Confiscation Proceedings

This is a hugely important subject for defendants but unfortunately too many lawyers failed to look after their client’s interests possibly because the pay was so poor on legal aid.

Company at risk?

When the company finds that an investor in the company is being investigated or prosecuted for fraud the impact on the business can be very significant. Not only will the company suffer as customers become aware of the issue and try to distance themselves but there is the extra problem that sometime down the road the Authorities will come looking for the investment to confiscate it for the State.

The sooner you take specialist advice on this problem the better you can protect the Compnay, its business and its employees. Without any prior warning the Authorities might look to freeze the assets of the investor which will affect the company if suddenly its banking facilities are taken away from it and all its stock-in-trade is impossible to trade without breaching a court order.

If no restraint is taken out that does not mean you can breathe deeply and stop worrying. If your investor is convicted of fraud then the Authorities will come eventually. The business may have taken a big hit in profits due to the investors connection but you and your company’s employees needed to secure matters and manage to pull the company around. Then you find all your hard work has simply increased the value of the tainted investment so that more needs to be found when the Authorities come looking.

In the meantime you have found the bank is not quite so helpful anymore. Did they find out about the investor? The chances are that the Authorities had already been in touch with your bank to obtain information on the company and its business. Perhaps the bank has already been in touch with you about the company’s loans or overdraft? In any event if you have to find a significant capital sum to pay off the Authorities for the investor’s share of the business, the bank may not be so helpful if a loan is needed to fund it.

Rather than hope the problem goes away (it rarely does) the correct decision for the company and its business is to take early legal advice from the experts in this area of law. If you take no steps you will either be kept in the dark by all involved in any criminal proceedings or you will be given information that is meant to put you at your ease but beware of this.

It is not just people suspected of crime, or defendants in criminal proceedings, who may have their assets restrained pending investigation, or find their ownership of assets in jeopardy as a result of confiscation or Detention/Forfeiture of cash proceedings.

Innocent spouses, relatives, friends or business associates may find that the authorities seek to attribute, or the Court determines, that ownership of an asset belongs to a defendant even when it is not registered in the defendant’s name or the defendant may have a part interest only.

A Court order can prevent you from dealing with your asset, selling the asset, or even accessing monies in your bank account. A Court order may even have assumed that you have no genuine interest in the asset without having heard any evidence from you. Protecting your interest may require steps to vary a Restraint Order, opposing an application for detention/forfeiture of cash, or to prevent the Court from appointing an Enforcement Receiver who would otherwise take over the registered owners rights and sell such property or, lastly, opposing the Receiver’s attempt to sell your property over your head.

Sometimes you will need to take urgent action to protect your interests; sometimes it is better to adopt the ‘wait and see’ attitude. Often the problem will be that you have to find money to claim your own property as legal aid is unlikely to be available to you. The problem is that you seem to be powerless while the Criminal Justice System appears to ride roughshod over your rights.

If you find yourself in such a situation, or you would like independent advice on the implications of becoming a witness in confiscation proceedings, call Dan Bonich on 01732 360999, or send him an email. Dan has a wealth of experience in assisting clients with such problems.

A criminal lifestyle in this context has nothing to do with the car you drive, the jewelery you wear, the swimming pool or the lavish holidays. A person only has a criminal lifestyle under POCA if one or more of these tests is satisfied, namely:

• It is specified in Schedule 2 of POCA;
• It constitutes conduct forming part of a course of criminal activity and/or;
• It is an offence committed over a period of at least 6 months and the defendant has benefited from the conduct which constitutes the offence.

The Schedule 2 specified offences are set out in the Proceeds of Crime Act. The main ones that you are likely to come across will be drug trafficking and money laundering.

A course of criminal activity is proved if the defendant has been convicted in the current proceedings of four or more offences from which the defendant has benefited, or has been convicted of one offence from which the defendant has benefited on this occasion and within 6 years of the start of the most recent proceedings has been convicted on at least two separate occasions of an offence from which the defendant has benefited. Note that the benefit to the defendant needs to be at least £5,000 in this case, in order to satisfy the criminal lifestyle test, but the value of any TIC’s will count towards this sum.

The third potential qualification for the criminal lifestyle test appears to be self evident, but the defendant must have benefited to the tune of at least £5,000.

In the last case it is also worth bearing in mind that prosecutors have been tempted to charge conspiracies that go slightly over the 6 month period in order to trigger this provision. It may be very important to seek to prove that the client’s involvement is less than the 6 months.

Impact of Criminal Lifestyle

These are severe, as the court has to make certain assumptions unless there is a serious risk of injustice. Not just “any” risk would do.

The assumptions are:

• Any property transferred to the defendant at any time after the relevant day was obtained by him as a result of his general criminal conduct;
• 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;
• Any expenditure incurred by the defendant at any time after the relevant day was met from property obtained as a result of general criminal conduct;
• For the purpose of valuing any property obtained, or assumed to have been obtained by the defendant, he or she obtained it free of any interests in it.

For the above purposes the “relevant day” is the first day of the period of 6 years before proceedings were started.

Under the Proceeds of Crime Act the prosecutor and court will consider whether the convicted defendant has a criminal lifestyle (section 75 POCA), has benefited from general criminal conduct or has benefited from particular criminal conduct.

The potential amount of a Confiscation Order will be a consideration, as the greater this amount the more likely it is that the court will be required to carry out a confiscation inquiry. Even in cases where there does not seem to be any assets to satisfy an Order at this stage there will be many cases where the Crown asks the court to make a nominal Order so that the prosecutor may apply at a later date to increase the sum that should be paid.

The Crown should also consider the feasibility of enforcing a Confiscation Order if one were to be made. Some possible scenarios where a Confiscation Order may not be pursued would include where the defendant had been declared bankrupt, or if a victim of the defendant’s had taken civil proceedings and frozen the defendant’s assets. Just because the court may be asked to make a Compensation Order may not affect the decision to bring confiscation proceedings as compensation can be paid out of sums realised under a Confiscation Order.

Once the court decides that the defendant has benefited from general criminal conduct, or even particular criminal conduct, the court must then assess the recoverable amount.

The recoverable amount starts off as the figure that the court has decided is the defendant’s benefit from the conduct concerned. However, if the defendant proves that the available amount is less than the benefit figure then the recoverable amount will be assessed as that available amount. If there is nothing that can be made available then a nominal Order will be made.

In general terms the available amount will include the total value of all of the defendant’s free property at the time the Confiscation Order is made, less the total value of any obligations that have priority together with the total value at the time the Order is made of any tainted gifts. The real problems for defendants arise when the Crown or the Judge start to assert that there are hidden assets. These, whether they exist or not, will be valued and added to the recoverable amount figure. If the assets do not exist then the defendant will have to serve a period of imprisonment in default of payment.

The court will set a time to pay. The period will be up to 6 months. It can be much shorter where, for example, the property is in the form of cash held by the police.

The period can be extended for up to a further 6 months on application by the defendant.

One of the very real difficulties that can arise in confiscation proceedings is that third parties become involved, especially if it is asserted that they are the recipients of “tainted gifts”. The use of the term “gift” could be misleading, as it can include a sale at a (significant) undervalue.

If the defendant has been found to have a criminal lifestyle then the tainted gift provisions will catch gifts made at any time in the period beginning 6 years before the date of commencement of the proceedings, or at any time at all if it can be shown that the property gifted was obtained as a result of, or in connection with general criminal conduct, or which represented in the defendant’s hands property obtained as a result of or in connection with his general criminal conduct.

However, if the defendant has not been found to have a criminal lifestyle the court will be concerned with calculating the defendant’s particular criminal conduct which means that the court will be concerned with a gift made by the defendant at any time after the date on which the offence was committed.

Completely innocent parties could be drawn into the confiscation proceedings if, for example, property was purchased at what was thought to be a fair price but which a prosecutor later, and with the benefit of hindsight, perceives as having taken place at an undervalue. A great deal of expense can be incurred by completely innocent parties and it is unlikely that that expense could be recovered from the prosecuting authority even if it is shown that the prosecutor was completely at fault.

Another area of concern can arise with regard to the matrimonial home, assuming it is in joint names. Arguments may arise on the part of the prosecutor that the wife has not in fact acquired an equitable interest in the home that escapes these provisions. This is not however an argument that should be given up lightly by a spouse.

For defendants a problem is that once the court decide a gift is tainted then the value is included in the ‘recoverable amount’ figure whether or not it is actually recoverable from the recipient of the gift.

One of the most controversial parts of the Proceeds of Crime Act 2002, is Section 317 which allows the National Crime Agency (‘NCA’) and previously the Serious Organised Crime Agency (‘SOCA’) to take over “general Revenue Functions”, in other words the role of Tax Collector traditionally occupied by HMRC. This power allows NCA to carry out the role of tax collection and recover tax due, for example, from profitable criminal activity. There is no requirement for a criminal conviction; an alleged drug dealer may be taxed on his profits even where no criminal charges are brought.

These proceedings are specialist in nature and are frequently misunderstood by practitioners, or are left with accountants to deal with. Early involvement of legal advisors is essential in order to ensure not only the best possible outcome, but to ensure that material provided during such investigations does not prejudice clients and lead to prosecutions for related offences such as money laundering. It is essential to be proactive and we have been able to successfully challenge revenue assessments, and negotiate settlements.

Clarke Kiernan’s solicitors have been involved in some of the first and leading cases concerning the challenging of demands for tax received under this power which are then heard before the Special Commissioners and the High Court. We work with forensic accountants and other experts whose roles are often essential in cases of this type.

If you require any legal advice on this type of proceedings please contact xx to discuss a fee structure and strategy.