By Peter Doyle QC, 25 Bedford Row
This article first appeared on www.25bedfordrow.com on 25th July 2105.
Despite the perception that POCA 2002 successfully operated so as to provide a draconian confiscation regime stripping criminals of the proceeds of their crimes and in so doing going some way to deter others from embarking on serious crime the Act was regarded as wanting.
Over time criminals sought new ways to delay, avoid or frustrate asset recovery and in many cases were successful.
Furthermore, there was a long-standing disconnect between how acquisitive crime resulting in financial gain was dealt with in the Magistrates Courts and in the Crown Court; only the latter having confiscation powers.
To deal with this disconnect the Serious Organised Crime and Police Act 2005 made provision for regulations to be introduced to give confiscation powers of up to £10,000 to the lower courts. However, hitherto no attempt was made to do so.
There were 680,000 convictions of which a great number had a financial element - but only 6,392 confiscation orders were made. Only 26p of every £100 of criminal proceeds generated was confiscated. It cost 76p to collect ever £1. Only 2% of those ordered to pay ever paid in full. Defendants frequently elected to go to prison instead. Outstanding debt since the introduction of POCA was calculated at £1.46 billion.
As in previous years the regime was proving to be too pedestrian with very lengthy delays from arrest and conviction to a confiscation order being made. Defendants capitalised on these delays taking steps to hide assets or disguise them in complicated offshore arrangements.
Some practitioners reported that significant delays had permitted defendants to enter into sham divorces in the hope that their assets would be ordered to be transferred to their former spouse in the course of ancillary relief proceedings rather than have them taken by the State; a form of “robbing Peter to pay Pauline”.
Many defendants with much to gain from salting away assets or disposing of them, did not have their assets frozen or they were not frozen until it was too late. Freezing orders in 2012-13 were 27% down on the preceding year.
The small time criminal was targeted far more successfully than the bigger criminals. Thus 90% of orders made for £1000 or less were enforced compared with just 18% of orders over £1m.
Third party interests in property were not usually engaged until the enforcement stage.The determination of such rights after the event led to delay and often frustrated the original confiscation order.
The Serious and Organised Crime Strategy set out a number of proposals to strengthen POCA in an effort to combat these problems. Amongst other things they included proposals (a) to ensure that assets could not be hidden with spouses, associates or other third parties, (b) to strengthen the default prison terms for failing to pay confiscation orders, (c) to enable assets to be frozen more easily, quickly and earlier in the investigation and (d) to extend the investigative powers in POCA so that they are available to trace assets once a confiscation order had been made.
Part 1 of the Serious Crime Act 2015, of which the relevant provisions addressed here, came into force on 1 June 2015, seeks to give effect to this strategy. It also implements two of the recommendations on asset recovery made by the Joint Committee on the Draft Modern Slavery Bill in their April 2014 report on the draft Bill; specifically that the test for obtaining a restraint order be amended to make it less stringent and that there ought to be stronger sanctions for non-payment of confiscation orders.
A significant change concerns the timing of determining the interest that a third party may have in a defendant’s assets. Part 2 of POCA provides for a confiscation order to be made for a particular amount but not against any particular asset. It is open to a defendant to pay off the order out of whatever assets he or she has available.
As a result Part 2 did not, save in relation to restraint orders, make provision for determining third party interests in property or give any such party a right to make representations. That right exists where a third party has been affected by a restraint order made under s.41 but otherwise such rights as may exist were not engaged until the enforcement stage following the court’s appointment of an enforcement receiver pursuant to s.50 where the order remained unsatisfied.
This meant that the only way a third party might otherwise assert an interest in property was to be called as a witness by the defendant in the course of the confiscation hearing itself. The decision of the court in R v Norris (2001) UKHL 34 (later enshrined in s.51(8) of POCA) gave all such claimants, including those whose evidence had been rejected by the Crown Court, freedom to litigate and in the latter case re-litigate the issue at the enforcement stage. In an appropriate case there was civil legal aid available to fund representation.
In most cases the asset in question is the matrimonial or former matrimonial home. Thus at the enforcement stage one might anticipate many of the important case law dealing with the determination of property rights to be engaged. Outcomes might take different routes depending on whether the property was in joint names, whether presumptions as to beneficial interest were to be displaced by an objective assessment of the common intention of the parties, whether financial contributions were determinative of equitable rights, whether public policy in recovering the proceeds of crime justified displacing otherwise established presumptions concerning beneficial interests in property and what protection on competing public interest grounds should be afforded to an innocent spouse or former spouse.
Clearly at the enforcement stage proceedings could and sometimes did take a very different turn from the earlier confiscation proceedings.
The Serious Crime Act 2015 has introduced a new s.10A to POCA conferring on the Crown Court a power to make a determination as to the extent of a defendant’s interest in particular property. Given that such a determination will also determine the extent if any of a third party’s interest in that property the Act affords the latter a right to make representations as to the extent of their asserted interest.
Where “it appears to the court” that a third party holds or may hold an interest in relevant property and the court “thinks it appropriate to do so” it can determine the extent of the defendant’s interest in that property before making a confiscation order. (s.10A(1)) The court must give to a person “who the court thinks is or may be” someone holding an interest in that property a reasonable opportunity to make representations (s.10A(2)).
S.16(6A) requires that the prosecutor must include in the Statement of Information any information which he believes is or would be relevant to helping the court to decide whether to make a s10A determination and the court can pursuant to s.16(6B) order the prosecutor to make further enquiries. The court may order a defendant to respond to each allegation set out in the Statement of Information and to identify what is agreed and if there is dispute to provide full details of any matter relied on. (s.17)
In order to make a determination under s10A the court may in accordance with the procedure set out in s.18A order an interested third party to give it information specified in the order and such an order may require the information to be given “in a specified manner and before a specified date”.
An example of the use of such a power might be where the defendant alleges that a third party owns a part share in particular property and the court considers that it requires more information from that third party to verify the claim.
If that person fails without reasonable excuse to comply with the order the court may draw such inferences as it believes appropriate (s.18A(2)-(4)).
On the premise that no third party with a legitimate interest in property would miss an opportunity to protect that interest, it is likely that the court will draw an adverse inference from any failure to provide the information so ordered.
There is a shortcut to this procedure. The prosecution may accept that the third party interest is legitimate. In such a case the court may treat such acceptance as conclusive.(s18A(6)) There is therefore every incentive for a defendant and/or third party to engage at an early stage with the prosecutor and provide appropriate evidence in an effort to satisfy him that the interest is properly claimed and effectively secure a consent order.
Any information given to the court under an order to do so is not admissible against that person in any criminal proceedings (s18A(9)). Thus the third party has protection from self-incrimination. He is of course unprotected from being prosecuted on the strength of evidence that may come to light as a result of any information supplied pursuant to s.18A. Clearly there may be a need for a third party to have independent legal advice so that he or she is alive to any risk of being suspected of having committed or attempted to commit a money-laundering offence.
What grounds exist for a third party to challenge the determination? They are limited. Save where they apply (and subject to two statutory exceptions) a court’s determination is conclusive and thus binding on any court or person involved in the enforcement of the order. (s.10A(3)).
A third party appeal will only lie if either (i) the interested party was not given a reasonable opportunity to make representations when the determination was made (e.g. he or she was abroad at the time and unaware of the proceedings) or (ii) if it appears to the Court of Appeal “to be arguable” that giving effect to the determination would result in a serious risk of injustice to that person. (s .31(6) and (7) POCA 2002)
There is no similar restriction on the prosecutor’s right to appeal. (s.31(5)) On appeal the Court of Appeal can confirm the determination or make such an order as it considers appropriate. (s.32(2A))
The limited right of appeal is negated where the court has or is in the process of determining an application to appoint a receiver under s.50 or where the Court of Appeal believes that such an application is to be made.
This makes obvious sense given that the court when appointing a receiver will be able to reconsider interests in relevant property where there would be a serious risk of injustice if the determination under s.10A were to be adhered to. Also where a receiver is bound by such a determination any third party affected by any order to sell property can appeal to the Court of Appeal under s.65.
There is currently no public funding available for third parties to participate in a s10A determination.
Paragraph 20 of the Explanatory Note states that the right to make representations also extends to the defendant. That may sound self-evident but probably envisages that a judge may decide to make the determination at a discrete hearing ahead of the main confiscation hearing.
Paragraph 21 of the Notes says that it is envisaged that this new power will only be exercised in “relatively straightforward cases, i.e. where the court thinks it can, without too much difficulty make the determination.” It continues “It is expected that judges will exercise this power ….in those cases where their experience (including in respect of matters as to regards to property law) and the likely number and/or complexity of any third party interest allows them to do so.”
However, it may be that in some cases complexity cannot be avoided. There will always be those less-straightforward cases where to identify a defendant’s interest in an asset may for example engage examination of complicated family trusts established long-before any criminal activity and funded from untainted sources. Who might the third party interests be- a spouse or former spouse, individuals with a contingent beneficial interest, the trustees in whom property is vested?
Of course there will be cases where third party interests are still only engaged at the enforcement stage. It may prove more appropriate for such interests to be dealt with substantively then given that the existence of such rights may in many cases only crystalise against specific property when a sale is sought.
And there will still exist the thorny problem presented by the fact that all marriages are subject to the Matrimonial Causes Act 1973. Authority has established that neither a claim to confiscation under POCA nor one for ancillary relief by way of a transfer of property order the 1973 Act trumps the other. In an appropriate case public policy might favour diminution of a defendant’s asset in order to make proper financial provision for a former spouse at the cost to the confiscation regime.
There may be good public policy grounds for “robbing Peter to pay Pauline” although if Pauline is complicit in any way she can be expected to be denied relief. Where property has been acquired by criminal conduct public policy may result in an innocent spouse finding a court reluctant in the absence of exceptional circumstances to transfer property to her.
As the Crown Court and not the High Court deals with enforcement, there may be parallel proceedings afoot requiring the CPS to intervene at an early stage in an effort to preserve assets for confiscation.
By an amendment to s.97 of SOCPA 2005 the magistrate court can now exercise confiscation powers up to £10,000 as originally envisaged. Note the Crown Court procedure providing rights of a third party to make representations does not apply.
There have been changes to the time available for paying a confiscation order. Under the old regime it was possible to extend the time for payment from 6 months to 12 months. That has now been cut in half. The default position is that the full amount has to be paid on the day of the order unless the court provides otherwise. (s.11(1)).
However, if the court is satisfied that the full amount cannot be paid on that day then it can either order payment of that amount within a specified period or in specified periods relating to specified amounts thus giving the court a wider discretion to make time to pay orders. (s.11(2))
Thus if the full amount is £1m the court might order £500,000 to be paid immediately if the defendant has that in cash, £200,000 within 28 days if he has it in shares that can be sold and £300,000 within three months if he has other property to that value to sell. But a specified period must start on the day of the confiscation order and a specified period cannot exceed 3 months. (s.11(3))
Previously a court could only extend the period for payment if it believed that “there(were)exceptional circumstances”. Now, subject to hearing from the prosecution, if the court is satisfied that despite all reasonable efforts the defendant is unable to pay the amount to which the specified period relates within that period then as long as the application is made before the expiry of that period the court can extend the period in respect of the outstanding amount.
Thus if a defendant has been ordered to pay £150,000 within 14 days and makes an application to extend that time, the court may specify different time periods- say £50,000 to be paid forthwith, £50,000 to be paid within 7 days and the balance within 14 days.
However, the maximum period for payment where the original specified period has been extended cannot exceed six months from the date of the original order. (s11(4)(5)) Thus, the maximum specified period is 3 months and the maximum extended period cannot exceed 6 months from the date when the specified period first commenced.
The court must not be generous in its approach to giving more time to pay. By s11(7) any specified or extended period must be as short as possible. Where a defendant makes an application for an extension of the specified period in time then no interest (current the rate is 8%) is payable on the amount unpaid until the court determines the application as long as it does so before the expiry of 6 months from the original confiscation order. (s12(3))
The effect of the changes is to cut the maximum time for payment in half and bring forward the time for interest to attach and for enforcement proceedings to commence.
Victim’s of crime take priority. Where a defendant has insufficient means to satisfy all the orders made against him, for example where a confiscation, compensation and unlawful profit order is made, the court must direct that the compensation and or unlawful profit order be paid out of the amount recovered under the confiscation order; the intention being that victims of crime shall take priority over the amount owed to government. (s13(5)(6))
Section 161A of the Criminal Justice Act 2003 places on the court an obligation to order a defendant to pay a victim surcharge (these sums are used to fund victim services). Mirroring s.13(5)(6), s.161A(3) of that Act provides that where the court makes a compensation order and or an unlawful profit order but does not think a defendant has the means to pay all or any of a victim surcharge then it must reduce it accordingly and if necessary reduce it to nil.
A new s.13A and B introduces compliance orders. At the time of making a confiscation order the court must consider whether it is appropriate to impose any restriction, prohibition or requirement to give effect to the order itself. In particular it must consider whether any restriction, prohibition or requirement on the defendant’s travel outside the UK is appropriate, for example by ordering the surrender of a passport. (s.13A(4)) This mirrors similar powers available to the court when making a restrain order under s.41(7). A compliance order can be made against a third party but not in such a way as to restrict travel.
If no compliance order is made then as long as the confiscation order has not been discharged the prosecution can return to court to apply for one. If a compliance order is made, then on the application of the prosecutor or anyone effected by the order, whether a defendant and or a third party, the court may vary or discharge it.
The prosecution can appeal to the Court of Appeal against a decision not to impose an order and the prosecutor and anyone effected by such an order may also appeal to discharge or vary it. (s.13B). The rights of appeal mirror those available in restraint order cases.
Save in relation to the requirement to consider travel restriction in the case of a defendant, the Act is silent as to the range of compliance conditions that might be applied.
There is a new ground available for writing off a confiscation order. Currently there is provision under s.24 for writing off an order on application to the Crown Court by a designated officer if the outstanding amount is less than £50 or under £1000 where that amount arises solely as a result of exchange rate fluctuations. There is now a third ground provided under a s.25A ,namely, where the defendant has died and the estate has insufficient funds to meet the order or where the costs of appointing a receiver to go against the estate is not worthwhile given the amount that might be recovered. Note that this provision also applies to confiscation orders made under the precursor to POCA under the Drug Trafficking Act 1994 and the Criminal Justice Act 1998.
There are significant changes to default sentences. Previously there were 12 tiers now there are only 4 default periods, namely (i) £10,000 or less- 6months (ii) £10,000 but less than £500,000- 5 years (iii) more than £500,000 but less than £1,000,000- 7 years and (iv) more than £1,000,000- 14 years.
Thus, there is no change in respect of sums between £5,000 but not exceeding £10,000 and sums exceeding £250,000 but not exceeding £500,000. It will be interesting to see how the judges impose default terms. It is likely that they will be minded to fix a higher default term than the one which they would have fixed under the old tiers.
If a defendant faces an order for £400,000, the statutory maximum remains unchanged at 5 years. However, under the old tier regime that 5 year maximum applied to sums in excess of £250,000 but less than £1m. Under the new regime the 5 year maximum now applies to sums between £250,000 and £500,000. As £400,000 is now much closer to the ceiling of the new tier it is likely to attract a default term that is also closer to the ceiling for that tier.
To which offences do the new POCA default terms apply? Neither the Act nor the commencement regulation assist. The logical approach and the one preferred by the author, is to say that the new tiers apply whenever a court makes or varies a confiscation order on or after 1 June 2015.
However, given that legislation cannot retrospectively increase the penalty for an offence and the imposition of a default term is an integral part of the overall sentencing regime it might be argued that the new tiers can only apply to an offence committed on or after 1 June 2015.
It is important to note that if the order is for more than £10m the early release provisions for fine defaulters under s.258 CJA 2003 do not apply. Thus, whereas before a defendant could be released after serving half of the default term he know faces the prospect of serving the full 14 year term. Although this provision came into force on 1 June 2015 it can apply to confiscation orders made before that date (s.86(2))
As highlighted above there was recommendation that the obtaining of restraint orders should be made easier and that they be deployed earlier in an investigation. The result has been a watering down of the “belief” threshold. Whereas before the applicant had to show that he had “a reasonable cause to believe” that a benefit had been obtained from criminal conduct- now it is sufficient for the applicant to show that he has “reasonable grounds to suspect”.(s.40(2(b) POCA) Note that this new lower threshold applies equally to the exercise of search and seize powers under s.47B.
There is no longer a duty to discharge a restraint order where a defendant’s conviction has been quashed and where a retrial has been ordered and the restrain order is still in force on that date. (s42(6A)).
There are new provisions dealing with the defendant who absconds. Sections 27 and 28 govern the position. Under s.27 the Crown Court could make a confiscation order where a defendant had absconded after conviction. Section 28 applied where a defendant had absconded after proceedings for an offence had started but before they are concluded.
Some doubt was raised as to whether either provision applied in the case of a defendant who had absconded before the proceedings had been concluded but counsel had sufficient instructions to continue and where a conviction followed.
The reach of s.28 when read with s.6(5) fell to be considered in R v Charles Okedare (2014) EWCA Crim 1173. The court held that the appropriate provision was s.6(5) as it applied to s.28 and there was nothing in those provisions to exclude the making of a confiscation order at a hearing where a defendant continues to be absent as a result of having absconded earlier.
The question has now been put beyond doubt. Section 27(2) now makes it clear that a confiscation order can be made where the defendant absconds before verdict and is subsequently convicted in his absence.
Previously a prosecutor had to wait two years to give an abscondee an opportunity to return before he could apply for a confiscation order. That period of grace has now been reduced to three months.
Where a defendant had not absconded s.19-21 provided for the reconsideration of a decision not to make a confiscation order or if an order had been made to seek an increase in the amount. The principle underlying the operation of these provisions is that the earlier decision of the court should only be open to reconsideration where new evidence comes to light.
The effect of an amendment to s.27(6) now means that s.19-21 can apply to a recaptured abscondee without the need for new evidence.
A new s.6(5) now places on a statutory footing the proportionality requirement identified by the Supreme Court in R v Waya (2012) UKSC 51 In that case a nine judge court reinforced the principle that POCA is not intended to add a punishment but to deprive a defendant of the pecuniary proceeds of his crime. However, in order for Part 2 to be compliant with Article 1 of Protocol 1 of the European Convention on Human Rights the court could not impose an order that was disproportionate in the circumstances of the case. The following is now added :- “Paragraph (b) only applies if or to the extent that it would not be disproportionate to require the defendant to pay the recoverable amount”
Outside the area of confiscation clarity has been introduced to an important area of policing suspected money-laundering offences. Making an authorised disclosure without tipping off a client has created a tension between the legal and regulatory obligations under POCA and the contractual obligations to the client.
There has been a number of claims (albeit unsuccessful) by aggrieved clients who have lost out by reason of a suspicious activity report being made and events occurring in the subsequent delay before approval for a transaction is given. A notable example is Shah v HSBC Private Bank (UK) Limited (2012) EWHC1283 (QB)
In that case the bank made a number of Suspicious Activity Reports in respect of high value transfer instructions by its client Mr Shah to his account in Switzerland and did not tell him why.
Unbeknown to the bank the existence of the reports was leaked to a foreign government who froze Mr Shas’s assets held there causing alleged losses in the order of $300m. He sued HSBC. The action failed for a number of reasons but importantly the court held that the bank could not be liable as it had throughout acted in good faith.
Section 37 of the Serious Crime Act 2015 amends s.338 of POCA so as to give statutory protection from civil liability where authorised disclosures are made in good faith. In such cases no civil liability arises either on the employer or employee responsible for the disclosure.
It is essential that they act in good faith and thus good record keeping will be important including those governing the reasons for and rationale behind making any authorised disclosure. There is no change to the provisions as to criminal liability for tipping-off.
During the debates on the draft Bill in the House of Lords it was argued that the civil immunity provision did not give immunity from suit in negligence. The concept of “good faith” and “negligence” are of course different. Thus the relationship between a receiver and a debenture holder in a company receivership is one of trust and the receiver must act in good faith but the receiver is still liable to the debenture holder for acts of negligence even if he acted in good faith.
Note that POCA faces additional amendments with effect from 31 July 2015 pursuant to provisions contained in the Modern Slavery Act 2015 which gives to the court powers of confiscation as well as the making of slavery and trafficking retribution orders.
The opinions expressed in this Article are the author's and are not to be regarded as providing legal advice. Anyone thought to be effected by the operation of this legislation should seek independent legal advice.