Recent Proceeds of Crime Developments
- R v Balaj  EWCA Crim 1111 – Assessment of Benefit
In Balaj the Court of Appeal considered the assessment of benefit where criminal proceeds came from an illegally rented property, and offered a stark warning about the need to consider confiscation proceedings at the point of charge.
Crown Court confiscation proceedings
Mr Bajaj was a landlord and the underlying criminal offences were breaches of regulations relating to multiple occupancy houses: twenty people were housed in a property fit for eight.
The prosecution argued the benefit figure should represent the pecuniary advantage obtained from the savings made by not properly housing tenants. Rather than relying on the rent figure the respondent actually received from the unlawfully housed tenants, the prosecution presented evidence about the considerable cost of properly accommodating twenty people. They suggested this would have been achieved through a combination of extension and refurbishment to the existing property, or leasing additional property. The prosecution proposed a benefit figure totalling over £917,000.
It was agreed by both parties that the charges had been drafted in such a way that the criminality had taken place on a single occasion and the duration of the criminality could not be extended for the purpose of confiscation proceedings, following the ruling in Panayi  EWCA Crim 413, .
At the confiscation hearing the judge found that appropriate benefit figure was the rent taken from the tenants, as opposed to the savings made by not properly housing them. The inevitable consequence was that the benefit could be no more than one day’s rent: £200.
Court of Appeal
On appeal by Islington Borough Council, the Court of Appeal found the prosecution’s approach to be highly complex and indirect, involving as it did valuation evidence from a number of sources and the application of a series of hypotheses about what the cost of safe and legal accommodation for twenty people would have been. The Court rejected the submission that the saving of the cost (or probable cost) of providing lawful accommodation constituted pecuniary advantage as intended by s76 of POCA. The approach was “far too broad, indeed speculative, an approach to have sufficient connection with the conduct alleged”.
The Court reasoned that the respondent was under no legal obligation to house the additional twelve tenants, indeed it had been unlawful to do so. Reconstruction of the notional costs associated with doing something the respondent was not obliged to do was artificial and too remote from the purpose of s76.
The Court agreed that the benefit ought to have been the rent taken during the period of breach of housing regulations. The fact that the drafting of the charges prevented this sum from exceeding £200 was wholly unsatisfactory, particularly given the respondent’s considerable financial means, but that did not warrant “an artificial approach as to benefit to prevail over the correct approach simply in order to mark disapproval of the respondent’s conduct.”
The Court noted the case provided a salutary lesson in respect of incorrectly drafting charges. The Court understood that the proceedings were being viewed as a test case in respect of criminal landlords and POCA. Local authorities will no doubt take heed of the warning given by the Court of Appeal in this case.
- R v Andrewes  EWCA Crim 1055 – Proportionality and Employment Cases
Following the Supreme Court’s decision in Waya  UKSC5, an amendment to s.6(5) of POCA inserted the requirement of proportionality into the Act. Practitioners will be familiar with the principal that if the court decides a defendant has benefitted from criminal conduct it must make an order in the recoverable amount, but only to the extent that it would not be disproportionate to do so, in accordance with Article 1 of the First Protocol to the European Convention on Human Rights (A1P1).
However, the Act itself offers no further definition. Practitioners have looked to Waya to interpret proportionality in a confiscation context but the court there acknowledged that while particular issues of causation and proportionality would arise in cases of employment obtained by deception, resolution of those issues must await an appeal in which they directly arose. In R v Andrewes they arose.
Crown Court confiscation hearing
Mr Andrewes successfully applied for a job as the Chief Executive Officer at a hospice and for two further executive appointments. He was dishonest about his academic qualifications and experience in his applications. The deception went unnoticed from 2004 to 2015. He pleaded guilty to three counts of obtaining a pecuniary advantage by deception was sentenced to two years’ imprisonment.
The judge at confiscation found his benefit was the entirety of his earnings when employed in these positions from 2006 onwards, reaching a sum in excess of £600,000. The judge considered proportionality and decided it would be disproportionate to order 10 years’ earnings be taken from the defendant. However, it was agreed that the recoverable amount was just £96,737. The judge therefore made an order in that amount, deeming it not to be disproportionate as it represented less than 15% of the defendant’s earnings.
Court of Appeal
On appeal, Mr Andrewes argued he had provided full value for the wages he had received. It was uncontroversial that before the truth was discovered, his employers considered he was fulfilling his role and he received positive appraisals.
The appellant argued it would be disproportionate to pay back his renumeration when the employers had already been given the full value of his wages. Restoration had been made. On the same facts the appellant also argued the work he did was too remote from his criminal offending to constitute benefit from particular criminal conduct, but the Court of Appeal considered the proportionality argument to be at the heart of the appeal.
The Court examined pre-Waya cases touching upon proportionality in the context of unlawful employment but concluded that cases pre-dating Waya should be “treated with a degree of circumspection”. It found that the following key principles from Waya should frame the application of the proportionality principle, at paragraphs 52-58:
- The exercise involves a balance between the means used by the state to deprive criminals of property, and the legitimate aims sought to be achieved by deprivation;
- The purpose of POCA is not to act as a deterrent, although it may have that effect;
- Rather, the purpose is to remove from criminals the proceeds of their crimes;
- The power of the court to refuse an order as disproportionate is not to be equated with a general discretion which was once available to judges but had been deliberately removed from the Act;
- A proportionate confiscation order may recover more than the net proceeds of crime because the focus of the Act is the value of the defendant’s obtained proceeds of crime, whether retained or not;
- To make a confiscation order when the defendant has restored to the loser any proceeds of crime is disproportionate because it would constitute a further pecuniary penalty (endorsing the ruling in R v Morgan  4 All ER 890 and, post-Waya, reaffirmed in the cases of Ahmad and Fields  UKSC 36 and a majority Supreme Court in Harvey  UKSC 73).
Taking into account these principles and the “plethora” of other post-Waya authorities, the Court arrived at a conclusion about what is not connoted by proportionality. The assessment of proportionality does not entail the exercise of a residual judicial discretion. It is not a balance between competing factors and general interests in the way that may be appropriate in the public, procedural, or family law contexts. Nor should it involve consideration of the proportion which the available amount bears to the benefit – that was the approach of the court in Andrewes and it was incorrect because it was arbitrary and contrary to the aims of the Act.
The Court then arrived at a positive definition. The central question at the Crown Court is whether an order is disproportionate to the achievement of the statutory objective of depriving criminals of the proceeds of their criminality. The statutory provisions on criminal lifestyle (including the entitlement to disapply assumptions) and tainted gifts are so geared towards the statutory objective that the outcome of their application will only exceptionally be capable of being judged disproportionate. A confiscation order will be disproportionate where there is double recovery because it will act only as a punishment in those circumstances. In the employment context, recovery does not mean the appellant returning the exact amount of renumeration received. Providing full value by performing the services required of employment is capable of constituting restoration. That was the approach adopted in Sale  EWCA Crim 1306, in which contracts obtained from Network Rail through deception, but properly carried out, resulted in the restoration of the net profit on the contracts rather than the full sum paid for the work under contract. Providing full value was analogous to restoration.
The Court considered that situations in which the defendant had no lawful right to work might be distinguished from a scenario where someone had lied about their qualifications, but recognised that such cases would have to be assessed on the specific facts and statutory or regulatory context.
The Court found that in Mr Andrewes’ case he had given full value for his renumeration through his competent work and was taken to have made full restoration. Although the calculation of the benefit figure and available amount had been correct, the confiscation order would be disproportionate to the aim of the Act because it would involve a double penalty. The order was quashed.
It is notable that the Court signalled that in cases of what is known as “CV fraud”, prosecuting authorities may need to “reflect long and hard” and give “very careful consideration” before initiating confiscation proceedings.
- R v Hilton  UKSC 29 – Third Party Interests
R v Hilton provides definitive guidance from the Supreme Court on the right of third parties to make representations under s160A of the Act and the consequences if a Judge does not make an order under this section when determining the recoverable amount.
Crown Court confiscation hearing
Ms Hilton pleaded guilty to social security offences. At the Crown Court her benefit was found to be £16,517.59. Her only available asset was her half share of a property. This equity was valued at £10,263.50 and an order was made in that sum.
Court of Appeal
On appeal, Ms Hilton argued that the judge had failed to comply with s160A (2), because the co-owner of the property had not been given the opportunity to make representations at the confiscation hearing. It transpired he had been ignorant of the proceedings. The Court of Appeal ruled that s160A (2) did create an obligation to give anyone with an interest in property an opportunity to make representations, and the order was fatally flawed as a result as a result of the failure to do so.
Upon the DPP’s application for leave to appeal, two questions were certified by the Court of Appeal:
“1. Where property is held by the defendant and another person, in what circumstances is the court making a confiscation order required by section 160A of the Proceeds of Crime Act 2002, in determining the available amount, to give that other person reasonable opportunity to make representations to it at the time the order is made?
2. If section 160A does so require, does a failure to give that other such an opportunity render the confiscation order invalid?”
The Supreme Court considered whether, in making the confiscation order, the judge had determined the extent of the defendant’s interest in the property within the meaning of s160A in a way that precluded any further representations by a third party. Central to its judgment was the fact that confiscation proceedings are a two-stage process: making the order and enforcement.
Under s199(8) of the Act the court must not confer powers on a receiver in relation to property, or order payment or transfer of interest in relation to the property, unless any interested third party is given the opportunity to make representations.
The Court found that sections 160A and 199(8) are intended to co-exist. It concluded that third party representations are only precluded after an order has been made if a determination under s160A was made, and the interests of relevant third parties were considered under that section. If a determination under s160A has not been made, or if it has been made without inviting representations, third parties can avail themselves of s199(8) to make representations at the enforcement stage.
The Supreme Court found the Court of Appeal’s judgment was “premised on the proposition that on every occasion that third party interests arise, the court must proceed under section 160A”. Such an approach would collapse the two-stage approach and would require a single, complex hearing, rigorously investigating the interests of all third parties including mortgagees. The Court was satisfied this was not intended by parliament. Doing so would detract from the streamlining effect which was the aim of s160A in simple cases where there could be no sensible debate about enforcement.
It followed that s160A did not deprive Crown Court of the ability to make a confiscation order outside s160A. If the Crown Court did make an order which was not under s160A, the confiscation stage remained separate from the enforcement stage and the opportunity for third party representations was preserved under s199(8).
It was therefore open to the Crown Court judge in Ms Hilton’s case to make a confiscation order not under section 160A. Further, the Court found that in fact no determination under s160A had been made; the hearing transcript showed it was not referred to in submissions or in the order itself.
The Supreme Court concluded that “Section 160A had no bearing on this case, therefore, unless the judge was bound to make an order under its provisions. For the reasons that I have given, he was not.” The questions certified by the Court of Appeal therefore did not arise, because a determination under section 160A was not made, the decision of the Court of Appeal was quashed, and the Crown Court ruling was restored.
The ruling makes clear that where third party interests are not addressed under s160A when an order is made that will not invalidate the order, nor does it preclude third parties from pursuing their interests at the enforcement stage.
Law Commission Consultation on POCA
In other important POCA news, the Law Commission project to consider improvement of the confiscation statutory framework has reached consultation stage. On 17 September 2020 the Law Commission published a sweeping consultation paper extending to 720 pages and posing 103 questions. Amongst the problems identified are a perception of ineffectiveness of the regime (outstanding confiscation orders currently sit at a value of over £2 billion), the perceived complexity of the legislation and the ‘exasperating’ volume of appellate judgements over the last 11 years. Some of the key proposals are outlined below.
Purpose and proportionality
The paper acknowledges that because the objectives of the confiscation regime are not contained in the statute there lacks clarity over the purpose of the regime which has resulted in inconsistency in the application of the proportionality principle.
The Law Commission proposes that
- The objectives of the regime should be articulated in statue;
- The principal objective should be depriving defendants of benefit of criminal conduct, within the limits of their means;
- Secondary objectives should be the deterrence and disruption of crime and compensation for victims (where that is sourced from confiscation);
- Punishment should not be a statutory objective of confiscation.
In respect of benefit from particular criminal conduct the Law Commission proposes that, after determining what the defendant has gained from the criminal conduct, the court will order the defendant’s benefit is equivalent to that gain, unless the court is satisfied that it would be unjust to do so because of the defendant’s intention to have a limited power of control or disposition in connection with that gain.
Where there is benefit from general criminal conduct, the paper recognises the complexity of the law involved in determining whether a defendant has a criminal lifestyle. Consultees are invited to make suggestions as to the number of offences which should trigger such a finding, the suitability of the £5000 threshold, and the proposed inclusion of offences taken into consideration and attempts, as well as convictions. It is further proposed that the application of lifestyle assumptions should be subject to prosecutorial and judicial discretion, restoring the position under the Criminal Justice Act 1988 in place of the current restrictive process.
It is suggested that when a confiscation order is made the Crown Court should consider whether there is a realistic prospect of the defendant satisfying the order within the time to pay. If there is not, the court should have the power to impose an order that assets vest in a receiver or “trustee for confiscation” .
Turning to more practical considerations, there is a suggestion that a period of up to six months after sentence be allowed before setting a timetable for confiscation to avoid the current system of repeated adjournments. It is proposed that timetables for ordinary and complex confiscation hearings are incorporated into the Criminal Procedure Rules and properly enforced by sanctions to avoid “drift”. A new stage of the confiscation process called “Early Resolution of Confiscation” would comprise a meeting, at which the parties seek to settle the confiscation order, and a hearing, at which the judge considers approval of the order or further case management.
Consideration is also being given to establishing a specialist pool of judges authorised to deal with complex cases, for judges to consult expert assessors where necessary, and for the option of referral of specific issues to the High Court for binding determination.
If these proposals are adopted, they will significantly alter the POCA landscape. The most dramatic change may be the reintroduction of discretion over the determination of criminal lifestyle. The question of when this discretion ought to be exercised is bound to produce debate, which the appellate courts may be required to settle, despite the Law Commission’s desire to simplify the regime.
The procedural changes which accelerate matters where proceedings are likely to be agreed, and allow for a more generous timetable in complex cases, are likely to be welcome to practitioners on both sides.
The introduction of a power to make orders over assets would be a sea-change from the existing principle that confiscation orders are in personam not in rem, but it will be embraced by prosecutors as quick and efficient method for recovering assets. Defendants may find this development less appealing and the exercise of this new power, on the basis of judicial perception of the likelihood of compliance, also seems likely to breed a new body of case law as parties seek to establish the boundaries of the discretion.