Corporate Crime analysis: Can a private prosecutor initiate confiscation proceedings and if  so, under what circumstances is this permitted? Ashley Fairbrother, solicitor at Edmonds Marshall McMahon, examines the issues in R v Somaia and says that private prosecutors are able to pursue confiscation proceedings and are not irredeemably conflicted in doing so.

Original News

The Court of Appeal, Criminal Division, allowed the defendant’s appeal to the extent that two periods of imprisonment in default of payment of compensation orders would run consecutively to the sentence for the offending, but concurrently with each other and the term of imprisonment in default. Given the prosecution’s acceptance that the compensation orders should not operate as an additional liability, the order needed to be varied and the entirety of the compensation orders should be paid first.

What was the background to the appeal and what issues did this case raise in relation to making confiscation and compensation orders following private prosecutions?

Ketan Somaia was convicted in June 2014 following a private prosecution brought by Mr Mirchandani for nine counts of obtaining a money transfer by deception totalling US$19,690,000 (just over £12.25m), after Mr Somaia had persuaded Mr Mirchandani to make short term loan payments to him with the assurance of high rates of interest and investments in business opportunities over the period between June 1999 and August 2000.

Following conviction, confiscation proceedings were initiated against Ketan Somaia under the Criminal Justice Act 1988 (CJA 1988) to deprive him of the benefit of his criminal conduct. On 12 January 2016, Ketan Somaia was ordered to pay a £20.5m confiscation order (the Confiscation Order) and two compensation orders to his victims totalling £18.2m (the Compensation Order). HHJ Hone QC had held that Ketan Somaia had hidden his assets but their true extent was totally unknown.

Ketan Somaia was ordered to pay the confiscation order within six months, but he refused to make any payments towards either of the orders. Consequently, the default sentence was activated and he was sentenced to a total of 16 years imprisonment, to be served consecutively to the sentence of eight years imprisonment imposed for the original offence.

This judgment affirms the ability of a private prosecutor to pursue confiscation proceedings under the Proceeds of Crime Act 2002 (POCA 2002) and CJA 1988.

What were the main legal arguments put forward and what did the Court of Appeal decide?

The principle ground of appeal was that the private prosecutor, Murli Mirchandani, (also the principle victim), was irremediably conflicted to carry out the ‘quasi-judicial’ role required of a prosecutor in commencing proceedings under CJA 1988, by serving notice that it was appropriate for the court to make a confiscation order and that it was an appropriate case for the application of the assumptions under CJA 1988, s 72AA.

It was argued that where the prosecutor is the principal prosecution witness and the loser, or the victim in the frauds perpetrated against him, they were incapable of exercising impartial judgment, thereby rendering the statutory arrangements under CJA 1988 ineffective. It was contended that in public prosecutions, it was an important principle that the victim or loser does not control, dictate or unduly influence the sentence of the court. This argument effectively sought to prevent private prosecutors from pursuing confiscation proceedings under CJA 1988.

Fulford LJ, handing down the ruling, referred to the case of R (Virgin Media Ltd) v Zinga[2014] EWCA Crim 52, [2014] All ER (D) 211 (Jan) in which the Lord Chief Justice ruled that there may be cases where the defence will raise concern about the interrelationship between the prosecution in the public interest and private prosecutor’s interest, however ‘…. [i]n such cases the court can in part rely on the professional duties of the advocates and solicitors under their professional codes and on the duties owed to the Court’. In Zinga, the Lord Chief Justice also cited an article by Sir Richard Buxton, which concluded that ‘[a]dvocates and solicitors who have conduct of private prosecutions must observe the highest standards of integrity, of regard for the public interest and duty to act as a Minister for Justice’.

In addressing the argument raised by Ketan Somaia, Mr Talbot QC, for the private prosecutor, submitted that private interests are, to some degree, almost invariably inherent in the bringing and conduct of a private prosecution, quoting Sir Richard Buxton, who opined ‘[a] private prosecutor will almost by definition have a personal interest in the outcome of a case’.

The Court of Appeal did not agree that the private prosecutor was ‘irremediably conflicted’ and dismissed this first ground of his appeal. The court held that a private prosecutor is still a prosecutor and is subject to the same obligations as public prosecutor. The Court of Appeal agreed with HH Judge Hone QC that those acting on behalf of the private prosecutor had in place sufficient safeguards to ensure those obligations were complied with.

The Court of Appeal also took the opportunity to clarify the role of private prosecutions, by citing the dicta of Lord Neuberger in R (Gujra) v Crown Prosecution Service [2012] UKSC 52, [2012] All ER (D) 163 (Nov) confirming the value of private prosecutions, ‘[t]here is no doubt that the right to bring a private prosecution is still firmly part of English Law, and that the right can fairly be seen as a valuable protection against an oversight (or worse) on the part of the public prosecution authorities…’.

The case concerned a confiscation order made under the old CJA 1988 confiscation provisions. Would this issue arise under the current POCA 2002 confiscation provisions?

In Zinga, the Court of Appeal had concluded that it was lawful for a private prosecutor to conduct confiscation proceedings under POCA 2002, save where there was an abuse of the process. In the majority of cases, the pursuit of confiscation proceedings by a private prosecutor will serve the public interest to the same extent as any proceedings brought by the state.

However, the CJA 1988 requires the prosecutor to serve formal notice that it is appropriate for the court to make a confiscation order (CJA 1988, s71(1)(a)) and that it was an appropriate case for the application of the assumptions under CJA 1988 s, 72AA. It was in exercising the discretion to serve such notice that it was argued that the prosecutor was irremediably conflicted such as to render these statutory provisions ineffective. Formal notice is not required under POCA 2002.

To what extent is the judgment helpful in clarifying the law in this area?

The Court of Appeal has reaffirmed the principles set out in Zinga, namely, that a private prosecutor has a right to initiate confiscation proceedings, making clear that this applies to the regimes established by CJA 1988 and POCA 2002.

However, this case takes Zinga one-step further. In Zinga the Court of Appeal did not focus on the element of compensation being sought by victim prosecutors. In that case, the private prosecutor, Virgin Media, had abandoned its application for compensation and any amount confiscated would have accordingly only benefitted the state. However, the court in Zingarecognised that there may be a limited number of cases where it would be open to the private prosecutor to seek compensation in confiscation proceedings and the instant case provides a useful example of where such applications will be appropriate.

What are the implications for corporate crime lawyers? What practical lessons can those advising take away from this case?

Arguments surrounding the motives of a private prosecutor are not new. This case highlights that victims of crime who pursue private prosecutions properly and appropriately will not be irredeemably conflicted. There are clear circumstances where the motives of a private prosecutor are allied with the public interest in seeing criminals brought to justice and deprived of the proceeds of their offending.

This judgment underlines the extensive powers of the criminal courts that are available to private prosecutors in addressing sophisticated frauds and seeking recompense for the losses that they have suffered. This judgment confirms that private prosecutions remain a valuable protection against oversight (or worse) on the part of the public prosecution authorities.

Interviewed by Sean Delaney.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

See the Article published on Lexis Nexis PSL here.