UK: Confiscation Of The Proceeds Of Crime In The UK

Last Updated: 18 February 2010

Article by Monty Raphael, Full Time Special Counsel Peters & Peters Solicitors.

Under the UK legislative scheme different instruments for the restraint and recovery of the proceeds of crime are available at different stages of the criminal proceedings. Criminal confiscation is only available after an offender has been convicted. However civil recovery, cash forfeiture, restraint and freezing orders are available prior to conviction and often pre-charge. The paper provides an overview of the UK legislative scheme on the recovery of the proceeds of crime with particular reference to criminal confiscation. It also includes a short survey of the civil regime and international co-operation measures in the UK. The outline of the paper is as follows:

1. Criminal confiscation

1.1 Criminal lifestyle

1.2 Benefit from criminal conduct

1.2.1 Particular criminal conduct

1.2.2 General criminal conduct

1.2.3 Benefit

1.3 Recoverable amount

1.4 Ancillary orders

1.5 European Convention on Human Rights

1.6 Abuse of process

1.7 Attrition in confiscating the proceeds of crime

2. Civil recovery

3. Cash: search, seizure and forfeiture

4. International co-operation

4.1 Action on receipt of external request

4.2 Action on receipt of external order

4.3 Giving effect to external orders by means of civil recovery

Introduction

1. The key UK legislative measure deployed in the pursuit of criminal property is the Proceeds of Crime Act 2002 (POCA). The Act originates in the June 2000 Report by the government's Performance and Innovation Unit, "Recovering the Proceeds Crime".1 This concluded that the pursuit and recovery of criminal assets in the UK was "failing to deliver the intended attack on the proceeds of crime". More specifically the Report identified that the legislation existing at the time contained a number of 'anomalies' and that there were problems in its use:

"In the last five years, confiscation orders have been raised in an average of only 20 per cent of drugs cases in which they were available, and in a mere 0.3 per cent of other crime cases. The collection rate is running at an average of 40 per cent or less of the amounts ordered by the courts to be seized. Specially tasked law enforcement officers struggle to investigate the financial aspects of crime to support this effort, but their effectiveness is limited by their numbers and modest training."

2. The report offered some 68 'conclusions' which formed the basis of the Act. The principal changes introduced by POCA were:

1) consolidation and extension of previous legislation, Drug Trafficking Act 1994 and Criminal justice Act 1988, on post-conviction confiscation;

2) creation of the Assets Recovery Agency tasked with the implementing the Asset Recovery Strategy and conducting criminal confiscation and civil recovery proceedings. In 2008 the Agency has merged with the Serious and Organised Crime Agency. Its civil recovery powers were distributed among other prosecuting authorities in the UK;

3) transfer of powers over restraint and management receivership from the High Court to the Crown Court;

4) introduction of civil proceedings in the High Court for the recovery of assets "obtained through unlawful conduct" irrespective of whether any persons were convicted of a crime;

5) introduction of stricter money laundering offences based on negligence.

3. Since coming into force POCA has been heavily amended, in particular by the Serious Organised Crime and Police Act 2005 and the Serious Crime Act 2007. This paper discusses POCA as amended.

4. In its 2008/09 Annual Report, the Serious Organised Crime Agency was able to boast the following outcomes:2

 

2006/07

2007/08

2008/09

2008/09

 

£

£

£

% increase on previous year

Cash seizure

3.3m

8m

9.2m

15

Cash forfeiture

2.3m

2.9m

4.5m

55

Restraint orders

27.2m

46.8m

128.8m

175

Confiscation

14.5m

11.6m

29.7m

156

Civil recovery

n/a

n/a

16.7m

n/a



5. The figures across all the relevant agencies with POCA powers are likely to be substantially higher. For example, in the period April 2007–February 2008 the courts in England and Wales made 4504 criminal confiscation orders in sums totalling £225.87 million.3

1. Criminal confiscation

6. A confiscation order does not necessarily entail the confiscation of the defendant's property. Rather it requires him to pay a sum of money, as Lord Bingham explained in May:

"Although "confiscation" is the name ordinarily given to this process, it is not confiscation in the sense in which schoolchildren and others understand it. A criminal caught in possession of criminally-acquired assets will, it is true, suffer their seizure by the state. Where, however, a criminal has benefited financially from crime but no longer possesses the specific fruits of his crime, he will be deprived of assets of equivalent value, if he has them. The object is to deprive him, directly or indirectly, of what he has gained. "Confiscation" is, as Lord Hobhouse of Woodborough observed in In re Norris [2001] 1 WLR 1388 , para 12, a misnomer."4

7. Section 6 POCA prescribes the process for the making of a confiscation order:

  1. The defendant must be convicted of an offence before the Crown Court or be committed to the Crown Court by the magistrates' court to consider whether to make a confiscation order.
  2. The prosecution must ask the court to proceed or the court itself believes it is appropriate to do so. Section 6 is mandatory and therefore the court has to proceed to make a determination once asked by the prosecution.5 Under section 6(5) the court's duty to proceed with the order becomes a power only where the court believes "that any victim of the conduct has at any time started or intends to start proceedings against the defendant in respect of loss, injury or damage sustained in connection with the conduct".
  3. If the first two conditions are met, the court must then proceed to determine:

(a) whether the defendant has a "criminal lifestyle";

(b) whether the defendant has benefited from his criminal conduct. POCA differentiates between general and particular criminal conduct. The former applies where the court has determined that the defendant has a criminal lifestyle; the latter where he does not;

(c) the "recoverable amount" and make a confiscation order for that amount.

8. Any questions that may arise at the third stage must be addressed under the civil standard of proof – on the balance of probabilities (Section 6(7) POCA).

1.1 Criminal lifestyle

9. "Criminal lifestyle" is central to the operation of the POCA criminal confiscation scheme. Where established on the facts, the concept will significantly affect the quantum of the "recoverable amount" primarily for two reasons. First, it requires the court to assume that the defendant's entire income during the six years prior to the start of the proceedings for the offence is the proceeds of crime, and secondly, it expands the definition of "tainted gifts" to include any transfers of property at significant undervalue that took place during the six year period.

10. Section 75(1) and (2) provides that the defendant has a criminal lifestyle if the offence before the court satisfies any of the following three tests:

(a) it is specified in Schedule 2 POCA;

(b) it constitutes conduct forming part of a course of criminal activity;

(c) it is an offence committed over a period of at least six months and the defendant has benefited from the conduct which constitutes the offence.

11. Schedule 2 provides an extensive list of offences and should be consulted for that purpose. Here it is sufficient to point out that the list also includes inchoate offences (attempting, conspiring, aiding and abetting etc.) in relation to other offences specified in the list and that there is no requirement to show that the defendant benefited from the offence.

12. Under section 75(3)-(5) a conduct will form part of a course of criminal activity if the defendant has:

1.benefited from the conduct to the amount of not less than £5000, and

2.in the proceedings in which he was convicted he was convicted of three or more other offences, each of three or more of them constituting conduct from which he has benefited, or

3.in the period of six years ending with the day when those proceedings were started (or, if there is more than one such day, the earliest day) he was convicted on at least two separate occasions of an offence constituting conduct from which he has benefited.

13. In determining the relevant benefit the court may include the value if benefit derived from offences which have been or will be taken into consideration by the court in sentencing the defendant (section 75(5)(c)).

14. The third category of "criminal lifestyle", offences committed over six months, also requires the proof of the defendant's benefit of at least £5000 and can include benefit from offences to be taken into consideration (section 75(6)). The category can pose obvious difficulties in practical application particularly in relation to inchoate offences where the date when the offence is committed often will not be immediately apparent.

1.2 Benefit from criminal conduct

15. Section 76(1) defines criminal conduct as conduct which—

(a) constitutes an offence in England and Wales, or

(b) would constitute such an offence if it occurred in England and Wales.

16. As outlined above, if the defendant does not qualify as having a criminal lifestyle the court must consider whether he has benefited from his particular criminal conduct. This category is more straightforward and will be considered first.

1.2.1 Particular criminal conduct

17. Section 76(3) defines particular criminal conduct as the defendant's all criminal conduct which constitutes:

(a) "the offence or offences concerned", or

(b) "offences of which he was convicted in the same proceedings as those in which he was convicted of the offence or offences concerned", or

(c) "offences which the court will be taking into consideration in deciding his sentence for the offence or offences concerned".

18. Pursuant to section 88(1) "offences concerned" are defined in accordance with section 6(9) which stipulates that these are the offences in section 6(2) – effectively the offences which have been proved or admitted in current proceedings.

19. Section 10 assumptions are confined to cases involving criminal lifestyle. The court, therefore, cannot apply the assumptions to determine whether the defendant benefitted from his particular criminal conduct.

20. However, under section 18 the court can order the defendant to provide it with information "to help [the court] in carrying out its functions". Failure to comply without reasonable excuse allows the court to "draw such inference as it believes is appropriate" (section 18(4)). Section 18 information which amounts to an admission that the defendant has benefited from criminal conduct is not admissible in evidence in proceedings for an offence (section 18(9)).

1.2.2 General criminal conduct

21. Where the court is satisfied that the defendant has a criminal lifestyle, it must determine whether D has benefitted from his general criminal conduct.

22. Section 76(2) defines general criminal conduct as all the defendant's criminal conduct irrespective of when it occurred. Although section 10 assumptions apply to all the income and expenditure from the six years prior to the start of the proceedings for the offence, the court is entitled to calculate the benefit of an earlier crime, however on the balance of probabilities and without reliance on the assumptions.6

23. The four section 10 assumptions are as follows:

(a) any property transferred to the defendant within the six years preceding the proceedings for the offence was obtained by him as a result of his general criminal conduct and at the earliest time he appears to have held it;

(b) any property held by the defendant at any time after the date of conviction was obtained by him as a result of his general criminal conduct and at the earliest time he appears to have held it;

(c) any expenditure incurred by the defendant at any time after the start of the six-year period was met from property obtained by him as a result of his general criminal conduct;

(d) 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.

24. Section 84(2) provides that a property is held or transferred if "an interest" in the property is held, transferred or granted as the case may be.

25. Section 10(6) precludes the court from making an assumption in two circumstances. The first is where an assumption "is shown to be incorrect". Thus where a defendant can establish, on the balance of probabilities, that a particular source of income is legitimate, the court must not treat the income as the proceeds of crime.

26. The second is where "there would be a serious risk of injustice if the assumption were made". In this instance no burden of proof is provided for. It has been held that "serious risk of injustice" is a matter for the court to determine in the exercise of its discretion.7

1.2.3. Benefit

27. Section 76(4) – (6) defines "benefit". A person benefits from criminal conduct if he obtains property as a result of or in connection with the conduct. His benefit is the value of the property obtained. If, instead of property, a person obtains a pecuniary advantage his benefit is a sum of money equal to the value of the pecuniary advantage.

28. The defendant does not have to retain the property for it to constitute the benefit. All that it is necessary is for the defendant to receive the property. What he does with it subsequently is irrelevant.

29. In R v Patel the appellant, a postmaster, pleaded guilty to one count of conspiring to obtain property by deception. He had obtained payment of £51,920 from the Post Office by using stolen benefit books and forging signatures. He had then paid a share of the proceeds to an accomplice. A confiscation order was made against him in the full sum of £51,920. It was argued on his behalf on appeal that the judge should not have ordered the payment of more than what was left to the defendant after paying his accomplice. The Court of Appeal rejected the submission.8

30. More generally, the apportionment of the benefit among the individual accomplices and co-conspirators has proved to be a thorny issue in application of POCA. The three key authorities are the House of Lords decisions in R v May;9 Jennings v CPS10 and R v Green11. The Court of Appeal in R v Rooney usefully summarised the position under the authorities as follows:

"(a) if a benefit is shown to be obtained jointly by conspirators, then all are liable for the whole of the benefit jointly obtained.

(b) If, however, it is not established that the total benefit was jointly received, but it is established that there was a certain sum by way of benefit which was divided between conspirators, yet there is no evidence on how it was divided, then the court making the confiscation order is entitled to make an equal division as to benefit obtained between all conspirators.

(c) However, if the court is satisfied on the evidence that a particular conspirator did not benefit at all or only to a specific amount, then it should find that is the benefit that he has obtained."12

1.3 Recoverable amount

31. The recoverable amount is defined in section 7 as "an amount equal to the defendant's benefit from the conduct concerned".

32. However, where the defendant shows that the available amount is less than that benefit, the recoverable amount is the available amount, or a nominal amount, if the available amount is nil. Where a victim of the offence has initiated, or intends to initiate, civil proceedings against the defendant the recoverable amount is such amount as the court believes is just, but does not exceed the benefit or the available amount.

33. Section 9 defines the available amount as the aggregate of:

(a) 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

(b) the total of the values (at that time) of all tainted gifts.

  1. "Obligations which then have priority" are the obligations of the defendant:

(a) to pay an amount due in respect of a fine or other order of a court which was imposed or made on conviction of an offence and at any time before the time the confiscation order is made, or

(b) to pay a sum which would be included among the preferential debts if the defendant's bankruptcy had commenced on the date of the confiscation order or his winding up had been ordered on that date.

35. "Tainted gifts" are defined in section 78(1) as transfers of property to another person for a consideration whose value is significantly less than the value of the property at the time of the transfer. The process for identifying tainted gifts depends on whether the defendant has criminal lifestyle (section 77).

1.4 Ancillary orders

36. The effectiveness of a confiscation order will in large part depend on the ability to ascertain the full extent of an offender's assets and to restrain him from dissipating them while the proceedings are in progress. For these two purposes POCA provides the enforcement authorities with extensive powers.

37. The investigative powers are contained in Part 8 of POCA (sections 341 – 416). The five powers are (i) production orders; (ii) search and seizure warrants; (iii) disclosure orders; (iv) customer information orders; and (v) account monitoring orders. The orders are available in both criminal confiscation and civil recovery proceedings. A Code of Practice, issued by the Home Secretary under section 377 of POCA, provides guidance as to how the investigative powers in respect of confiscation, civil recovery, money laundering and detained cash investigations are to be used by certain investigators in England, Wales and Northern Ireland.13

38. Part 2 of POCA contains the provisions granting the Crown Court the power to issue restraint orders. The power may be exercised pre-charge and against anyone specified in the order irrespective of whether the person is the suspect. This is the effect of sections 40(2) and 41(2) of POCA. Section 40(2) states that the power may be exercised if:

(a) a criminal investigation has been started in England and Wales with regard to an offence, and

(b) there is reasonable cause to believe that the alleged offender has benefited from his criminal conduct.

39. Section 88(2) defines criminal investigation in very broad terms as "an investigation which police officers or other persons have a duty to conduct with a view to it being ascertained whether a person should be charged with an offence".

40. Section 41(2) states that a restraint order may provide that it applies:

(a) to all realisable property held by the specified person whether or not the property is described in the order;

(b) to realisable property transferred to the specified person after the order is made.

41. Section 41(1), in stating that the Court "may make" a restraint order, makes it clear that the power is discretionary. Section 69 imposes certain confines within which the power should be exercised and particularly where it may prejudice the third parties' interests. Section 69(2) provides that the restraint powers must be exercised:

(a) with a view to the value for the time being of realisable property being made available (by the property's realisation) for satisfying any confiscation order that has been or may be made against the defendant;

(b) in a case where a confiscation order has not been made, with a view to securing that there is no diminution in the value of realisable property;

(c) without taking account of any obligation of the defendant or a recipient of a tainted gift if the obligation conflicts with the object of satisfying any confiscation order that has been or may be made against the defendant.

42. Section 69(3) further provides that these provisions have the effect subject to:

(a) the powers must be exercised with a view to allowing a person other than the defendant or a recipient of a tainted gift to retain or recover the value of any interest held by him;

(b) in the case of realisable property held by a recipient of a tainted gift, the powers must be exercised with a view to realising no more than the value for the time being of the gift.

43. This was confirmed by the Court of Appeal in Irwin Mitchell v Revenue and Customs Prosecutions Office where the Court observed:

"The purpose of a criminal restraint order, as with a civil freezing order, is not to prevent third parties from enforcing civil rights against a defendant if those rights would be unaffected by any order which may be made against the defendant at the end of the proceedings".14

1.5 European Convention on Human Rights

44. Theoretically confiscation proceedings can engage two articles of the Convention – article 6 and article 8. However, the application of the articles has been significantly restricted.

45. Whether mandatory factual assumptions of fact and the reverse burdens of proof in determination of benefit contravene article 6(2) presumption of innocence has been answered in the negative by the UK judiciary. The commencement of confiscation proceedings is not "a charge with a criminal offence" within the meaning of article 6(2) and therefore the article is not engaged, let alone contravened.

46. The first key authority was the Privy Council decision in McIntosh v Lord Advocate, albeit in relation to analogous Scottish legislation, where Lord Bingham proffered the following reasons for the approach:

"(1) The application is not initiated by complaint or indictment and is not governed by the ordinary rules of criminal procedure.

(2) The application may only be made if the accused is convicted, and cannot be pursued if he is acquitted.

(3) The application forms part of the sentencing procedure.

(4) The accused is at no time accused of committing any crime other than that which permits the application to be made.

(5) When, as is standard procedure in anything other than the simplest case, the prosecutor lodges a statement under section 9, that statement (usually supported by detailed schedules) is an accounting record and not an accusation.

(6) The sum ordered to be confiscated need not be the profit made from the drug trafficking offence of which the accused has been convicted, or any other drug trafficking offence.

(7) If the accused fails to pay the sum he is ordered to pay under the order, the term of imprisonment which he will be ordered to serve in default is imposed not for the commission of any drug trafficking offence but on his failure to pay the sum ordered and to procure compliance.

(8) The transactions of which account is taken in the confiscation proceedings may be the subject of a later prosecution, which would be repugnant to the rule against double jeopardy if the accused were charged with a criminal offence in the confiscation proceedings.

(9) The proceedings do not culminate in a verdict, which would (in proceedings on indictment) be a matter for the jury if the accused were charged with a criminal offence."15

47. The stance was confirmed by the UK House of Lords in R v. Bejafield16 and by the European Court of Human Rights in Phillips v. UK.17

48. A more recent authority is the House of Lords decision in R v. Briggs-Price,18 where the appellant appealed against a confiscation order under the Drug Trafficking Act 1994 imposed following his convictions for conspiracy to import heroin. The appellant was not charged for his involvement in the distribution of cannabis.19 In the confiscation proceedings the judge endorsed the prosecution's concession that as no heroin was imported it was not appropriate to make a confiscation order in relation to any benefit accruing specifically from the acquisition of heroin. However, the determination of benefit was not limited to the particular prohibited drug in respect of which the appellant was convicted. There was considerable evidence before the court that he was involved in other crimes, including substantial cannabis trafficking, in relation to which benefit could be calculated.

49. The appellant submitted that the court could not deduce that he had received property or incurred expenditure from evidence that he had committed drug trafficking offences and that it could only do so if he had committed the drug offences of which he was convicted and the evidence related directly to those offences. Anything else would contravene his rights under article 6 ECHR.

50. The House of Lords dismissed the appeal. In delivering his judgment Lord Mance provided the following summary of the European Court's jurisprudence:

"(1) The jurisprudence of the European Court of Human Rights has clearly accepted the legitimacy of a confiscation order based on conclusions about drug trafficking other than that of which the defendant was convicted, and has held that the making of such an order does not of itself involve a charge within article 6(2).

(2) Rather, such an order is regarded as part of the sentencing process, designed and permitted in order to strip from the defendant benefit in the form of proceeds of his own or other's offending, at least to the extent that he has current assets sufficient in value to cover the amount of such benefit.

(3) The Strasbourg case-law also shows the European Court of Human Rights taking a similar approach to the United Kingdom courts in this regard, without drawing any distinction between cases of confiscation orders based on direct proof of the benefit made and proceeds received and cases where they are based on assumptions drawn from the possession at some time of unexplained assets (see the analysis above of the reasoning and decisions in van Offeren, Phillips and Grayson and Barnham).

(4) Geerings stands for a possible exception, in the case of an order based on benefit and proceeds from an offence with which the defendant was charged and of which he was acquitted, although it is in apparent, unremarked conflict on this point with the previous decision of an almost identically constituted chamber in van Offeren.

(5) That possible exception has no relevance in this case. Here the fact that the appellant had benefited was established beyond doubt as the judge said by his own admissions adduced in evidence at trial. He had the opportunity then and again during the confiscation procedure to explain or dispel such admissions, but chose not even to give evidence during the latter procedure. There was in these circumstances no breach of article 6(2.)

(6) I see no basis for complaint about the fairness of the present confiscation order procedure in terms of article 6(1). The fact that the assumptions were not made makes any such complaint even weaker here than it was in Phillips and Grayson and Barnham."20

51. However the opinion of the Court was divided as to the standard of proof which article 6 requires in a case where a judge is considering whether a convicted person has benefited from some specific drug trafficking offence with which he has not been charged. Lords Phillips and Mance considered that proof on the balance of probabilities was all that article 6 required. Lords Brown and Rodger thought that proof beyond reasonable doubt was necessary. Otherwise, as Lord Rodger observed, "the Crown could ask the court to make a confiscation order on the basis of an alleged benefit from a specific offence of which the defendant would have been acquitted if he had been prosecuted for it".21 This logic is difficult to doubt.

52. The application of article 8 ECHR to confiscation proceedings was considered in R v. Ahmed.22 In this case the appellants argued that where there was evidence that a confiscation order based upon the inclusion of the offenders share in the matrimonial home could, on the balance of probabilities, only be met if the matrimonial home was sold, that would result in interference with not just the appellants Article 8 rights, but the Article 8 rights of innocent members of the family, such as their spouses and children. In particular such interference would not be proportionate in so far as it would affect the other members of the family.

53. The Court of Appeal dismissed the appeal holding that:

"The court is merely concerned with the arithmetic exercise of computing what is, in effect, a statutory debt. That process does not involve any assessment, in our judgment, of the way in which that debt may ultimately be paid, any more than the assessment of any other debt. No questions therefore arise under Article 8 at this stage in the process.

Different considerations, will, however arise if the debt is not met and the prosecution determine to take enforcement action, for example by obtaining an order for a receiver. As the House of Lords explained in Re Norris [2001] 1WLR 1388 , this is the stage of the procedure in which third party's rights can not only be taken into account but resolved. If the court is asked at that stage to make an order for the sale of the matrimonial homes, Article 8 rights are clearly engaged. It would be at that stage that the court will have to consider whether or not it would be proportionate to make an order selling the home in the circumstances of the particular case. That is a decision which can only be made on the facts at the time. The court would undoubtedly be concerned to ensure that proper weight is given to the public policy objective behind the making of confiscation orders, which is to ensure that criminals do not profit from their crime. And the court will have a range of enforcements options available with which to take account of the rights of third parties such as other members of the [appellant's] family."23

1.6 Abuse of process

54. As was explained above, once the Crown decides to invoke the confiscation process, the making of an order is mandatory and cannot be moderated by judicial decision. Similarly it is open to the Crown, subject to the approval of the Judge, to discontinue the confiscation proceedings at any stage or to compromise them.

55. However, it is also plain that section 6 POCA does not make confiscation proceedings automatic in every case where some benefit has been obtained from criminal conduct. Cases may arise where it would be inappropriate for the Crown to seek confiscation. In cases where the proceedings would amount to an abuse of court's process, the courts retain the jurisdiction to stay an application for confiscation.

56. The first exercise of this jurisdiction by the Court of Appeal in relation to confiscation appears to be R v. Shabir24, the case involving a pharmacist that had dishonestly inflated monthly claims for the cost of prescriptions he dispensed. Although it was accepted that the amount by which he inflated the claims was £464, the Crown sought confiscation in a sum over £400,000 and the order made by the Judge was for £212,464.17.

57. The Court of Appeal held that the enormous disparity between the excess of the appellant's inflated claims and the confiscation order raised "the real likelihood that this order [was] oppressive" and quashed the confiscation order, replacing it with a compensation order in the sum of £464.

58. However, the court observed that such a disparity will not by itself establish oppression in every case. In criminal lifestyle cases, which attract the application of section 10 assumptions, "it may well be perfectly proper for a confiscation order to be massively greater than the gain from the offences of which the defendant has been convicted":

"This jurisdiction must be exercised with considerable caution, indeed sparingly. It must be confined to cases of true oppression. In particular, it cannot be exercised simply on the grounds that the Judge disagrees with the decision of the Crown to pursue confiscation, or with the way it puts its case on that topic. A specific example of that principle is that it is clearly not sufficient to establish oppression, and thus abuse of process, that the effect of confiscation will be to extract from a defendant a sum greater than his net profit from his crime(s)."25 (emphasis in original)

59. The most recent Court of Appeal decision on abuse of process in confiscation proceedings is R (on the application of BERR) v Lowe.26 In this casethe Court also held that it was not an abuse of process to seek to recover more than a defendant has profited from his crime. Nor was it an abuse to bring confiscation proceedings where the defendant has made restitution outside the narrow circumstances identified in an earlier Court of Appeal judgment in Morgan and Byegrave.27 The circumstances were:

"(i) the defendant's crimes are limited to offences causing loss to one or more identifiable loser(s);

(ii) his benefit is limited to those crimes;

(iii) the loser has neither brought nor intends any civil proceedings to recover loss; but

(iv) the defendant either has repaid the loser, or stands ready willing and able immediately to repay him, the full amount of the loss."28

60. In Lowe the appellant director transferred the land belonging to the company subject to winding up petition for no consideration to another entity, where he held 50% shareholding and was also a director after the winding up petition but before the grant of the court order.

61. Subsequently the appellant pleaded guilty to an offence under section 206 of the Insolvency Act 1986 Act and was sentenced to four months imprisonment and a seven year disqualification from serving as a director. At the same time confiscation proceedings under the Proceeds of Crime Act (POCA) 2002 were instituted. The court determined £191,337 as the benefit of the appellant's criminal conduct and made a confiscation order for £41,920 representing the appellant's realisable assets – the value of the equity in the appellant's home.

62. However, prior to the appellant's guilty plea, the liquidator reached an agreement with the recipient firm's other director to return the land and sold the land for £205,000 so that on completion of the liquidation there was a small surplus.

63. The Court dismissed the appellant's submission that the confiscation order was an abuse of process: the property having been recovered and all injured parties compensated. The Court gave the following reasons:

"i) The appellant made no offer to restore the property. It would have been restored by operation of the provision of the Insolvency Act if his co-director ... had not entered into an agreement to restore it.

ii) This was not a course of criminal conduct limited to one or more identifiable losers; the fraudulent transfer was made to strip an asset out of his company to the detriment of every creditor.

iii) There can be no suggestion of an abuse or oppression. The decision to seek a confiscation order is one that can be seen as simply carrying out the decision of Parliament."29

1.7 Attrition in confiscating the proceeds of crime

64. A 2009 Home Office research report sought to identify the extent of financial loss in the confiscation order process and why it occurs. The study found that although the majority of cases experience little or no attrition, there is significant monetary attrition in the confiscation order system. However, much of the overall 'loss' shown by the statistics is artificial and stems from the operation of the POCA – in particular, the broad assumptions that can be applied in the calculation of criminal benefit.30

65. The study analysed 2006/07 confiscation data held on the central UK Joint Asset Recovery Database; a sample of 155 confiscation cases across five police forces and interviewed some of those involved at different stages of the process. The data revealed:

  • a striking overall reduction between the value of criminal benefit initially assessed by Financial Investigators (FIs) and the amount eventually recovered – a total reduction of around 95 per cent;
  • the attrition was particularly acute in high value cases, demonstrating the general point that attrition in overall financial terms is affected much more by a small number of high value cases than the large volume of low value ones;
  • a considerable difference between the amount imposed in orders and the amount eventually recovered;
  • the rate of attrition at enforcement became greater as the value of orders increased: while the case payment rate 10-14 months after imposition of orders made in 2006/07 was good (more than three-quarters of orders paid in full), the proportion of the total value paid off by this time was much lower (less than two-fifths).

66. The study also offered a number of explanations for the attrition. For example, the attrition at enforcement stage can be explained by the following:

  • shortfall between the expected value of assets when orders are made and the actual value they fetch when sold;
  • difficulties faced by imprisoned offenders in selling assets to pay their orders;
  • complications around the position of third parties in asset ownership, preventing the sale of property in particular;
  • actions on part of some offenders to avoid recovery, e.g. hiding assets;
  • offenders absconding, dying, or being deported.

67. More of concern, however, is the study's explanation for attrition at the procedural stages, which accounts for the largest proportion of the total attrition. The two principal reasons were:

  • The latitude that the investigating authority is given by POCA when estimating the level of criminal benefit (especially for 'criminal lifestyle' cases) can create artificially high benefit figures which are unlikely to be recoverable.
  • Negotiations between defence and prosecution reportedly feature in many confiscation order cases and provide an opportunity for reducing the value of both the initial assessment of criminal benefit and the value of recoverable assets held by an offender. There was some unease (on the part of police Financial Investigators especially) that the prosecution position was sometimes weakened by these negotiations.

68. On the first point the study suggests that "these are natural consequences of the process and do not necessarily represent failings by the investigating authorities." This may well be so. However, another interpretation may be that there is too much latitude in the hands of the State to determine the benefit under POCA, which in turn necessitates extensive involvement of the defence in the negotiations. It is not difficult to imagine the consequences for the defendants without adequate legal representation.

69. In conclusion the study observes that "[f]rom a law enforcement perspective, this is not necessarily an unwelcome position; by allowing the assessment to err on the high side, pressure can be put on offenders and, arguably, in doing so, more criminal proceeds may be exposed for recovery".31

2. Civil recovery

70. Civil recovery provides for non-conviction based recovery of the proceeds of crime. The recovery order will typically be sought where: a suspect was acquitted, has not been convicted of a "lifestyle" offence, his not guilty plea was accepted by the prosecution – in other words in situations where successful prosecution was not possible, for example due to insufficient evidence, or was not in the public interest.

71. By way of overview, an enforcement authority has to establish on the civil standard of proof that the property has been obtained by unlawful conduct, or that the property represents the property so obtained (cf. tracing provisions in section 305 POCA) and it is held by the respondent. The unlawful conduct is defined in section 241 as criminal offence in the UK, or where occurs abroad, if it is a criminal offence in that territory and in the UK. Section 242(1) makes it clear that a person can obtain property through unlawful conduct of another and also where the property was obtained in return for unlawful conduct, rather than as a direct consequence thereof.

72. When the Serious Crime Act 2007 merged the Asset Recovery Agency (ARA) with SOCA in 2008, it distributed ARA's civil recovery powers among the following enforcement authorities:

  • Director of Serious Organised Crime Agency;
  • Director of Public Prosecutions;
  • Director of Revenue and Customs Prosecutions;
  • Director of Serious Fraud Office.

73. This development is particularly important in relation to the Serious Fraud Office because of its extensive investigative powers under section 2 of the Criminal Justice Act 1987. The Director of the SFO may by notice in writing require the person whose affairs are to be investigated or any other person whom he has reason to believe has relevant information to:

(a) answer questions or otherwise furnish information with respect to any matter relevant to the investigation;

(b) to produce any specified documents which appear to the Director to relate to any matter relevant to the investigation or any documents of a specified class which appear to him so to relate.

74. Any person who without reasonable excuse fails to comply with a requirement imposed on him under section 2 is guilty of an offence. A section 2 statement by a person may be used in evidence against him on a prosecution for an offence where in giving evidence he makes a statement inconsistent with it and the evidence is adduced, or a question relating to it is asked, by or on behalf of the person. However, there is nothing in the 1987 Act to prevent the SFO from using the material obtained under section 2 in the civil recovery proceedings.

75. As noted above, general Part 8 POCA investigative powers will be available to all the enforcement authorities for the purposes of civil recovery proceedings.

76. To prevent dissipation of assets pending the resolution of the case an enforcement authority may apply for a property freezing order before or after starting the proceedings. The power is contained in section 245A which was added to POCA by the Serious Organised Crime and Police Act 2005.

77. A property freezing order prohibits any person to whose property the order applies from in any way dealing with the property subject to the court's section 245(c) power to exclude certain property in certain circumstances. An application for a property freezing order may be made ex parte "if the circumstances are such that notice of the application would prejudice any right of the enforcement authority to obtain a recovery order in respect of any property". The court has discretion to make an order if it is satisfied that there is a "good arguable case":

(a) that the property to which the application for the order relates is or includes recoverable property, and

(b) that, if any of it is not recoverable property, it is associated property.

78. Where the property to which the application for the order relates includes property alleged to be associated property, and the enforcement authority has not established the identity of the person who holds it, the court must be satisfied that the authority has taken all reasonable steps to do so.

79. The first civil recovery order obtained by the SFO after securing the new powers was used to sanction Balfour Beatty Plc in connection with irregular payments and inaccurate accounting in its Bibliotheca Project in Alexandria, Egypt. Balfour Beatty voluntarily brought the unlawful conduct to the attention of the SFO which prompted an investigation in to the conduct. A consent order was agreed before the High Court in October 2008 whereby the firm agreed a £2.25 million settlement together with a contribution to costs of the civil recovery order in exchange for no charges being brought.

3. Cash: search, seizure and forfeiture

80. Section 282(2) provides that proceedings for a civil recovery order may not be taken in respect of cash found at any place in the United Kingdom "unless the proceedings are also taken in respect of property other than cash which is property of the same person." Thus proceedings for cash alone must follow a separate procedure, albeit which calls upon the same broad principles as in the civil recovery proceedings. The procedure is contained in Chapter 3 of Part 5 of POCA (section 289 et seq.).

81. Section 289(6) defines cash as any of the following found at any place in the UK:

(a) notes and coins in any currency,

(b) postal orders,

(c) cheques of any kind, including travellers' cheques,

(d) bankers' drafts,

(e) bearer bonds and bearer shares.

82. Section 289(1) and (2) provide that a customs officer, a constable or an accredited financial investigator may search premises or the person where he has reasonable grounds for suspecting that there is on the premises or on the person cash which is:

(a) recoverable property, or

(b) intended by any person for use in unlawful conduct, and

(c) the amount of which is not less than £1000.

83. The cash can then be seized under section 294 if the relevant officer has reasonable grounds for suspecting the existence of the above three conditions. Section 295 provides that the cash can be detained for an initial period of 48 hours, which may be extended by a magistrates' court for a period of six months, and thereafter for a maximum term of two years beginning with the date of the original order.

84. Section 295(5) and (6) provides two conditions for extending the detention. These are:

1. that there are reasonable grounds for suspecting that the cash is recoverable property and that either—

(a) its continued detention is justified while its derivation is further investigated or consideration is given to bringing (in the United Kingdom or elsewhere) proceedings against any person for an offence with which the cash is connected, or

(b) proceedings against any person for an offence with which the cash is connected have been started and have not been concluded.

1. that there are reasonable grounds for suspecting that the cash is intended to be used in unlawful conduct and that either—

(c) its continued detention is justified while its intended use is further investigated or consideration is given to bringing (in the United Kingdom or elsewhere) proceedings against any person for an offence with which the cash is connected, or

(d) proceedings against any person for an offence with which the cash is connected have been started and have not been concluded.

85. The magistrate's court power to order forfeiture of the cash is contained in section 298. To make the order, the court needs to be satisfied that the cash, or part of it, is recoverable property or is intended by any person for use in unlawful conduct.

4. International co-operation

86. The key UK legislative instrument in the context of the proceeds of crime is the Proceeds of Crime Act 2002 (External Requests and Orders) Order 2005/3181 which has been made under section 444 of POCA and came into effect on 1st January 2006.

87. The Order specifies the procedure for giving effect to external requests and orders in connection with criminal investigations or proceedings including by means of civil recovery. The relevant provisions for England and Wales are contained in Parts 2 and 5 of the Order.

88. The Order distinguishes between an "external request" (governed by articles 6 – 17) and an "external order" (articles 18 – 39). Section 447 of POCA defines both concepts. The former is "a request by an overseas authority to prohibit dealing with relevant property which is identified in the request". The latter is an order which—

(a) is made by an overseas court where property is found or believed to have been obtained as a result of or in connection with criminal conduct, and

(b) is for the recovery of specified property or a specified sum of money.

89. External requests and orders should in the first instance be addressed to the Secretary of State for Home Department who will refer the matter to the relevant prosecuting authority (articles 6 and 18). Only the Director of the relevant prosecuting authority may apply either for a restraint order (article 9(1)(a)) or to give effect to an external order (article 20(1)). Neither action can be carried out by the requesting state directly.

4.1 Action on receipt of external request

90. Article 8 empowers the Crown Court to make a restraint order prohibiting any specified person from dealing with relevant property which is identified in the external request and specified in the order if either of the two conditions in article 7 are satisfied. The conditions are:

1. (a) relevant property in England and Wales is identified in the external request;

(b) a criminal investigation has been started in the country from which the external request was made with regard to an offence, and

(c) there is reasonable cause to believe that the alleged offender named in the request has benefited from his criminal conduct.

2. (a) relevant property in England and Wales is identified in the external request;

(b) proceedings for an offence have been started in the country from which the external request was made and not concluded, and

(c) there is reasonable cause to believe that the defendant named in the request has benefited from his criminal conduct.

91. The criminal conduct is defined according to section 447(8) POCA as conduct which constitutes an offence in any part of the United Kingdom, or would constitute an offence in any part of the United Kingdom if it occurred there. In other words, the criminal conduct in requesting state will be subject to the dual criminality test.

4.2 Action on receipt of external order

92. Article 22 provides that where the Crown Court decides to give effect to an external order, it must:

(a) register the order in that court;

(b) provide for notice of the registration to be given to any person affected by it; and

(c) appoint the relevant Director as the enforcement authority for the order.

93. The conditions for registering an external order are provided in Article 21. All of the conditions contained therein must be satisfied. The conditions are:

1. the external order was made consequent on the conviction of the person named in the order and no appeal is outstanding in respect of that conviction;

2. the external order is in force and no appeal is outstanding in respect of it;

3. giving effect to the external order would not be incompatible with any rights of any person affected by the order under the ECHR;

4. where an external order authorises the confiscation of property other than money that is specified in the order, the specified property must not be subject to a charge under any of the UK legislative provisions in article 21(6).

94. Article 21(7) provides that in determining whether the order is an external order within the meaning of POCA, the Court must have regard to the definitions in certain subsections of section 447, including subsection 8, which, as explained above, defines criminal conduct as conduct which constitutes, or would constitute, an offence in any part of the United Kingdom. Since section 447 expressly includes "criminal conduct" in the definition of "external order", the dual criminality test would also apply to giving effect to an external order.

95. For the purpose of the second condition above "appeal" includes any proceedings by way of discharging or setting aside the order and an application for a new trial or stay of execution (article 21 (8)).

4.3 Giving effect to external orders by means of civil recovery

96. Article 143(1) provides that the proceedings for a civil recovery order pursuant to the registration of an external order may be taken by the enforcement authority in the High Court against any person who the authority thinks holds recoverable property. Article 147 permits the authority to apply to the court for a property freezing order (whether before or after starting the proceedings).

Footnotes

1. http://www.cabinetoffice.gov.uk/media/cabinetoffice/strategy/assets/crime.pdf .

2. The Annual Report is available at http://www.soca.gov.uk/about-soca/library .

3. R v May [2008] UKHL 28, paragraph 48.

4. Ibid. at paragraph 9.

5. R v. Brack [2007] EWCA Crim 1205.

6. Rees et al, Blackstone's Guide to the Proceeds of Crime Act 2002, 3rd ed., 2008 Oxford University Press, p.35.

7. R v. Benjafield [2002] UKHL 2 at paragraph 13.

8. [2000] 2 Cr App R (S) 10, cited with approval in May (footnote 3) at paragraph 31.

9. Footnote 3.

10. [2008] 1AC1046.

11. [2008] 1AC 1053.

12. [2010] EWCA Crim 2 at paragraph 36.

13. The Code is available at http://www.crimereduction.homeoffice.gov.uk/crimereduction026b.pdf .

14. [2009] 1 WLR 1079 at paragraph 26.

15. [2001] UKPC D1 at paragraph 14.

16. [2002] UKHL 2.

17. (2001) 11 BHRC 280.

18. [2009] UKHL 19.

19. there was a single count of being concerned in the supply of cannabis, but that was not before the jury and was not proceeded with.

20. Ibid. at paragraph 134.

21. Ibid. at paragraph 77.

22. [2005] 1 WLR 122.

23. Ibid. at paragraphs 11 and 12.

24. [2008] EWCA Crim 1809.

25. Ibid. at paragraph 24.

26. [2009] EWCA Crim 194.

27. [2008] EWCA Crim 1323.

28. Morgan and Byegrave at paragraph 29.

29. At paragraph 17.

30. Karen Bullock, David Mann, Robert Street, and Cris Coxon, Examining attrition in confiscating the proceeds of crime (Research Report 17, Home Office, 2009) available at http://www.homeoffice.gov.uk/rds/pdfs09/horr17c.pdf .

31. Ibid. p.23.

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