Confiscation Proceedings - Guidance for prosecutors on the discretion to instigate

• Introduction
• The principles to be applied when determining the likely confiscation order.
• Abuse of Process
• Compatibility of order with A1P1
• Tainted Gifts
• Revisiting Confiscation Orders

Introduction

In 2009 the Court of Appeal requested the Director of Public Prosecutions to consider giving guidance to prosecutors who are deciding whether to exercise their discretion to instigate confiscation proceedings¹. That request reflected the fact that the prosecutor’s decision to instigate confiscation proceedings is an important one. The Crown Court is required, absent special circumstances², to make a confiscation order in every case where the statutory criteria are met. In due course the Director complied with the request. The Guidance focussed on an important consideration, namely the need to avoid confiscation proceedings that would result in an order that was “oppressive”. At that time the law required the court, if faced with an application for an order that would be “oppressive”, to stay the confiscation proceedings as an abuse of process³..

Since 2009, the legal landscape has changed significantly. Unsurprisingly, it is still the case that the Crown Court must not make an oppressive order, but this outcome is achieved via a different legal route. It is now recognised that the Crown Court may not make a confiscation order which would involve a disproportionate interference with the convicted person’s property rights, as guaranteed by Article 1, Protocol 1, of the European Convention on Human Rights and Fundamental Freedoms (“A1P1”). Indeed, there is now a statutory prohibition on the imposition of a confiscation order that is “disproportionate”.

This document provides updated Guidance to prosecutors to assist them in deciding whether to instigate confiscation proceedings under Part 2 of the Proceeds of Crime Act 2002 (“POCA”).

By way of overview, it is open to a prosecutor to instigate confiscation proceedings if two conditions are satisfied. First, there must be a proper evidential basis to think that the Crown Court will impose a confiscation order (on the basis that the statutory criteria are met, and the proceedings do not amount to an abuse of process). Second, the prosecutor must conclude that confiscation proceedings would be in the public interest.

In the case of May [2008] UKHL 28, the court said the following in an endnote:

1. “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 schoolchildren 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.
2. “The court should proceed by asking the three questions posed above: (1) Has the defendant (D) benefited from relevant criminal conduct? (2) If so, what is the value of the benefit D has so obtained? (3) What sum is recoverable from D? Where issues of criminal lifestyle arise, the questions must be modified. These are separate questions calling for separate answers, and the questions and answers must not be elided.
3. “In addressing these questions, the court must first establish the facts as best it can on the material available, relying as appropriate on the statutory assumptions. In very many cases the factual findings made will be decisive.
4. “In addressing the questions, the court should focus very closely on the language of the statutory provision in question in the context of the statute and in the light of any statutory definition. The language used is not arcane or obscure and any judicial gloss or exegesis should be viewed with caution. Guidance should ordinarily be sought in the statutory language rather than in the proliferating case law.
5. “In determining, under the 2002 Act, whether D has obtained property or a pecuniary advantage and, if so, the value of any property or advantage so obtained, the court should (subject to any relevant statutory definition) apply ordinary common law principles to the facts as found. The exercise of this jurisdiction involves no departure from familiar rules governing entitlement and ownership. While the answering of the third question calls for inquiry into the financial resources of D at the date of the determination, the answering of the first two questions plainly calls for a historical inquiry into past transactions.
6. “D ordinarily obtains property if in law he owns it, whether alone or jointly, which will ordinarily connote a power of disposition or control, as where a person directs a payment or conveyance of property to someone else. He ordinarily obtains a pecuniary advantage if (among other things) he evades a liability to which he is personally subject. Mere couriers or custodians or other very minor contributors to an offence, rewarded by a specific fee and having no interest in the property or the proceeds of sale, are unlikely to be found to have obtained that property. It may be otherwise with money launderers.”

In the normal course of events the prosecutor should seek a confiscation order based on the full value of benefit obtained by the defendant from his particular or, as the case may be, general criminal conduct.

The principles to be applied when determining the likely confiscation order

In deciding whether there is a proper basis for applying to the Crown Court for a confiscation order, the facts are likely to be critical if not determinative. The role of a particular defendant in criminal conduct, as distinct from the role played by any other defendant or other person (including a corporation), should be identified as precisely as possible. The facts should then be applied to the four statutory questions in relation to that defendant, which are briefly considered below.

The law is set out in more detail, including caselaw, in the Proceeds of Crime Legal Guidance Chapter 3:

1. Has the defendant benefited from relevant criminal conduct?
   
   Section 76(4) of POCA provides that ‘a person benefits from conduct if he obtains property as a result of or in connection with the conduct’. The defendant will generally only obtain property if in law he has an interest in the property. The defendant will only benefit from a pecuniary advantage if he evades a liability to which he is personally subject.
   
   There can be no substitute for direct reference to the relevant statutory provisions and to the judgments of the House of Lords in May (in particular, on this question, paragraphs 10-19), Jennings and Green (and subsequent Court of Appeal cases). However, three important statements of principle emerge from these House of Lords decisions and subsequent Court of Appeal decisions:
   1. For confiscation purposes, a defendant will generally only obtain property if in law he has an interest in the property and will only benefit from a pecuniary advantage, if he evades a liability to which he is personally subject. So a defendant convicted of being knowingly concerned in the fraudulent evasion of an excise duty for his role in assisting in the distribution of smuggled cigarettes on which no duty had been paid did not obtain a pecuniary advantage, because the relevant excise duty regulations did not extend liability to those in the defendant’s position (R v Chambers [2008] EWCA Crim 2467).
   2. Where a defendant is a member of a long-standing conspiracy to defraud, but only joined the conspiracy on the day on which the police brought it to an end (on which day the conspiracy did not benefit from its criminal conduct), the defendant has not benefited (R v Olubitan [2004] 3 Cr App R (S) 70). The provisions relating to “benefit‟ in the Criminal Justice Act 1988, as amended, are “not to be construed so that a person may be held to have obtained property or derived a pecuniary advantage when a proper view of the evidence demonstrates that he has not in fact done so” per May LJ, paragraph 25). These comments apply equally to the Proceeds of Crime Act 2002.
   3. The mere fact that a defendant is more than a “minor contributor” to an offence in which property is obtained is not sufficient to establish that the defendant himself obtained the property. As the House of Lords said in CPS v Jennings (at paragraph 14):
      “A person’s acts may contribute significantly to property (as defined in the Act) being obtained without his obtaining it. But under section 71(4) a person benefits from an offence if he obtains property as a result of or in connection with its commission, and his benefit is the value of the property so obtained, which must be read as meaning “obtained by him”.


2. If so, what is the value of the benefit the defendant has so obtained?
   
   Having identified the property obtained, section 76 of POCA calls for an essentially factual enquiry: what is the value of the property obtained?
   
   Again, there is no substitute for direct reference to the relevant statutory provisions, and to the judgments of the House of Lords in May (in particular, on this question, to paragraphs 20-34), Jennings and Green (and subsequent Court of Appeal cases). However, four important statements of principle emerge from these House of Lords decisions.
   1. Section 71(4) of the Criminal Justice Act 1988 (and section 76 of the Proceeds of Crime Act 2002) calls for an essentially factual enquiry: what is the value of the property obtained? Where a defendant applies £10,000 of tainted money as a down-payment on a £250,000 house, legitimately borrowing the remainder, it cannot plausibly be said that he has obtained the house as a result of or in connection with the commission of his offence (see May, paragraph 26).
   2. A defendant who obtains a pecuniary advantage (or property) by deception and then uses some of the proceeds of his crime to pay an accomplice benefits to the total value of pecuniary advantage (or property) obtained. The value of his benefit is unaffected by the payments made to the accomplice, because what matters is what the defendant obtains, not what he retains (R v Patel [2000] 2 Cr App R (S) 10). This is consistent with the approach to be taken in drug trafficking cases where no account is taken of the defendant’s costs: a defendant’s benefit is his gross rather than net profit.
   3. Where more than one defendant has been convicted for his role in a criminal enterprise, the court will have to consider the benefit attributable to each defendant. In deciding this, the court must consider the capacity in which each defendant receives the proceeds of crime. Where the proceeds of crime are received jointly by more than one defendant, the benefit to each defendant is the full amount of the proceeds received: apportionment in a case of joint receipt is not permitted by statute. Where there is no evidence one way or the other whether the proceeds were obtained jointly by the defendants, the court is entitled to divide the proceeds by the number of conspirators, and declare the benefit figure in that sum (R v Gibbons [2003] 2 Cr App R (S) 169).
   4. Where defendants have not jointly obtained benefit, but there has been a disposal by one member of a criminal enterprise to another who knowingly receives it, each is treated as the recipient of a benefit to the extent of the value of the property which has come into the possession of each of them. The amount of the benefit a defendant obtains is not affected by the amount which might be obtained by others to whom he transfers any part of the benefit (R v Sharma [2006] Cr App R (S) 416).
       
3. What sum is recoverable from the defendant?
   
   This is also an essentially factual enquiry. Section 7 of POCA stipulates that the recoverable amount is either the value of the benefit obtained from criminal conduct or, if less, the amount available to the defendant. The value of tainted gifts made by D is included in the available amount: section 9.
    
4. Is the proposed order compatible with Article 1 of the First Protocol to the European Convention of Human Rights (A1P1)?
   
   The Crown Court is under a duty not to make a confiscation order that would be “disproportionate” (section 6(5) of POCA). This duty calls for careful consideration and is addressed in section 4 below.

Having considered these points and concluded that there is a proper basis for thinking that the Crown Court will impose a confiscation order, the prosecutor should go on to consider whether confiscation proceedings are in the public interest. For example, it may not be in the public interest to pursue lengthy and expensive proceedings if the likely sum to be recovered is small or nominal (especially where there is no realistic prospect of a future increase in the amount of the order). The decision whether to instigate confiscation proceeding should be consistent with the Attorney General’s guidance, given under section 2A of POCA, which requires prosecutors to exercise their functions under POCA in the way which they consider is best calculated to contribute to the reduction of crime.

Abuse of process

It was previously held that the Crown Court could stay proceedings where the prosecutor applied for a confiscation order that would be “oppressive”: R v Morgan [2008] EWCA Crim 1323; [2009] 1 Cr App R (S) 60. It is no longer necessary to resort to the doctrine of abuse of process in such cases. A confiscation order that is “oppressive” is likely to be “disproportionate”, in terms of A1P1. The court would decline to make an “oppressive” order not because it was an abuse of process but because it was “disproportionate” and therefore prohibited by section 6(5) of POCA.

A role does, however, remain for the abuse of process doctrine. As with other criminal proceedings the doctrine may be invoked where the proceedings are tainted by incurable unfairness. There are two broad categories of case where a stay might be justified:

1. where it is impossible for the defendant to have a fair hearing or
2. where it is otherwise unfair to proceed against him.

The first category (a fair hearing is not possible) could be relevant where the defendant is unable to put forward his case or satisfactorily to challenge that of the prosecution. This may arise where the defendant is absent from the confiscation proceedings, unless he has voluntarily absented himself (see R v Gavin; R v Tasie [2010] EWCA Crim 2727; [2011] 1 Cr App R (S) 126). It may also arise where there has been a breach of the statutory procedure. In R v Guraj [2016] UKSC 65; [2017] 1 WLR 22 the Supreme Court emphasised that the mere fact that there has been non-compliance with the statutory procedure (e.g. a breach of the two-year time limit where there are no exceptional circumstances) does not, without more, prevent the court from making a confiscation order. But where the relevant non-compliance has led to substantial and incurable unfairness, the confiscation order should not be made.

The second category (it would be unfair to proceed against the defendant) could be relevant where, for example, the prosecutor reneges on an unambiguous promise not to pursue confiscation. In R (on the application of the Secretary of State for Work and Pensions) v Croydon Crown Court [2010] EWHC 805 (Admin); [2011] 1 Cr App R (S) 1 the sentencing judge indicated to the defendant, in the presence of the prosecutor, that if the defendant took a particular step (a re-payment of monies to the victim) there would be no confiscation proceedings. The prosecutor did not dissent from that statement and thus, when the defendant acted in accordance with the judge’s indication, and the prosecutor nonetheless instigated confiscation proceedings, such proceedings were an abuse of process.

Prosecutors can reduce the risk that proceedings may be held to be an abuse of process by ensuring that confiscation proceedings are prosecuted expeditiously, fairly and in accordance with statutory procedures.

Compatibility of order with A1P1

The court must not make an order that is “disproportionate” (section 6(5) of POCA). The reference to proportionality is a reference to that concept in the context of A1P1, which was the Convention right under consideration in R v Waya [2012] UKSC 51; [2013] 1 AC 294. The Supreme Court explained that the “essential purpose” of confiscation was, at [21], “to impose upon convicted defendants a severe regime for removing from them their proceeds of crime”. Whether any particular confiscation order would be “disproportionate” is to be tested against that essential purpose.

Proportionate orders

In the course of its discussion on proportionality in R v Waya, supra, at [26] the Supreme Court gave examples of orders that would be proportionate, and thus lawful.

The first example of a proportionate confiscation order is a case where the defendant is made the subject of an order requiring him to pay a sum which reflects benefit he obtained jointly with others. Thus, separate orders may be made against each defendant who jointly obtained the same benefit. This is correct, subject to an issue concerning enforcement⁴.

The second example of a proportionate confiscation order is a case where several defendants are each required to pay separate confiscation orders based on the value of property which was obtained successively by each of them. Thus, if Defendant 1 steals a painting and Defendant 2 buys it, knowing it to be stolen, each has obtained the painting through separate criminal conduct. In those circumstances it is legitimate for confiscation orders against each defendant to be based on the value of the painting.

The third example of a proportionate confiscation order is a case where D is required to pay a sum equal to his turnover rather than his profit from a criminal enterprise. Thus, just as the burglar who steals from a bank vault cannot deduct the cost of the tools of his burgling trade, such as an acetylene torch, nor can the drug trafficker deduct his costs of distribution. This principle extends to all businesses which are founded on criminality, e.g. unlawful trading (R v King (Scott) [2014] EWCA Crim 621; [2014] 2 Cr App R (S) 54) or a business founded on the sale of counterfeit goods (R v Beazley [2013] EWCA Crim 567 [2013] 1 WLR 3331). The position may be different where the conduct from which the defendant benefits is not founded on criminality, as where legitimate services are provided but the property obtained is otherwise tainted by criminality (e.g. a contract to perform legitimate services which is obtained through fraud or corruption). As discussed below, in such a case it may be proportionate to base the confiscation order on the profits of the business rather than its turnover.

The Supreme Court in R v Waya, supra, stated, at [25], that it would be “very unusual” for a confiscation order to be disproportionate where it is based on the application of the assumptions in section 10 of POCA. The Supreme Court explained that this was because of the statutory safeguards available to a defendant in a case of “general criminal conduct”, most importantly the requirement that each of the assumptions must not be made if there is a “serious risk of injustice”.

Disproportionate orders

Whether or not an order is “disproportionate” is an essentially factual question which is answered by considering the proposed confiscation order measured against the purpose served by confiscation. A disproportionate order is one which goes beyond the legitimate object of imposing a severe regime for removing from the defendant the proceeds of his crime. A disproportionate order is one which amounts to the imposition of a further pecuniary penalty.

The Supreme Court in R v Waya, supra, identified the broad types of case where an order might be disproportionate.

Cases of restoration

It would be disproportionate to impose a confiscation order based on the “momentary benefit of obtaining goods which had been restored intact to the true owners” (R v Waya, supra, at [32]). No two cases are alike but the following examples illustrate the general approach.

1. Even if the obtaining is more than “momentary”, it may be disproportionate to make a confiscation order where the property has been restored intact and the defendant has obtained no additional benefit: R v Axworthy [2012] EWCA Crim 2889. In that case a stolen vehicle was removed to Spain but was later identified by the authorities and restored to its true owner. On such facts, a confiscation order may be disproportionate.
2. If property is restored to the loser in a deteriorated state, it may be legitimate to base a confiscation order on the full value of the property in its original state. In R v Harvey [2013] EWCA Crim 1104; [2014] 1 WLR 124⁵, the defendant had stolen equipment which, over a lengthy period, he had leased to the public for profit, causing the value of the property to depreciate. The Court of Appeal rejected the argument that there had been ‘partial restoration’ (the deteriorated goods) and held that it was proportionate to impose a confiscation order based on the entire value of the equipment at the time it was stolen.

In a case involving loss to one or more victims it may be legitimate for the court to make both a compensation order (compensating the victim or victims for the loss) and a confiscation order (requiring payment of the amount of loss to the state). That said, in such a case it is necessary to consider carefully whether it is legitimate to impose both orders. If, approaching the issue practically and realistically, the court thinks that any compensation order is certain to be satisfied, a confiscation order based on the same loss may be disproportionate: R v Davenport [2015] EWCA Crim 1731; [2016] 1 WLR 1400 (para 75 in particular). Conversely, if there is doubt about whether any compensation order will be satisfied it is open to the court to make both a compensation order and a confiscation order.

Double recovery

It would be disproportionate for the state to take the same proceeds twice over. This category may be illustrated through examples.

1. Cases of joint obtaining. Where multiple defendants obtain benefit jointly, it is legitimate to make separate confiscation orders against each defendant which are based on that benefit. However, as the Supreme Court explained in R v Ahmad [2014] UKSC 36; [2015] AC 299, “it is disproportionate for the state to take the same proceeds twice over”. Thus, a confiscation order based on a joint obtaining of property should include provision that it is not to be enforced to the extent that any sum has already been recovered in satisfaction of another confiscation order in respect of the same joint benefit.
2. Cases involving VAT. Where a defendant’s benefit comprises of receipts, which include a VAT element properly accounted for to the revenue, that element should not be included in a confiscation order: R v Harvey [2015] UKSC 73; [2017] AC 105. It is disproportionate for the state to take the same proceeds twice, once by way of VAT and then, again, under a confiscation order.

Valuable consideration

This category includes those cases where a defendant’s benefit comprises property received in return for the provision of legitimate goods and services, as where a defendant is paid in respect of a contract obtained through fraud or corruption. In such cases it is necessary to consider whether it is legitimate to base the confiscation order on the turnover obtained through criminal conduct or whether, to be proportionate, the order should be limited to the profit earned from the relevant conduct or other pecuniary advantage. Three examples illustrate the category.

1. The “defendant who, by deception, induces someone else to trade with him in a manner otherwise lawful, and who gives full value for goods or services obtained”. This was the example given by the Supreme Court in R v Waya, supra, at [34], which added: “[h]e ought no doubt to be punished and, depending on the harm done and the culpability demonstrated, maybe severely, but whether a confiscation order is proportionate for any sum beyond profit made may need careful consideration”.
2. Cases where a defendant dishonestly overcharges in the course of business. In R v Shabir [2008] EWCA Crim 1809; [2009] 1 Cr App R (S) 497, CA, a pharmacist made a dishonest claim for £212,464 in respect of prescriptions dispensed. His benefit was £212,464, but he had been lawfully entitled to claim all but £464 of that sum. As held by the Supreme Court in R v Waya, at [18], a confiscation order in the sum of £212,464 would be disproportionate: almost that entire sum reflected legitimate goods and services provided by the pharmacist. A proportionate confiscation order would be in a sum equal to the inflated element (plus any other benefits obtained through the offending).
3. In cases where a contract to perform services is obtained through corruption, it may be appropriate to base any confiscation order not on the turnover earned under the contract (assuming the turnover was in fact obtained by the defendant⁶ ), but on the profits so earned (together with any additional benefits or pecuniary advantages arising from having obtained the contract): R v Reynolds [2017] EWCA Crim 1455; [2018] 4 WLR 33.

Tainted gifts

Where the defendant has made a tainted gift, the value of that gift is treated as part of the property available to the defendant to satisfy a confiscation order. Thus, it is legitimate to make a confiscation order against the defendant that assumes that he will be able to realise property that, in law, does not belong to him. Such an order is not necessarily disproportionate; it is assumed that payment will be forthcoming, from one source or another, such that the defendant avoids serving the term of imprisonment in default.

A confiscation order that is based on a tainted gift will, however, be disproportionate where the Crown Court is affirmatively satisfied on evidence that the making of a confiscation order will not result in the recovery of the proceeds of crime but will simply lead to a sentence of imprisonment being served, which the defendant can do nothing about: R v Box [2018] EWCA Crim 542; [2018] 4 WLR 134. Such cases are likely to be rare.

Revisiting confiscation orders

Section 22 of POCA contains a procedure by which the prosecutor may ask the Crown Court to increase the amount payable under a confiscation order. There is no limitation period within which an application must be made, subject to the requirement that any application is brought within a reasonable time (where time begins to run at the start of the criminal proceedings, see Re Saggar [2005] EWCA Civ 174; [2005] 1 WLR 2693).

Under the section 22 procedure, if the Crown Court determines that there has been an increase in the amount available to the defendant, the court may increase the confiscation order to an amount that is “just”, provided that amount does not exceed the value of defendant’s benefit from criminal conduct.

The factors which may influence the determination of whether it is “just” to increase the confiscation order and, if so, the level to which it is appropriate to increase it, are in principle unlimited, R v Mundy [2018] EWCA Crim 105; [2018] 4 WLR 130. In broad terms, there are competing policy considerations, as they were explained by the Court of Appeal in R v Padda [2013] EWCA Crim 2330; [2014] 1 WLR 1920 at [25]. On the one hand, the policy underlying the legislation is to maximise the recovery of assets from criminals. On the other hand, there is a public interest in the rehabilitation of offenders who should be encouraged to obtain legitimate employment. The following is a non-exhaustive list of the matters which may be relevant to the decision whether to increase a confiscation order and, if so, by how much:

1. Whether the defendant had the assets at the time of the confiscation hearing;
2. Whether the assets were acquired legitimately and how they were acquired;
3. The extent to which the defendant has been rehabilitated since the offending which led to the confiscation order;
4. The passage of time between when the confiscation order is made and when the application to revisit the confiscation order is made;
5. The impact of an increased order on the defendant and any third parties.

In summary, it is open to a prosecutor to make an application under section 22 if two conditions are satisfied. First, there must be a proper evidential basis for thinking that there has been an increase in the available amount. Second, the prosecutor must anticipate that the Court may increase the confiscation order, on the basis that it is “just” to do so in the circumstances of the case.