Confiscation of assets from those convicted of a crime is not a new concept. Helen Boniface and Jessica Hickson consider how the confiscation process is being used in a new way with far-reaching implications.
People are familiar with large scale drug dealers and others involved in very serious crime being relieved of the benefits of their criminal conduct through the court system. What will be less familiar is the use of these same powers to claim the assets of companies convicted of regulatory offences, including those in planning, advertising and environmental fields. Recent experience has shown that prosecuting authorities are becoming more willing to consider pursuing confiscation proceedings in cases of regulatory crime. The impact of confiscation upon individuals or companies convicted of regulatory offences can be massive. Even in circumstances where the maximum penalty in a particular case is relatively small, confiscation can attract a very significant confiscation order which dwarfs any fines imposed.
The powers of confiscation derive from the Proceeds of Crime Act 2002 (“POCA”). POCA applies to any offence in respect of which the defendant has derived a financial benefit (covering offending which took place after 24 March 2003). This includes both summary only offences in the Magistrates’ Court and more serious offences which may be committed to the Crown Court and subject to an unlimited fine. Although the Magistrates’ Court has only very limited power to make a confiscation order, it is obliged to commit a convicted defendant to the Crown Court when the prosecution has asked it to, with a view to confiscation being considered by that higher court.
The availability of confiscation in cases of regulatory breach was established by POCA but, until more recently, little used. Now we are beginning to see prosecutors using these powers as part of their enforcement regime. There may be a number of reasons for this – with increased awareness, encouragement from government and financial benefits for local authorities being the most likely.
Introduction to regulatory offences
The case that brought POCA for regulatory offences to the fore was a planning case, the case of R v Del Basso and Goodwin1. Mr Del Basso’s company owned land which it rented to the local football club. Planning permission was granted for 201 parking spaces on the land, but only for those attending football matches. Permission for a park and ride scheme was rejected. Despite this, the land was used for a park and ride and repeated warnings to desist were ignored, resulting in an enforcement notice being served. This was also ignored and the parking operation expanded, by then operated through a parking business. As a result, prosecution followed with each of the landowner company, football club, parking company, Del Basso and Goodwin prosecuted and all pleading guilty. Mr Del Basso was fined £15,000 and £20,000 costs. As the court concluded, it appeared that he regarded such an expense as a necessary business risk.
In assessing this risk though, Mr Del Basso did not account for the confiscation proceedings that followed. Benefit from criminal conduct was assessed at £1,881,221.19 – the gross receipts from the car park operation throughout the relevant period. Legitimate business costs (such as staff wages, tax etc.) were irrelevant for the purposes of confiscation and could not be deducted from this figure. It was also irrelevant that the income was applied for the benefit of the football club and the defendants did not make any personal profit. Mr Del Basso was ordered to pay £760,000 – the total value of his assets. In this scenario, if a defendant acquires further assets in the future, the prosecution can continue to pursue those assets until the benefit has been paid. Since the order for £760,000, Mr Del Basso acquired assets and has now repaid the full £1.8m of his criminal benefit. An appeal to the Court of Appeal failed and, as the judge imposing the confiscation order said: “Those who choose to run operations in disregard of planning enforcement requirements are at risk of having the gross receipts of their illegal businesses confiscated. This may greatly exceed their personal profits. In this respect, they are in the same position as thieves, fraudsters and drug dealers.”
A precedent was set for regulatory offence confiscation and further encouragement arises from the government’s POCA “incentive scheme”. As the name suggests, this incentiviseslocal authorities and other prosecutors to use POCA and has enabled it to become a source of income. Under this scheme, the proceeds obtained from a confiscation order are collected by the Ministry of Justice then distributed to the Home Office in accordance with an agreed protocol with HM Treasury. The Home Office retains 50% then, significantly, passes 18.75% to the prosecuting authority, 18.75% to the investigating authority and 12.5% to Her Majesty’s Court Service. Local authorities will typically be both the prosecuting and investigating authority and so in line for 37.5% of any order made. As the Del Basso case illustrates, seeking confiscation can result in a significant share of the award which, in times of decreasing budgets, can be a real incentiviser for any enforcing authority.
Local authorities are not the only prosecutors taking advantage of these powers. The Environment Agency has also benefited from POCA confiscation orders in relation to environmental offences. For example, a particularly significant order concerned an illegal waste transfer station and scrap metal yard. The defendant, an individual, was given a two year community sentence and ordered to pay £888,513 under POCA. As an individual, failure to comply with a confiscation order can result in a custodial sentence. In May 2013, the defendant, Mr Johal, was arrested attempting to flee the country and imprisoned for 3 years.
In a property context, failure to comply with regulatory requirements may attract the risk of criminal sanctions, potentially making these offences targets for confiscation. In the event of POCA being pursued, the value of the benefit obtained would be assessed and gross benefit from the criminal conduct recovered. In theory, this could include rent paid by the tenants of each non-compliant property throughout the period in question as well as all avoided costs. As with the Del Basso case, legitimate business expenses in conjunction with the property would not be deductible from the sum sought through POCA – the court would seek to recover gross benefit obtained as a result of or in connection with the conduct constituting the offence.
How does POCA work?
The basic structure of the confiscation regime is to ask the following three questions:
- Has the defendant benefited from his/its criminal conduct?
- What is the value of the benefit that has been obtained?
- What sum is recoverable from the defendant?
In determining questions 1 and 2 above, there is a distinction between cases where the defendant has a “criminal lifestyle” and those where he does not. Where he does not, benefit is limited to that gained from the offence in question. If the defendant (either a corporate or an individual) has a “criminal lifestyle”, the court must decide what he has benefited from his general criminal conduct according to a number of assumptions set out in the legislation. In essence, the defendant would have to prove any assets obtained in the previous six years were not derived from the proceeds of crime. A corporate defendant with previous convictions, or where offending has continued for a sustained period, may qualify for these lifestyle provisions. This is not common but the potential for use cannot be ignored. It is interesting to note that the court in the Del Basso case confirmed (by reference to conditions in the legislation) that criminal activity over a six month period was sufficient for the defendants to have a “criminal lifestyle”.
As touched upon above, the court will look to criminal benefit. In relation to a particular offence, this is the total value of property or pecuniary advantage “obtained” – with obtained having a very wide definition. In particular, benefit obtained does not mean profit and a defendant does not need to retain the benefit of his crime. There is no deduction for expenses and even if a defendant made no profit from the criminal activity, the full amount of benefit obtained may be the subject of confiscation. There is also no requirement to apportion the amount obtained between multiple defendants (for example, where the same benefit is obtained by more than one party). The Crown may therefore recover through confiscation more than the total amount in which joint participants benefited.
POCA, deservedly, has a reputation for being particularly draconian. Once the prosecutor asks the court to embark upon the confiscation process, it must do so. However, in recent years there has been some judicial recognition that there may be occasions where the confiscation provisions go too far, and that there is some scope within the current legal framework for the court to intervene.
On rare occasions, a court may consider confiscation an abuse of process. For example, in certain circumstances where a defendant has voluntarily repaid the benefit obtained. However, such circumstances of abuse of process are now effectively covered by the recent Supreme Court case of R v Waya 4 which considered the issue of proportionality. The Supreme Court recognised that POCA must be given effect in a manner that is compliant with Article 1 of the First Protocol to the European Convention on Human Rights which relates to peaceful enjoyment of possessions.
In that case, the Court ruled that a judge should refuse to make a confiscation order that would be disproportionate. This does not mean that it should not make an order at all; but it should only accede to the prosecution’s application to the extent (i.e. in such sum) as would be proportionate. It would be unusual that a criminal lifestyle case would be disproportionate and the case of Waya will not circumvent the principal aim of the legislation in any case – that being to deprive offenders of the proceeds of their offending. Although it is a welcome revision of the previous judicial view that draconian provisions of POCA had to be applied literally, it cannot and will not provide relief from the significant consequences of the legislation in many cases. At this stage, the principal impact of Waya is likely to be in cases where the income derived from offending has already been repaid in some way, and analogous situations. Pending further judicial consideration, the precise ambit of the application of the proportionality principle is as yet unknown.
In summary, POCA confiscation can potentially have serious ramifications for both corporations and individuals convicted of any crime. Clearly, the best way to avoid confiscation is to avoid prosecution. Those who may previously have considered that the commission of regulatory breaches, which may give rise to relatively minor criminal sanctions, was a “necessary business risk” should think again. It follows that the need to have in place rigorous and effective systems designed to ensure compliance with the relevant provisions is paramount.