant expert witness, and documentary evidence in support of the defence assertions.

Evidence which would be inadmissible in the criminal trial may be admissible in confiscation proceedings.

 

5 The decision makers

In a Crown Court trial the key decision of ‘Guilty’ or ‘Not Guilty’ is made by the jury, then in the case of a ‘Guilty’ verdict the sentencing is carried out by the judge.

But in confiscation proceedings there is no jury.  All the decisions are made by the Crown Court judge.  Having said that, in many cases the figures of ‘benefit‘ and ‘available amount‘ are in practice settled by negotiation resulting in an agreement between counsel for prosecution and defence which has been reached outside the courtroom.  The judge will then be invited to make an order in the agreed figures and fix a default sentence.

 

6 The factors in sentencing

In relation to sentencing following trial key factors will often include the nature and gravity of the conduct of the defendant in committing the offence, whether he pleaded guilty, his previous convictions, and his conduct since the offence in terms of showing remorse or making reparation.

In contrast a confiscation order is not strictly speaking regarded as punishment for the offence at all.  So those factors (other than reparation) will have no impact on the confiscation.  A relatively minor offence (in terms of sentencing) might be followed by a very substantial confiscation order, whilst conviction for a relatively serious offence might be followed by a minimal confiscation order.

By way of example, in the case of Waya [2012] UKSC 51 the mortgage fraud offence attracted 80 hours community punishment but the eventual confiscation order was in the very substantial sum of £392,400.

It has been said that confiscation is intended, not to punish the convicted defendant for the crime, but to deprive him of the benefit he has obtained from relevant criminal conduct, up to the limit of his available means.

 

7 Appeals

The prosecution have, with very limited exceptions, no opportunity to appeal the verdict or sentence in a criminal trial.

However prosecution and defence are each permitted to appeal a confiscation order (or a decision to make no confiscation order).

 

Conclusions

Confiscation proceedings are very different from the criminal trial which precedes them. They demand a different approach from instructed lawyers and an extensive examination of financial evidence.  That examination may be assisted by the work of a forensic accountant, particularly where it is alleged that the convicted defendant has a ‘criminal lifestyle‘.

David

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

Confiscation – the basics

photo 123 - copyright David Winch 2014This post aims to be an introduction to the basics of confiscation under the Proceeds of Crime Act 2002 in England & Wales.  It includes links to more detailed articles dealing with particular elements of confiscation law (shown like this).

A word of warning.  An introduction like this can be broadly correct but cannot cover the full detail of the legislation nor can it cover those unusual circumstances which may be exceptions to the general guidance contained here.

Be warned too that words and phrases used in confiscation often have a specific technical meaning which is not the same as their meaning in everyday English conversation.  That applies particularly to terms such as ‘benefit’, ‘criminal lifestyle’ and ‘available amount’.

 

When does confiscation apply?

Confiscation proceedings can only be commenced when a defendant has been convicted (either in the Crown Court or Magistrates’ Court) of one or more offences from which he has obtained a benefit.  All confiscation proceedings in England & Wales are conducted in the Crown Court in front of a judge but without a jury.

A wide range of offences can form the basis for confiscation proceedings, including offences such as theft, fraud, drugs offences, money laundering and tax evasion. However confiscation orders are not imposed in every case in which a defendant obtains a benefit. In the year to 31 March 2013 approximately 673,000 persons were convicted of an offence (not all of which involved any benefit being obtained) but only 6,392 confiscation orders were imposed.

Confiscation proceedings are initiated by the prosecution.  There are no published criteria specifying when confiscation proceedings will be initiated.  Where the defendant has obtained a benefit from an offence of which he has been convicted and the prosecution ask for confiscation proceedings to be initiated the court has no discretion to refuse.

The legislation is intended to deprive defendants of the benefit they have gained from relevant criminal conduct, whether or not they have retained such benefit, within the limits of their available means.  The benefit gained is the total value of the property or advantage obtained, not the defendant’s net profit after deduction of expenses.

 

The court procedure

Whilst the judge can make a confiscation order at the time of sentencing a convicted defendant, in many cases the judge will at that time simply set a timetable for further steps towards confiscation.

This normally involves firstly a requirement for the defendant to supply detailed information about his financial affairs; secondly the prosecution to provide a report identifying the amount of benefit said to have been obtained by the defendant and (usually) identifying his ‘available amount‘ (this is referred to as the s16 statement); thirdly the defendant is required to respond to the prosecution’s report indicating the extent to which he agrees and disagrees with it; and finally there will be a hearing scheduled which will culminate in the making of the confiscation order.

In practice the initial timetable may be revised if difficulties or delays arise so these steps may take months, or even years, to complete.

Evidence which would be inadmissible at trial may be admitted in confiscation proceedings.

 

The three decisions

Assuming that the defendant has obtained a benefit from an offence of which he has been convicted, the court then has three key decisions to make.

  • Firstly what benefit has the defendant obtained from the offence or offences of which he has been convicted (including any other offences ‘taken into consideration’ when sentencing)?
  • Secondly, if the defendant has a ‘criminal lifestyle‘, what benefit is he to be assumed to have obtained in addition to the benefit obtained from the offence or offences of which he has been convicted?
  • Thirdly what is his ‘available amount‘?

In confiscation proceedings the burden of proof generally rests upon the defendant rather than the prosecutor – particularly in rebutting the statutory assumptions where the defendant has a ‘criminal lifestyle‘ and in satisfying the court that the defendant has an ‘available amount‘ which is less than his ‘benefit’.  In each case the court will make its decision on the basis of the ‘balance of probabilities’, see s6(7) PoCA 2002.

 

Benefit obtained from the offence

The legal position is that a person obtains a benefit from criminal conduct if he obtains ‘property’ (which means an asset of any description) or a pecuniary advantage as a result of or in connection with that criminal conduct, see s76 PoCA 2002.

Sometimes the benefit obtained from the offence is quite obvious.  If I steal £10,000 from your bank account I have obviously obtained a benefit of £10,000.

But in many cases the benefit obtained will be less obvious.  For example if John is a member of a group of people and is convicted of conspiracy to supply controlled drugs there may be a number of issues arising concerning the extent of John’s involvement in the conspiracy and the valuation of the drugs.  If Peter has obtained a mortgage advance dishonestly his benefit will be a proportion of the increase in value of the property since he purchased it.

However the courts will always be looking to the benefit “obtained” – not the benefit “retained”.  Where the court is satisfied that a particular benefit has been obtained jointly by more than one person it will treat each person as having obtained the whole of that benefit – but will place a cap on the overall recovery of jointly obtained benefit from the different defendants.

 

Assumed benefit of criminal lifestyle

In many cases the defendant will be held to have a ‘criminal lifestyle‘ and this will trigger the statutory assumptions set out in s10 PoCA 2002.  The effect may be to increase very substantially the defendant’s total alleged benefit.

These assumptions relate to the defendant’s receipts and payments since the ‘relevant day’ (normally the day six years before the day on which he was charged with the offence) up to the day on which the court makes the confiscation order (but in practice the assumptions are usually applied only up to an earlier date for convenience) and the defendant’s assets held at any time after the date of his conviction (whenever they were first obtained).

A defendant has a ‘criminal lifestyle‘ if the criteria set out in s75 are satisfied, but not otherwise.  The criteria relate to the offence or offences of which the defendant has been convicted – they do not relate to his ‘lifestyle’ in the everyday sense of that word.

It is in ‘criminal lifestyle‘ cases in which the services of a forensic accountant may prove particularly valuable in challenging the prosecutor’s s16 statement.

There is an obvious danger of excessive benefit figures and double counting where the ‘criminal lifestyle‘ assumptions are made.

 

The defendant’s available amount

The defendant’s ‘available amount‘ includes all his assets currently held (with a deduction for liabilities secured on those assets) and the current value of any ‘tainted gifts’ he has made, see s9 and s81 PoCA 2002.

The court will not consider, for the purpose of determining the defendant’s ‘available amount‘, whether those assets which he currently holds were obtained legitimately or not – that does not matter at this stage.

 

The confiscation order

In order to reach its decisions the court may hold a hearing at which oral and written evidence from both sides will be presented.

However in many confiscation cases the prosecution and defence will negotiate agreed figures for ‘benefit’ and ‘available amount‘ prior to the scheduled hearing of oral evidence.  In that event there will be only a brief hearing before the judge at which he will be invited to approve the agreed figures which then become the basis for the confiscation order.

Before finalising the order the court may need to consider whether the application of the statutory assumptions has created a serious risk of injustice and whether the proposed order would be disproportionate and infringe the defendant’s human rights.

Only very rarely will the amount of the confiscation order be limited to the profit arising from the criminal conduct.

The court will normally order the defendant to pay, within a specified period of time, a sum of money equal to the lower of (a) his total benefit and (b) his available amount.

If the court has no information from which it is able to conclude on the balance of probabilities that the defendant has an ‘available amount‘ which is less than his total ‘benefit’ it will make a confiscation order in the amount of the ‘benefit’.

Where the court accepts that the defendant’s ‘available amount‘ is less than his total ‘benefit’ a brief list of the assets which form the defendant’s ‘available amount‘ should be appended to the confiscation order issued by the court.

The court will typically allow up to six months for payment (from 1 June 2015 this is limited to three months as a result of amendments to confiscation law).  The court will also set a default sentence, which is a period of imprisonment the defendant may be required to serve if he does not pay the required sum.

The defendant may subsequently return to court to ask for a six month extension to the time to pay, making a maximum of 12 months in all from the date of the confiscation order (from 1 June 2015 this is limited to a further three months making six months in all from the date of the confiscation order).

Interest is charged on any amount which remains outstanding after the due date for payment, s12.

 

Appeals

Either prosecution or defence may appeal against the confiscation order.  Appeal is to the Court of Appeal (Criminal Division) and ultimately to the Supreme Court.  An appeal ought to be initiated within 28 days of the confiscation order but late appeals may be heard in some circumstances.

 

Subsequent events

Where a confiscation order has been made in the amount of the defendant’s ‘available amount‘ and subsequent realisation of his assets identified in the confiscation order produces a lesser amount than anticipated, the defendant (or the prosecution) can apply to the court under s23 to have the amount of the defendant’s confiscation order reduced to reflect his revised ‘available amount‘ based on the actual amounts realised.

Where evidence comes to light which was not available to the prosecution at the time of the confiscation hearing which indicates that the defendant’s benefit was greater than that found by the court at that hearing the prosecution can, within 6 years of the date of conviction, apply to the court for the benefit figure to be increased under s20 or s21.

Where a confiscation order has been made in the amount of the defendant’s ‘available amount‘ (which was less than his benefit) the prosecution can apply to the court, at any time, for an order under s22 requiring the defendant to pay a further amount where he has a current ‘available amount‘ which would enable him to satisfy a new order – but he may not be required to pay an amount more than the court believes to be just.  In that sense a confiscation order may be regarded as a ‘life sentence’.

Where only a small balance remains outstanding on a confiscation order the court may discharge the order under s24 or  s25.

Where, following a fresh conviction on a subsequent occasion, a defendant finds himself subject to confiscation proceedings a second time the usual rules may be modified on the second time around.

 

Other confiscation topics

Other confiscation topics, such as restraint orders, the impact of bankruptcy on confiscation and adjustments for changes in the value of money are covered in further articles in this blog.  A full list of confiscation articles is here.

 

Contacting us

Our contact details are here.

David

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

A confiscation case study – the career fraudster

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

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

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

 

The victims

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

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

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

 

The police investigation

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

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

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

 

The confiscation proceedings

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

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

 

The prosecution assertions

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

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

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

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

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

 

The defence evidence

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

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

 

The judgment in the Crown Court

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

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

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

 

The Court of Appeal judgment

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

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

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

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

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

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

 

Commentary

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

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

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

David

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

Supreme Court caps confiscation enforcement

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

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

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

 

The problem

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

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

 

The simple answer

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

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

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

 

Potential complications

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

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

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

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

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

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

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

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

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

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

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

 

Default sentences

We also need to consider the implications for default sentences.

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

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

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

 

In conclusion

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

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

David

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

Confiscation – challenging the prosecutor’s s16 statement

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

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

 

Variety

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

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

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

 

Financial investigations and ‘benefit’

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

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

 

‘Benefit’ of the offences

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

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

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

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

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

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

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

 

Assumed ‘benefit’

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

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

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

 

‘Available amount’

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

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

 

Default sentence

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

 

Challenging the s16 statement

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

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

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

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

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

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

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

 

Use of a forensic accountant

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

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

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

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

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

David

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

Criminal lifestyle confiscation and output VAT

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

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

 

Background

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

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

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

 

Benefit for confiscation purposes

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

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

 

The decision in the Crown Court

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

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

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

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

 

The appeal to the Court of Appeal

The defendant appealed on the grounds that:

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

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

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

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

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

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

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

David

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

Confiscation: lifting the veil of incorporation

Too often prosecutors do not appear to understand the issues surrounding lifting or piercing the veil of incorporation in confiscation cases. Some will treat a limited company as entirely separate from the defendant and therefore untouchable and of no relevance to the confiscation proceedings. Whilst others will ignore the fact of incorporation and treat all income and assets of a limited company as automatically those of the defendant, whatever the circumstances. Neither approach is correct.

[UPDATE: There is a more up to date article on piercing the corporate veil in confiscation HERE.]

 

When can the veil of incorporation be pierced?

There is a relatively long history of piercing or lifting the corporate veil in confiscation case law, certainly back as far as R v Dimsey & Allen [1999] EWCA Crim 2261. A useful summary was set out more recently in R v Seager & Blatch [2009] EWCA Crim 1303 at paragraph [76] in which it was said:

“It is “hornbook” law that a duly formed and registered company is a separate legal entity from those who are its shareholders and it has rights and liabilities that are separate from its shareholders . . . A court can “pierce” the carapace of the corporate entity and look at what lies behind it only in certain circumstances. It cannot do so simply because it considers it might be just to do so. Each of these circumstances involves impropriety and dishonesty. The court will then be entitled to look for the legal substance, not the just the form. In the context of criminal cases the courts have identified at least three situations when the corporate veil can be pierced. First if an offender attempts to shelter behind a corporate façade, or veil to hide his crime and his benefits from it . . . Secondly, where an offender does acts in the name of a company which (with the necessary mens rea) constitute a criminal offence which leads to the offender’s conviction . . . Thirdly, where the transaction or business structures constitute a “device”, “cloak” or “sham”, i.e. an attempt to disguise the true nature of the transaction or structure so as to deceive third parties or the courts.”

It follows that where, for example, a defendant has been convicted of a crime carried out through a company with which he is connected (perhaps as a shareholder, or director) then the benefit of that crime, which in the first instance has been obtained by the company, may properly be regarded as having been obtained by the defendant for confiscation purposes.

But equally where a convicted defendant is connected with a company but there is no allegation of dishonesty or illegality in relation to that company, then the veil of incorporation cannot be pierced. Take the example of a defendant convicted of a drug trafficking offence who earns his living by a legitimate manufacturing business which he owns and which is incorporated as a limited company. In the absence of anything untoward relating to the company the income of the company is not income of the defendant and so, for example, the criminal lifestyle assumptions cannot be applied to the deposits into the company bank account.

 

Effect on defendant’s benefit

Where the corporate veil can properly be pierced or lifted the effect is that, for the purposes of calculating the defendant’s benefit, the receipts, expenditures and assets of the company are treated as if they were receipts, expenditures and assets of the defendant personally. A benefit of criminal conduct which has been obtained by a company can then be regarded as a benefit which has been obtained by the defendant personally.

An obvious example of this was the leading case of R v May [2008] UKHL 28 in which companies with which the defendant was connected obtained the benefit of VAT fraud and this was treated as the benefit of the defendant himself in confiscation.

This can be particularly important in cases in which the ‘criminal lifestyle’ assumptions of s10 Proceeds of Crime Act 2002 (and corresponding provisions in earlier legislation) apply. In relation to benefit, once the corporate veil is pierced, the whole of the value of the company’s receipts, expenditures and assets can be ascribed to the defendant personally (irrespective of his actual shareholding in the company). So it is not the case that, for example, if Jim holds 60% of the shares of XYZ Ltd his deemed receipts will be limited to only 60% of the receipts obtained by that company – his receipts will be regarded as 100% of the receipts obtained by the company. It follows that Jim’s assumed benefit under the criminal lifestyle assumptions can also be 100% of those receipts.

In practice the prosecutor will often decide to apply the criminal lifestyle assumption to the receipts of the company, but not go so far as to apply the s10 assumptions to the company’s expenditure or assets.

 

Effect on the defendant’s available amount

The effect on the defendant’s available amount is less clear cut. It could be argued that, where the veil of incorporation can properly be pierced, the assets held in the company’s name should be treated as if they were held personally by the defendant. The effect of that could be to disregard the implications of any shares in the company being held by anyone other than the defendant and to disregard any unsecured and non-preferential liabilities of the company, following the logic of s9(1)(a) PoCA 2002.

The decision of the Court of Appeal some years ago in R v Omar [2004] EWCA Crim 2320 appears to suggest such an approach might be open to the courts. However in that case the Crown Court judge had, in the event, calculated the defendant’s available amount in accordance with the legal ownership of the properties in the company’s Balance Sheet (which were registered either in the sole name of the defendant or in the joint names of the defendant and his wife). The Crown Court judge did not accept a defence argument that, notwithstanding the apparent legal ownership, the properties should be treated as company assets. The Court of Appeal upheld that decision of the Crown Court. So, in the author’s view, Omar does not demonstrate that assets which are held by a company can be treated as if they were held by the defendant personally for the purpose of calculating the defendant’s available amount.

There have been cases in which restraint orders have been applied to assets held by a company with which the defendant is connected. A leading case in this area is HM Customs & Excise v Hare & Others [1996] EWCA Civ 1351, [1996] 2 All ER 391. However, in the author’s view, there is an important difference between concluding that such assets ought properly to be subject to a restraint order, and might even be sold, and concluding that such assets ought properly to be treated as wholly belonging to the defendant for the purpose of valuing his available amount without reference to the company’s liabilities and the interests of other shareholders.

Where the corporate veil is not lifted the defendant’s available amount will include the value of the shares which he holds in the company. That value will reflect the company’s assets and its liabilities (both secured and unsecured and both preferential and non-preferential) and will also reflect the proportion of the total issued share capital of the company which is held by the defendant. That approach to the valuation of the defendant’s assets is consistent with s79(3) PoCA 2002. In the author’s view this is the better approach when calculating a defendant’s available amount even where the corporate veil has been pierced for the purpose of calculating the defendant’s benefit.

However each case needs to be examined closely based on its own particular facts.

 

 

The importance of the facts

In relation to benefit it is conceivable that a situation might arise in which money (or other assets) might be obtained by the defendant and then introduced by him into his (legitimate) company. In that case the money (or asset) would, in truth, initially have belonged to the defendant and the introduction into the company would, in reality, be a loan or gift to the company by the defendant. (The money or asset would not truly be ‘income’ of the company.)  In that situation the initial obtaining by the defendant himself would be the crucial factor and would result in the money (or asset) being capable of being treated as, or being assumed to be, a benefit of his for confiscation purposes.

Similarly, in relation to the defendant’s available amount, money (or an asset) initially held and owned by the defendant which is then transferred by him to his (legitimate) company would not reduce his available amount. Either the transfer to the company would create a loan balance due to the defendant (which would form part of his available amount) or the transfer would be a gift which again could form part of his available amount, under s9(1)(b) PoCA 2002.

A grey area remains where a defendant asserts that a company which he controls is a legitimate business but the prosecutor asserts that, on the contrary, the company is, or has been, engaged in some criminality (separate from the criminality of which the defendant has been convicted) – but that criminality has not been the subject of any prosecution. In such a case it is the author’s view that the prosecutor who seeks to rely on unprosecuted criminal conduct as a basis for piercing or lifting the veil of incorporation would be under an obligation to prove that unprosecuted criminal conduct to the court dealing with the confiscation – and prove it to the criminal standard. This is because, in the author’s view, the position would be akin to that considered by the House of Lords in R v Briggs-Price [2009] UKHL 19. The prosecutor would not simply be relying on the application of the statutory assumptions – he would be seeking to extend the ambit of the statutory assumptions in reliance upon the unprosecuted criminal conduct. No such case appears yet to have come before the appeal courts.

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 and corresponding earlier legislation. 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.)