Newsletters Business Crime & Financial Services 18th Oct 2017

“Exercising Restraint?”

Howard Watkinson looks at the whys and wherefores of applying to discharge pre-charge restraint orders under the Proceeds of Crime Act 2002 (“POCA”).

The pre-charge restraint order under POCA is doubtless one of the most draconian tools in the proceeds of crime armoury. It has the capacity to cripple businesses, be they bodies corporate or sole traders, almost overnight. Both divisions of the Court of Appeal have reminded the Crown of the draconian nature of these orders, perhaps none more so than in In re Stanford International Bank Ltd v Serious Fraud Office [2010] EWCA Civ 137, where Hughes LJ said at [191]:

“…it is essential that the duty of candour laid upon any applicant for an order without notice is fully understood and complied with. It is not limited to an obligation not to misrepresent. It consists in a duty to consider what any other interested person would, if present, wish to adduce by way of fact, or to say in answer to the application, and to place that material before the judge…The prosecutor may believe that the defendant is a criminal, and he may turn out to be right, but that has yet to be proved. An application for a restraint order is emphatically not a routine matter of form, with the expectation that it will routinely be granted…. In effect a prosecutor seeking an ex parte order must put on his defence hat and ask himself what, if he were representing the defendant or a third party with a relevant interest, he would be saying to the judge, and, having answered that question, that is what he must tell the judge. … This application came close to being treated as routine and to taking the court for granted. It may well not be the only example.”

There were important reforms to POCA, including the provisions affecting restraint orders, that came into force with effect from 1 June 2015. Yet recent experience shows that Senior Prosecutors within the CPS Proceeds of Crime Unit are still applying a “cut and paste” approach to applications for restraint orders and the draft orders themselves.

Under s.40(2) POCA the Crown Court can make a pre-charge restraint order, but only if it is satisfied that: (a) a criminal investigation has been commenced, and (b) there are reasonable grounds to suspect that the alleged offender has benefitted from his criminal conduct. In the case of drawn out business crime investigations s.40(2) is likely to be the go-to section of POCA for the prosecuting agency to prevent the dissipation of assets.

However, the use of s.40(2) of POCA, the most draconian restraint power, has been tempered. Firstly, any restraint order must, under s.41(2A) POCA, contain a legal aid exception.

Secondly, under s.41(7A-C) POCA, a pre-charge restraint order must now, include in the order a requirement for the applicant for the order to report to the court on the progress of the investigation at such times and in such manner as the order may specify (a “reporting requirement”)”, unless the Court decides that, in the circumstances of the case, a reporting requirement should not be imposed. However, if the Court so decides it must give reasons for its decision.

Thirdly, the Court must discharge the order if proceedings for the offence are not started within a reasonable time (s.41(7B)(b) POCA) whether or not an application to discharge the order is made.

In a recent case where a pre-charge restraint order was obtained ex parte at Preston Crown Court having been signed off by a Senior POCU Prosecutor at CPS HQ, the judge making the order was not informed of the mandatory steps in relation to the reporting requirement, made no such requirement in the order and offered no reasons for its absence. The Resident Judge, ruling on the discharge application agreed that the order had to be discharged since it was, prima facie, unlawful. It is suspected that there may be a great many other orders out there that suffer from the same fault. The CPS should take serious note of this, since costs ordinarily follow the event in restraint proceedings.

Thus, whilst there remain the usual methods of attacking restraint orders: faults in service under the Criminal Procedure Rules, failure to comply with full and frank disclosure, absence of material risk of dissipation, and absence of reasonable grounds for suspicion to name but a few, those representing individuals or bodies corporate that are the subjects of pre-charge restraint orders may be well rewarded by going back to the statute to see whether the Prosecution has ensured that the order as drafted, and the process by which it has been obtained, are legal, since prima facie illegality is an all but unarguable ground for the Prosecution to contend with.

Howard Watkinson specialises in cases of serious financial wrongdoing both in the civil and criminal courts.


Categories: Newsletters