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It's All About The Money

31 July 2013

Restraint orders lead to detailed legal argument about people’s entitlement to retain their assets. Aziz Rahman, of Rahman Ravelli, considers the issues surrounding such orders.

The purpose of a restraint order is to freeze property that may subsequently be confiscated. Confiscation is the power the Crown Court has to make orders depriving convicted offenders of their assets if the offender has benefi ted from his criminal conduct. A restraint order made under the Proceeds of Crime Act 2002 (POCA), therefore, does exactly what it says – it specifies exactly what you cannot do with the property cited on the order.

The order will invariably include a disclosure provision so that the defendant has to declare all he owns to the prosecutor. Sometimes defendants will take a risk. They will withhold information hoping the prosecutors are not aware of it. That is a risk because if the investigators discover the bank account (or whatever the assets in question are) they can haul the defendant back to court on an application for committal for contempt of court. Such allegations are hard to defend – they are civil proceedings in the Crown Court, there is no jury and the civil standard of proof applies.

ISSUING AN ORDER
Section 40 of POCA creates a number of circumstances in which the Crown Court may issue a restraint order. Usually, the Crown will apply for an order after a suspect has been charged with an offence. But the authorities can seek such an order even before there is an arrest, as long as an ‘investigation’ has started. The Crown has to establish that there is a reasonable cause to believe that the alleged offender has benefited from his criminal conduct. The Crown does not have to convince the Judge that any named property was purchased directly with ill-gotten gains. All they have to do is persuade the Judge, to the civil standard – i.e. on the balance of probabilities - that there is reasonable cause to believe that the suspect has benefited from ‘criminal conduct’. Criminal conduct is widely defined as any conduct which would constitute an offence and the Crown may rely on hearsay evidence to persuade the Judge.

The Crown’s application for a restraint order is likely to be made ex parte, that is the prosecution seeing the Judge privately in chambers without notice to the suspect. The first a suspect will know about it is when he or she is served with the order, or even when they discover that their cash-card no longer works at the ATM.


The Court of Appeal case of: Windsor & Hare v CPS [2011] EWCA 143 is important when it comes to the law on restraint orders. HMRC was investigating an alleged duty diversion fraud involving suspects linked to the Eastenders group  of companies dealing in alcohol imports. In December 2010, the Crown obtained ex parte both restraint and management receivership orders from a Judge sitting at the Old Bailey. In the subsequent appeal proceedings, the Court of Appeal quashed the orders; although it allowed time for the Crown to re-apply to the Old Bailey for new orders. That later application was unsuccessful. The Appeal Court took advantage of the case to effectively teach HMRC a lesson – and a lesson to Judges that such orders should not be granted ex parte unless the prosecution can demonstrate that they have done their job properly.

The Court noted that such orders are very draconian and, as such, judges must take extra care when dealing with applications. The Court must focus fully on the statutory test, namely whether there is reasonable cause to believe that the alleged offender has benefitted from criminal conduct. In doing so, the Court of Appeal was particularly critical of the way the application was made – in a hurried fashion that gave the Judge hardly any time to get on top of the papers, meaning that he did not fully understand the case. Papers must be lodged well in advance and there should always be an oral hearing in complex cases.

Crucially the key ground for the Court of Appeal was the insufficiency of the evidence before the single judge. The witness statements in support of the ex parte application were full of allusions to suspicion – comments such as “it is suspected the goods may have been diverted”. That is suspicion, not evidence and the court firmly found that it was not good enough. The court also did not find it sufficient that persons involved in the case had previous convictions for precisely the same offence. According to the court’s finding in this case, that was of little relevance to the statutory test.

THIRD PARTIES
Third parties holding an interest in property can be affected by a restraint order. The most obvious example is the spouse of someone who is facing criminal charges. For example the wife of someone facing serious fraud  charges where bank accounts and the matrimonial home are in joint names. In law, where any person has been, or may be, affected by the actions of a management receiver in relation to a restraint order, an application can be made to the Court for directions as to the exercise of the receiver’s powers. The receiver potentially has the power to sell property to satisfy his bill even before the matter has come to trial, although such a serious step should not be taken without seeking direction from the court first. The case of Gibson v RCPO [2008] is instructive in this scenario. In that case, a confiscation order was made against a convicted drug trafficker. The assets identified had been the 50% equity in the matrimonial home (purchased in joint names) and a joint bank account, held by the offender’s wife.

The Crown Court took the view that the wife must have realised that the mortgage was being paid by the husband’s illgotten gains and that, therefore, the home was an asset that could be sold to satisfy the confiscation order. The Court of Appeal took a different view. It found that there was no legal principle under which a spouse could be deprived of the benefit of illegally obtained property on the grounds of public policy. The wife kept her half of the house and bank account. Applying that principle to the start of proceedings (i.e. the restraint order stage) provides a solid argument for limiting the scope of any such order where there are assets which are held in joint names with a spouse.

LIVING AND LEGAL EXPENSES
Another area that often rankles with those on the wrong end of a restraint order is the amount allowed by the order for ordinary living expenses. Variation applications made after the initial ex parte order will often challenge the amount allowed. For anyone looking to challenge such terms of an order, a careful analysis of expenses together with as much proof as possible is required at the very earliest opportunity. An exception cannot be made for legal expenses in relation to the actual offence in respect of which the restraint order is made. The state, therefore, must pay for the defence through Legal Aid.

APPLICATION FOR VARIATION OR DISCHARGE
In order for a restraint order to be made, the Court must be satisfied that there is a real risk of dissipation of the assets and - not a ‘merely fanciful’ risk. Once a suspect has been served with a restraint order and has decided to fight it, the first step must be to sit down with legal advisors and figure out what the challenges are, how much money is needed for reasonable living expenses, what is said about the charges or proposed charges, the ‘reasonable belief’ test, how much of the defence it is tactically wise to give away at that early stage and whether the prosecution can demonstrate it acted properly at the ex parte stage.

We come across cases where people have been arrested and/or interviewed and then a restraint order has been imposed months later when there is a charge. In those circumstances, a challenge should always be considered as, providing the assets are still in place, the defence can argue forcefully that there is strong evidence of there being no real risk of dissipation of the assets. This is because the defendant has been on notice for months of the possibility of litigation and yet has still not dissipated the assets, as in the case of R v B (Restraint Order) [2009] 1 Cr. App. R 14.

There have been a number of cases recently that have dealt with the duty of a prosecutor when he or she sees the Judge in an ex parte application. The case of R (R. Tchenguiz & R20 Ltd) v Serious Fraud Office & Others [2012] EWHC 2254 (Admin) in particular received a great deal of publicity as it related to the collapse of the Icelandic bank, Kaupthing. The High Court heard a challenge to the issue of a search warrant issued to the Serious Fraud Office (SFO) in an ex parte application. The court was highly critical of the SFO and considered that the Judge that granted the warrant had been misled by virtue of the SFO relying heavily on a particular report considering the complex financial dealings of the subjects of the warrant. The court noted that there was no independent scrutiny of the report’s findings, despite the SFO’s complete reliance upon it. So, for example, just before the collapse of the Kaupthing bank large sums were transferred from it to a Luxembourg account. This was relied upon by authors of the report as a possible attempt to dishonestly remove funds from those entitled to them. The fact was, however, that there were other plausible innocent explanations for this transaction that the Judge had not been told about. This was because the SFO had simply not investigated those possibilities because it relied so heavily on the report. This aspect weighed heavily in the High Court’s ultimate damning of the SFO. Such potential pitfalls facing the authorities when they make an ex parte application can apply equally in cases of
restraint.

THE FUTURE
Having your assets restrained is a serious step. There is not only the worry of impending or actual criminal charges but also a protracted period of time when you are having to battle with the authorities over your own assets. Anyone affected by such a restraint order needs to get to grips with their own finances as soon as possible. They also have to consider the case against them, the terms of the order and develop a strategy with their lawyers
as soon as possible.


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