Criminal asset recovery – legal framework

Confiscation – legal framework

Describe the legal framework in relation to confiscation of the proceeds of crime, including how the benefit figure is calculated.

The Crown Court can make a confiscation order under Part 2 of POCA if asked by the prosecutor or if the court considers it appropriate. The purpose of a confiscation order is to deprive the defendant of the financial benefit obtained by criminal conduct. In determining whether an order should be made, the court must consider whether the defendant has a criminal lifestyle and, if so, the extent of the defendant’s benefit from general criminal conduct. If the court decides that the defendant does not have a criminal lifestyle it must determine whether he or she has benefitted from his or her particular criminal conduct.

The court must then go on to determine the total value of the defendant’s benefit (the benefit figure) and the total value of the defendant’s free property, minus priority obligations, plus the value of any tainted gifts (in short, transfers of property made by the defendant below market value) (the available amount). A confiscation order is usually then made on the basis of which of those two figures is the lower (the recoverable amount). If the available amount is determined to be nil, a confiscation order is made for a nominal amount, usually £1.

Criminal asset recovery – confiscation

Secondary proceeds

Is confiscation of secondary proceeds possible?

Yes, the confiscation order must be paid by the defendant from the assets they have available; it is not targeted at specific assets. Prior to the confiscation order being made, an investigation will be undertaken into the defendant’s available assets and the level of the confiscation order will be based on the court’s assessment of whether the defendant owns sufficient assets, in any form, to meet the order. Where the defendant has made a gift or transfer of property to another for significantly less than its market value at the time of transfer within six years of the commencement of the proceedings – or at any time if the property was obtained as a result of or in connection with general criminal conduct – this is known as a tainted gift (sections 77 and 78 of the Proceeds of Crime Act 2002 (POCA)). A tainted gift is considered the defendant’s property for the purpose of a confiscation order. If the defendant does not meet the confiscation order, a custodial sentence may be activated.

Third-party ownership

Is it possible to confiscate property acquired by a third party or close relatives?

Property in the hands of a third party can be subject to enforcement action by an enforcement receiver, with a view to satisfying an outstanding confiscation order, if a court determines that the defendant has an interest in that property.

Third parties have the right to make representations as to the extent of any interest in the defendant’s property under section 10A of POCA or otherwise at the enforcement stage of confiscation proceedings. However, the legislation does not permit significant discretion. In R v Morrison [2019] EWCA Crim 351, the Court of Appeal confirmed that, although a confiscation order must be proportionate, it did not permit a general exercise of balancing interests, with the result being that a family home was deemed to be a tainted gift and included in the recoverable amount even though the consequence might be that the family would be made homeless.

Expenses

Can the costs of tracing and confiscating assets be recovered by a relevant state agency?

Where the court considers it just and convenient to do so, an order for costs against the defendant may be made under section 18 of the Prosecution of Offences Act 1985. The amount of the costs ordered can be whatever the court thinks is just and reasonable based on the prosecution’s costs estimate. The purpose of the costs award is to compensate the prosecutor and not to punish the defendant. An order should be made where the defendant has the means to pay.

Value-based confiscation

Is value-based confiscation allowed? If yes, how is the value assessment made?

Yes. When the court makes a confiscation order, it requires the defendant to meet it from the defendant’s assets, whether those assets are the proceeds of crime or not.

Burden of proof

On whom is the burden of proof in a procedure to confiscate the proceeds of crime? Can the burden be reversed?

Where a defendant is determined by the court to have a criminal lifestyle, POCA allows the court to make certain assumptions in relation to confiscation orders (section 10 of POCA). In particular, it provides that any property transferred to the defendant during the six years prior to the commencement of proceedings and any property obtained by the defendant within the relevant period is presumed to be criminal property, unless the defendant can prove otherwise. The burden of proof in such circumstances is on the defendant on the balance of probabilities.

POCA also places the burden of proof on the defendant to prove that they do not have sufficient assets to meet a confiscation order in the full amount of the criminal benefit.

Using confiscated property to settle claims

May confiscated property be used in satisfaction of civil claims for damages or compensation from a claim arising from the conviction?

Under the Powers of Criminal Courts (Sentencing) Act 2000, the Crown Court has the power to make a compensation order against a defendant and in favour of a victim of the defendant’s criminal conduct. Where a court determines that a compensation order and a confiscation order should be made and there are insufficient funds to pay both orders, the court can order that the compensation order should take priority and be paid out of the assets forfeited under the confiscation order. Where the court believes that any victim of the conduct has at any time started or intends to start proceedings against the defendant in respect of loss, injury, or damage sustained in connection with the conduct, the court’s duty to make a confiscation order becomes the power to make any order the court sees fit, including to make no order at all (section 6(6) of POCA).

Confiscation of profits

Is it possible to recover the financial advantage or profit obtained through the commission of criminal offences?

Yes. The definition of criminal benefit under POCA is wide and can include profits derived from, for example, corrupt procurement processes. However, confiscating company profits can be difficult where the defendants are individual directors rather than the company itself. In CPS v Aquila Advisory Limited [2019] EWCA Civ 588, directors of a company used the company to commit a criminal offence. Following conviction, confiscation orders were made against the directors. However, the court held that a civil action by the company against the directors to recover the secret profit took priority over the confiscation order, with the result being that the funds were not available to satisfy the confiscation order. This judgment has been appealed to the Supreme Court and a decision is pending as at August 2021.

Non-conviction based forfeiture

Can the proceeds of crime be confiscated without a conviction? Describe how the system works and any legal challenges to in rem confiscation.

The proceeds of crime can be forfeited without a conviction if the court concludes on the balance of probabilities that unlawful conduct has occurred and that the property has been obtained through that unlawful conduct. The mechanism is known as a civil recovery order and is granted under Part 5 of POCA. All the main enforcement authorities can apply for civil recovery orders as an alternative to seeking a criminal conviction. Orders under Part 5 of POCA are made in rem over identified property, rather than against the defendant. Proceedings can be issued in the High Court, typically by the National Crime Agency, and there is no need for any criminal proceedings to be underway. In most cases, proceedings start by an application for a property freezing order. A claim for a recovery order is subsequently made identifying the specific property and the grounds on which it is deemed to be recoverable. The defendant can challenge both the interim property freezing order and the application for the civil recovery order on the grounds that the unlawful conduct did not occur or that relevant property was not obtained through the unlawful conduct.

The Criminal Finances Act 2017 extended pre-existing cash forfeiture powers – which allow investigators to detain and forfeit cash in proceedings in the Magistrates' Court – to money held in bank and building society accounts. Money held in a bank or building society account could previously only be restrained through application to the Crown Court and confiscated following conviction.

Unexplained wealth orders (Part 8 of POCA) require a respondent to provide information and documents about property and to explain how that property was obtained. If the respondent fails, without reasonable excuse, to comply with the requirements imposed by an unexplained wealth order in respect of any property before the end of the response period, the property may be presumed to be recoverable property in civil recovery proceedings. To obtain such an order, the High Court must be satisfied that the defendant is either a politically exposed person or suspected of involvement in serious crime. The order can be challenged by the defendant proving they do not fall within the categories of persons on whom the order can be served or by adequately explaining the provenance of the asset in question.

Finally, the proceeds of crime can be forfeited without conviction by a corporate defendant entering into a deferred prosecution agreement (DPA) with a relevant prosecutor. Typically, such agreements involve the corporate defendant paying financial penalties and cooperating with the prosecutor in return for the prosecuting authority’s agreement to suspend the indictment in relation to the conduct that is the subject of the DPA. DPAs typically include an element of disgorgement to remove the proceeds of the criminal offending to which the DPA relates from the corporate defendant. 

Management of assets

After the seizure of the assets, how are they managed, and by whom? How does the managing authority deal with the hidden cost of management of the assets? Can the assets be utilised by the managing authority or a government agency as their own?

Where assets are restrained pending a criminal trial, section 69 of POCA requires the restrained property to be preserved as far as possible to meet any later confiscation order. Where assets require active management, the court can appoint a management receiver over the defendant’s assets. The costs of the management receiver are paid from the assets they are managing, even where the defendant is ultimately acquitted unless it is subsequently found that the restraint order should never have been made. Although typically management receivers are third parties appointed by the enforcement authority, the Crown Prosecution Service also uses its lawyers as in-house receivers to manage assets where the nature of the assets is such that any risks arising may be adequately managed without the need for insurance.