RESTRAINT & RECEIVERS February 2012

In this article we give a brief overview on the law relating to Restraint Orders - that is an order made by the Crown Court which effectively freezes the assets of someone who is either being prosecuted or investigated for alleged criminal offences. The orders themselves can be very restrictive and we consider here how such orders are made and what steps should be taken if you find yourself on the wrong end of a Restraint Order.

Proceeds Of Crime Act 2002

The purpose of a Restraint Order is to freeze property that may subsequently be confiscated. Confiscation of course is the power the Crown Court has to make orders depriving convicted offenders of their assets if the offender has benefited from his criminal conduct. A Restraint Order made under the Proceeds of Crime Act 2002 ("POCA") does what it says - the Order will specify what you cannot do; i.e. you cannot 'deal' with the property cited on the Order. If the Order mentions your car for example it will mean that you cannot sell the car or transfer it or dispose of it, or in any way 'realise' it - i.e. turn it into cash.

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 should the investigators discover the bank account or whatever it is then 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.

When and How can a Restraint Order be Made?

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, s40(2)(a). The Crown have to establish that there is a reasonable cause to believe that the alleged offender has benefited from his criminal conduct (s40(2)(b)).

The Crown do 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' - this 'criminal conduct' is widely defined as any conduct which would constitute an offence (s76) 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; s42(1)(b). The first a suspect will know about it is when he or she is served with the Order, or even finds that his or her cash-card for some reason no longer works at the bank's ATM.

The Court of Appeal ruled in a very important case on this issue last year: Windsor & Hare v CPS [2011] EWCA 143. HMRC were investigating an alleged duty diversion fraud involving suspects linked to the Eastenders group of companies dealing in alcohol imports. In December 2010 they obtained ex parte both a restraint and a management receivership orders from a Judge sitting at the Old Bailey. In the subsequent appeal proceedings the Court of Appeal quashed the orders - though 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 these 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 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 rushed fashion giving the judge hardly any time to get on top of the papers and thereby not fully understanding 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 - "it is suspected the goods may have been diverted" etc. That is suspicion - not evidence and the Court has firmly found it is not good enough. Nor was the fact that persons involved in the case had previous convictions for precisely the same offence; the Court found that that was of little relevance to the test.

Receivers

If a suspect's finances are complex the Court may appoint a Management Receiver (s48) to receive and manage the property. This too was an area where the Court of Appeal set down guidance in the Eastenders case to how such applications should be made.

The Management Receiver will be a sizeable accountancy firm who could have the legal authority to take possession and control of any or all of the suspect's property and sell any assets. This is a major step which has significant implications for those on the receiving end.

Management Receivers do not come cheap. They are officially appointed by the Court but they charge for their services and the first port of call for their fees is the restrained or confiscated assets, see s49(2)(d). One area that is of concern is the Receiver's costs - which are rarely insignificant. This can lead to a gross injustice where the restrained assets have been used to pay the Management Receiver's large bills only for the suspect to then go onto trial and be acquitted - in that scenario the innocent suspect may have to bear the cost; see House of Lords ruling in Capewell v Commissioners of Custom & anor [2005] 1 ALL ER 900.

That possibility of manifest unfairness should be taken into account at the time the Order is made - or challenged. Defenders can ask for the Court to consider to satisfy itself that the expense of appointing a Management Receiver is proportionate and should remind the Court of the duty of proportionality and the risk of injustice - tailored of course to the individual facts of the case.

Property Held Jointly

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 the wife has a joint bank account and holds the matrimonial home in joint names. In law where any person has been, or may be, affected by the actions of a Management Receiver, an application can be made to the Court under s62(3) 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 - though such a serious step should not be taken without seeking a direction from the Court first; Re P [2000] 1 WLR, 473. The case of Gibson v RCPO [2008] Times Law Reports, 14/7/08 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 and joint bank account, held by the offender's wife - the home had been purchased in joint names. The Crown Court took the view that the wife must have realised that the mortgage was being paid by the husband's ill-gotten gains and was thus an asset which 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 start of proceedings, i.e. the Restraint Order stage there is solid argument for limiting the scope of any such Order where there are assets which are held in joint names with a spouse.

Living & Legal Expenses

This is another area which often wrankles with those on the wrong end of a Restraint Order - 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. What is required is a careful analysis of expenses together with as much proof as possible - these steps need to be considered 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 (s41(4)(a)). The State therefore must pay for the defence through Legal Aid.

Application for Variation or Discharge

Once a suspect has been served with a Restraint Order and he has decided he wants to fight it then the first step must be to sit down with the legal advisors and figure out what the challenges are, how much money is needed for reasonable living expenses, what is said about the charges/ 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 as per the Eastenders case.

The Future

Having your assets restrained is a serious step. There is not only the worry of impending or actual criminal charges but 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, consider the case against them and the terms of the Order and develop a strategy with their lawyers as soon as possible.

Authors

Jonathan Lennon is a Barrister specialising in serious and complex criminal defence case at Chambers in . He is a contributing author to Covert Human Intelligence Sources, (2008 Waterside Press) and has extensive experience in all aspects of the Proceeds of Crime Act 2002.

Aziz Rahman is a Solicitor- Advocate and Partner at the leading Criminal Defence firm Rahman Ravelli Solicitors, specialising in Human Rights, Financial Crime and Large Scale Conspiracies/Serious crime. Rahman Ravelli are members of the Specialist Fraud Panel and have recently been ranked by Legal 500 as an 'excellent' firm with Aziz Rahman being described as 'first class and very experienced'.

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