Author: Nicola Sharp
29 August 2013
13 min read
As a legal firm that specialises in serious fraud, regulatory and complex crime cases, Rahman Ravelli regularly writes and distributes information briefs that examine legal issues relevant to its work.
The legislation that preceded POCA was just as draconian as POCA is. The reality is that confiscation as a concept is frequently misunderstood. The policy behind the confiscation regime is said to be one of removing the profi t from crime. The complaint is that in fact it often feels like so much more – i.e. like a further punishment.
This is mainly because of the effect of the statutory ‘assumptions’, which we deal with below. A great many defence lawyers find that, in some cases, the financial investigators –
those officers who start the confiscation process – are over-zealous and have lost sight of the true purpose of confiscation. The Home Office ‘incentivisation scheme’ means that 50% of the proceeds of confiscation monies are split three ways between the Court Service, the prosecution & investigators: investigators 18.75%, prosecutors 18.75%, courts 12.5%. Any party to criminal proceedings having a financial interest in the outcome is frankly offensive, and as long as this incentivisation is in place we will have many more confiscation claims made because they can be, rather than because they should be.
The depth and scope of the order will depend on whether the case is a ‘criminal lifestyle’ case or a ‘particular criminal conduct’ case. This depends on whether the statutory assumptions apply.
The criminal lifestyle provisions apply where the Crown contend that the defendant has profited from crime above and beyond any profits from the crime for which he has just been convicted. This is very significant. If the defendant has a criminal lifestyle then the Court enquiry can be an unlimited one. Criminal lifestyle is defined at s75. It sets out a number of tests. The first, and by far the most routine, is whether the offence that the defendant has just been convicted of is a Schedule 2 offence. Schedule 2 of the Act lists numerous offences, including virtually all drug trafficking offences, arms trafficking, counterfeiting offences and brothel keeping. If you are convicted of any Schedule 2 offence then the criminal lifestyle provisions apply automatically.
The other ways you can end up with a criminal lifestyle are if:
• the offence was committed over a period exceeding 6 months and there was a profit element; or
• in the latest proceedings you were convicted of 4 or more matters, each having a benefit; or
• you have at least two other separate previous convictions in the last 6 years for offences from which you benefitted.
So essentially there is no argument. You have a criminal lifestyle or you don’t.
If the defendant has a criminal lifestyle then under s6(4)(b) the Court must decide whether he has benefited from his ‘general criminal conduct’ and, if so, by how much.
‘General Criminal Conduct’ (‘GCC’) under s76(2) is quite simply all the defendant’s criminal conduct; no matter when it occurred. In practice it is only the past 6 years that is considered. That is because in determining the benefit from the defendant’s GCC the court must apply the ‘assumptions’ to the past 6 years. There are 4 statutory assumptions set out in s10.
1. Any property transferred to the defendant within the last 6 years was obtained by him as a result of his GCC.
2. Any property held by the defendant at any time after the date of conviction was a result of his GCC.
3. Any expenditure incurred by the defendant in the last 6 years was met from property obtained by him as a result of his GCC (therefore the benefit is the value of that property).
4. In valuing property obtained by the defendant the Court assumes that he is the only person with an interest in the property.
The burden is on the defendant to rebut any assumption made. There are two ways of doing this under s10(6). Firstly, the Court cannot make the assumption if it “is shown to be incorrect”, so if the defendant can show in relation to, for example, the first assumption, that a particular source of income was entirely legitimate then the assumption cannot be made that it wasn’t. Secondly, an assumption can be avoided if “there would be a serious risk of injustice if the assumption were made.”
So if the defendant is convicted of one of the qualifying offences, e.g. possession with intent to supply a controlled drug, then he has a statutory ‘criminal lifestyle’ and the Court must establish whether he has benefited from his general criminal lifestyle. In establishing this, the Court will assume that all his income over the past 6 years represents the proceeds of crime. He then has to show why that is not the case.
Under s6(5)(a) the Court must decide ‘the recoverable amount’. To re-cap, the Court first decides if the defendant has benefited from crime – using the assumptions to assess the quantum if it is a criminal lifestyle case. This is all just part of finding the recoverable amount. The recoverable amount is an amount equal to the defendant’s benefit (s7(1)). But the defendant can reduce the amount of the order if he can prove that the value of his assets (the “available amount”) is less than the benefit figure – then the lesser amount becomes the recoverable amount. This is subject to the provisions on hidden assets and tainted gifts; see below.
As can be seen, the criminal lifestyle provisions are really about establishing how much has been gained from a life of crime in the past but the ’recoverable amount’ figure includes the trigger index offence – how much was gained from that crime?
Assessing the ‘benefit’ is the centre of the confiscation process and, more often than not, the centre of most of the appeals in confiscation cases. It lies at the heart of both the success of POCA and the injustices that have arisen under it.
Section 76(4) defines ‘benefit’ as follows: “a person benefits from conduct if he obtains property as a result of or in connection with the conduct’. This apparently simple contention is the one that causes the most difficulty with defendants and, frankly, is also the area where there is a great deal of misunderstanding amongst lawyers too. This is especially so where the trigger conviction is one of conspiracy.
Many financial investigators take an overly simplistic approach in conspiracy cases. It is often suggested that in such cases the benefit for each defendant is the whole benefit from the offence and that it applies equally to all the defendants. This apparent double-counting has survived appeal attempts before. However, it does not automatically follow that a conspiracy conviction leads to full attribution of benefit onto each and every single conspirator’s shoulders.
The belief that in a conspiracy case each defendant faces the total consequences of the offence comes from the seminal House of Lords trilogy of cases on benefit; R v May, Jennings and Green  UKHL28 – 30. The end note to the judgement provides that:
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. It does not provide for confiscation in the sense understood by school children and others, but nor does it operate by way of fine. The benefit gained is the total value of the property or advantage obtained, not the defendant’s net profit after deduction of expenses or any amounts payable to co-conspirators.
But, two months after the May case the Court of Appeal in R v Sivaraman  Crim App R (S) 108 considered the question of benefit. In his judgment Toulson LJ highlighted the need for a “commonsensical” approach to the words of the statute – the Act should be applied to give a common-sense application of the law. R v Rooney  EWCA Crim 2 (18/1/10) was a drugs importation case. It highlights the error of the Crown’s oft taken position on the May case. The Court of Appeal (Aikens LJ) followed May but noted this at paras 36-37:
That statement has to be read subject to the remarks of Lord Bingham in R v May, particularly those at paragraphs 27, 32 and 46, which we have referred to above. In short, the position is, as we understand it: (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 benefi t 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.
The essential problem with the POCA regime is the apparent lack of judicial discretion it permits; s6(5) of POCA provides that the Court “must” make an order for the ‘recoverable amount’.
Last year the Supreme Court ruled in an important case which addressed this apparent lack of judicial discretion; R v Waya  UKSC51. The case concerned a mortgage fraud where the fraudulently-obtained loan had actually been repaid. The Court of Appeal found that the appropriate confiscation order was 60% of the value of the house at the time of the order, as the fraudulently obtained mortgage was for 60% of the value at the time of purchase (the rest was from lawful income), thus the amount of the order was £1,110,000. The Supreme Court however found a different formula – 60% of the equity in the property at the time of the order, minus the repayments. This was a very significant difference; the final order was for £392,400. But that is not why the case is so important.
The Supreme Court considered the effect of the Human Rights Act 1998, specifically Article 1 of the 1st Protocol to the European Convention on Human Rights; this is the right to peaceful enjoyment of property. It should be noted that the Court was specifically not considering ‘lifestyle’ cases where statutory assumptions apply about benefit. The Court found that, in applying Convention principles, a confiscation order had to be ‘proportionate’ and;
“…that in order to be proportionate a confiscation order had to bear a proportionate relationship to the 2002 Act’s purpose, which was to remove from criminals the pecuniary proceeds of their crime rather than deterrence...”
There have been examples of over-zealous prosecutors being reined in before. For example, where a single victim in a non-lifestyle case had been repaid. In that example, the Court of Appeal had quashed an order on the basis that it was an abuse of process;
R v Morgan  4 ALL ER 890.Waya though establishes that the rigours of the abuse of process application are not necessary; – it’s a simple issue of proportionality as the Human Rights Act required s6(5) of POCA to be read as being subject to the qualification that any order the Court ‘must’ make, ‘must’ also be proportionate.
Establishing a solid proportionality argument will of course depend on the facts of the case. But it is submitted that it should be possible to persuade a Judge that proportionality arguments are not limited to just cases where a victim has been repaid.
R v Ahmad and others  1 WLR 2335 (CofA, March 2012)was in fact a case concerning POCA’s predecessor but is still very relevant. This was a carousel fraud case where a number of companies were involved in circular trading. The defendants were convicted of conspiracy to defraud the public revenue. In the confiscation process the Judge held that the benefit to each of the defendants was not to be restricted to the £12.6m that the Revenue lost but to all of the monies which passed through the companies concerned as the benefit includes the costs of committing a crime. This led to a startling figure of over £92m benefit foreach defendant (the total of the sums which had passed through the various bank accounts involved).
The Court of Appeal reduced the amount to the profit – the £12.6m. This was because the object of the legislation was to deprive defendants of the product of their crimes and not to operate by way of fines. The case is going to the Supreme Court for appeal to be heard in the autumn of 2013.
POCA did not alter the basic method of enforcing confiscation orders which is by ordering a period of imprisonment in default; i.e. in Magistrates’ Court. The Act introduces a scheme whereby a defendant who serves a period of imprisonment in default does not extinguish the Confiscation Order; s38(5).
The Court may appoint ‘enforcement receivers’ to deal with the defendant’s property. Third parties holding interests in realisable property may be ordered to pay the receiver “in respect of a beneficial interest held by the Defendant or the recipient of a tainted gift”, s51(6).
Usually the prosecution have the upper hand here as third parties affected by a potential confiscation order may not have a good relationship with the defendant or may be largely in the dark about what is going on. This natural disconnect often prevents a solid joint defence counterattack in relation to the property in question. But third party scenarios can work well for the defence.
A typical example will be the claim in the prosecutor’s statement that the value of the family home should be taken into account when assessing what is ‘available’ to satisfy a confiscation order. But what about the wife and family who still live there? It must be remembered that a confiscation order is just in effect a bill. There is no requirement to sell all the assets which have been used to come to the figure the Court rely on. The Order is against the person not the property which is why third parties have no rights at the pre-enforcement stage. Representations by, for example, a spouse can be made at the enforcement stage see e.g. R v Ahmed & Qureshi  1 WLR 122. That however is very late in the day and causes real distress for the 3rd parties.
But this is just another area where, if the odds are stacked against you, some tactical strategising should be the order of the day. Just because there is no ‘right’ for a third party to be heard at the confiscation stage does not mean he or she cannot be heard. Given there is no legal aid for third parties at the pre-confiscation order stage it is often only those third parties with access to private funds that can put up a proper fight. For example, the Court could be asked to list the case for mention to argue for third party participation in the main hearing where the Judge will determine the ‘available amount’. The argument being that the confiscation raises issues of fact that need to be determined and, to make those findings, the fact finder needs to hear all the relevant facts. If a Judge chooses to shut out a deserving third party at that stage then there may be routes of redress following from thatdecision. Further, at least that pro-active defending puts before the Court arguments and/or evidence that it might not otherwise have had until after an Order was made.
Restraint orders can also present opportunities. There is an absolute right for the third party under a restraint order to be heard before the confiscation order is made. Arguments can then be put forward that, for example, the third party’s interest in property can, and should be, severed from the restraint order. Depending on the facts, this may be an early argument for, in effect, a reduction of the benefit figure claim, as well as the available amount. Again, this process will have the effect of putting those issues in the mind of the Judge making the final order, even if the third party restraint order is not varied, as well as flushing out all the Crown’s arguments before the main battle.
Section 9 of the Act provides that the available amount is the value of all of the defendant’s free property, minus certain prior obligations of the defendant, such as earlier fines, plus the value of all tainted gifts made by the defendant. This is designed to catch those who effectively give property away to others – either to hold for them or as a pure gift. The value of those items will be included in the benefit calculation; see generally R v Richards  EWCA Crim 1841.
There is no discretion to leave any items found to be ‘tainted gifts’ out of the calculation for the final available amount. It should always be argued that, in any scheme where the Court’s discretion is restricted should a certain route be taken, greater care has to be shown before that route is taken because of the punitive effect of any Order made that, thereafter, cannot be met. Further, since there is no discretion it is arguable that the Waya proportionality principle applies and that the value of a tainted gift ought not to be included in any calculation if the result would be a disproportionate one.
The definition of a tainted gift is at s77 of the Act. However s81 is also very important for the purposes of the confiscation proceedings. It demonstrates that, before ascertaining the value of a tainted gift, it is necessary to establish what the recipient of the tainted gift has done with it. So, if the property remains in the recipient’s hands, then the value of the tainted gift is either its value at the time the gift was made (adjusted for inflation), or its current value – whichever is the greater. But where the property is no longer wholly in the recipient’s hands then the value that the Court will come to for a particular item must be either its value at the time of the gift (adjusted for inflation) or the current value of the retained part plus the current value of any property that directly or indirectly represents the part disposed of in the recipient’s hands – whichever is the greater. It is submitted that an assessment of both values must be made.
In other words, there is an often over-looked argument that financial investigators should be challenged on their valuations of tainted gifts – have they traced the assets into the hands of the recipient and discovered its value or what the recipient got for it when he sold it on? Very often this work will simply not havebeen done by the investigators and, in some instances, a s81 valuation argument can at least draw them to the negotiating table.
There has long been a general understanding that if the Court concludes that a defendant has ‘hidden assets’ then the confiscation order must be in the full amount of the benefit. This follows the case of Telli v Revenue and Customs Prosecution Office  3 All ER 405 where Flaux J. said that:
“the court must make a confiscation order or the full value of the benefit and has no discretion to order confiscation of a lesser sum”.
This is not the case. In R v Ahmad (going to the Supreme Court in autumn 2013) the Court found that if Flaux J. had the benefit of R v McIntosh  4 ALLER 917 he would not have come to the same conclusion, in particular at para 15 of that judgment:
The court may conclude that a defendant’s realisable assets are less than the full value of the benefit on the basis of the facts as a whole. A defendant who is found not to have told the truth or who has declined to give truthful disclosure will inevitably find it difficult to discharge the burden imposed upon him. But it may not be impossible for him to do so.Other sources of evidence, apart from the defendant himself, and a view of the case as a whole, may persuade a court that the assets available to the defendant are less than the full value of the benefit.
Confiscation is very often the most demanding part of the case for the lawyers. It is complex and not well understood by all. At Rahman Ravelli, we know how to do it effectively.
In our experience the bull has to be taken by the horns and each stage of the confiscation process broken down and dealt with methodically and comprehensively. That not only maximises the prospects of success but also sends a signal to the prosecution that a fight will entail – which might just encourage sensible negotiation.
Confiscation will always be draconian but, as we hope to have shown here, there is cope for experienced litigators such as ourselves to utilise the most relevant case law and our years of expertise to fight for the right result.
Contact our Asset Recovery, Confiscation and Restraint Department if we can be of any assistance.
Nicola is known for her fraud, civil recovery, arbitration and business crime expertise, her experience of leading the largest financial disputes and multinational investigations and her skills in devising preventative measures and conducting internal investigations for corporates.