Kennedy Talbot QC Gives Evidence before the Home Affairs Select Committee on Confiscation

The Home Affairs Committee holds the first evidence session in its proceeds of crime inquiry with legal experts and academics as witnesses.

Witnesses: Jonathan Fisher QC, Barrister, Devereux Chambers; Dr Colin King, Senior Law Lecturer, University of Sussex; Helena Wood, Associate Fellow, Royal United Services Institute; Richard Fisher QC, Doughty Street Chambers; Tim Owen QC, Matrix Chambers; and Kennedy Talbot QC, 33 Chancery Lane. Witnesses: Martin Bentham, Evening Standard

Kennedy Talbot QC from 15:23

 

Kennedy Talbot's Guide to the New PoCA Changes, in Force from 1 June 2015.

Third Party Claims can now be resolved when making a confiscation order

S.10A of PoCA introduced by the Serious Crime Act 2015 gives the court power to determine third party claims to the defendant’s assets when making a confiscation order. S.10A(1) provides this power where:

“it appears to a court making a confiscation order that—

(a) there is property held by the defendant that is likely to be realised or otherwise used to satisfy the order, and

(b) a person other than the defendant holds, or may hold, an interest in the property..”

The power is therefore confined to cases where a third party (who s.18A of PoCA (introduced by s.2(3) of the SCA 2015) calls an “interested person”) may have an interest in property “held by” the defendant, that is where the defendant also has a proprietary interest (see the definition of holding property in s.84). It is not available where the issue is whether a disposition by the defendant of his interest in a piece of property amounts to a tainted gift. According to the explanatory notes to the SCA 2015, para 23, it is envisaged that this power will only be used in “relatively straightforward” cases.

Section10A(2) provides that the court must given an opportunity to the interested person to “make representations”. This is the same term that is found in the receivership provisions to protect third parties (PoCA s.51(8)). It is well established that third parties have full litigation rights including calling evidence [See generally Norris [2001] 1 WLR 1388].

Section 16(6A) and (6B) now require the prosecution to include in its statements material that is known to it which is relevant to whether to make a s.10A determination and the nature of any interested person’s interest. S.18A introduces a power to require an interested person to provide information to it. This order can be enforced by committal to prison for contempt (s.18A(5)) and the court may, in any event, draw inferences from a failure to comply with such an order (s.18A(4)).

Section 10A(3) provides that a determination is conclusive for the purpose of any question as to the realisation or transfer of property to enforce a confiscation order. However, this rule is subject to the following modifications:[s.31]

(1)  The prosecution can appeal it.

(2)  Any person (whether or not a party who was given an opportunity to make representations) can appeal to the Court of Appeal against the determination provided that the Court of Appeal regards it arguable that giving effect to the determination would cause a “serious risk of injustice”.

(3)  A person not given an opportunity to make representations may appeal if the Court of Appeal “thinks” he is a person who holds or may hold an interest in the property.

However, no appeal lies to the Court of Appeal if an application has been or is likely to be made to appoint an enforcement receiver under s.50, or such a receiver has been appointed. [Section 31(8)]

(4)  If an application to appoint an enforcement receiver is made, the court must ignore the determination if:

(a) To give effect to it would cause a serious risk of injustice to the interested person, even if the interested party had been given an opportunity to make representations when the confiscation order was made [s.51(8B)(b)]. This provision is unlikely to allow an interested party an unfettered right to re-litigate an issue already decided against him, since at the s.10A determination stage he was a party to the proceedings with full litigation rights. [See Norris [2001] 1 WLR 1388 where the principles of issue estoppel and abuse of process were discussed in this context]; or

(b) The interested person was not given an opportunity to be heard in the confiscation proceedings and has not appealed. [s.51(8B)(a)]

The practical effect of these provisions is not clear. It is intended that a court can revisit a s.10A determination in a receivership application. This is so even if the interested party has litigated the issue. Any receivership application must be served on interested persons whether or not there has been a s.10A determination against him [s.51(8)] It is therefore advisable for the prosecutor to set out the evidence that the disputed asset is that of the defendant when applying to appoint a receiver. Section 10A is said in the explanatory notes to be intended to prevent spurious third party claims from delaying enforcement. If that was the intention, it is not understood why, where the issue has been determined against an interested person, a s.10A determination should not be conclusive in receivership proceedings and why a receivership application needs to be served on such a person. It remains to be seen, but it is likely that s.10A will not tackle the mischief it appears to have been intended to remedy.

Power to make a “compliance order” when making a confiscation order

Section 13A, introduced by s.7 of the Serious Crime Act 2007, empowers the court to make “a compliance order” when a confiscation order is made. The power is in s.13A(2) which provides:

“(2) The court may make such order as it believes is appropriate for the purpose of ensuring that the confiscation order is effective (“a compliance order”)”

A compliance order must be considered when making the confiscation order or if a compliance order is not made then, if a prosecutor later applies for one. The court may vary or discharge a compliance order on application of the prosecutor or any person adversely affected by it.

It is not clear what is meant by making a confiscation order “effective” and whether there is any limit on the nature or type of order which may be made. The only example of an order provided for in s.13A is a travel ban which the court is mandated to consider (but not make). However, this is stated to be a “particular” type of order which the court can made [s.13A(4)]. Of course, a confiscation order is enforced by the magistrates’ court as a fine and there are specific provisions in PoCA to allow the court to appoint a receiver on application of the prosecutor.  Section 13A cannot have been intended to be used to replicate these intricate and specific provisions which, for example, contain safeguards to protect third parties. Further, the principle of legality applies so that fundamental human rights (such as fair trial rights or rights to property) cannot be cut down by a statutory power expressed in general terms [See eg Ahmed v HM Treasury [2010] 2 AC 534]. It is thought therefore that a compliance order which, for example, empowers the police to take possession of the defendant’s assets and sell them or requires the defendant’s spouse to sell the family home could not be made. Exactly where the limits of the court’s jurisdiction under s.13A lies will be for the courts to decide in due course.

The court has power to vary or discharge a compliance order on application of the prosecution or any person affected by the order [s.13A(5)]. Such persons also have power to appeal against compliance orders and the prosecutor can appeal if a compliance order is refused. [s.13B]

Proportionality now on a statutory footing

The SCA 2015 in Schedule 4, para 19 introduces a new provision after s.6(5):

“Paragraph (b) applies only if, or to the extent that, it would not be disproportionate to require the defendant to pay the recoverable amount.”

The explanatory notes at para 352 say that this provision is intended to give statutory effect to Waya [2013] 1 AC 294. This is a poor effort to do so. There is no attempt to identify the criteria to which the order is required to be proportionate, so this provision, grammatically at least, is meaningless. Of course, the Supreme Court in Waya explained that a confiscation order must be proportionate to the aim of deprivation of proceeds of crime. Assuming that a court accepts the intention of this provision was to give effect to Waya (and explanatory notes are admissible for this purpose), then it is likely to apply a purposive construction to it. However, the infelicitous drafting of this provision invites an argument by defendants that the SCA 2015 introduces a new power of the Court to examine “proportionality” beyond that explained in Waya.

New default terms

In the unamended PCA, the terms of imprisonment in default were the same as fines and up to a maximum of 10 years for sums in excess of £1m. However, s.10 of the Serious Crime Act 2015, which came into force on the 1st June 2015 imposes longer bespoke maxima for confiscation orders. These are:

  • £10,000 or less - 6 months
  • £10,000 to £500,000 - 5 years
  • £500,000 to £1m - 7 years
  • Above £1m - 14 years

 Further s.10 of the SCA 2015 also amends s.258 of the Criminal Justice Act 2003 so that where a confiscation order is for £10m or more, the defendant must serve the full term in default instead of automatic release after serving half the term.

There are no transitional provisions, so on the face of it, these heavier terms in default apply to defendants who fall to have terms set after 1st June 2015 even though the offence(s) of which they are convicted have been committed before that date. This raises issues as to whether the court can properly impose the new terms in such a case. If the term in default is part of the penalty for the offence of which the defendant is convicted, then article 7 of the European Convention of Human Rights would seem to require the court to exercise its discretion to restrict itself to a period under the old terms. [In ECHR law, a confiscation order is a penalty to which art 7 prohibiting retroactive penalties, applies: Welch v UK (9th Feb 1995, App no. 17440/90)].

 Change to Time to Pay

In the unamended PCA the court could give up to 6 months to pay the confiscation order which may later be extended to 12 months. The SCA changes these periods to 3 and 6 months respectively.

Kennedy Talbot Wins in the Supreme Court; Important Money Laundering Case.

The Supreme Court summary reads as follows:

R v GH (Respondent) [2015] UKSC 24

On appeal from [2013] EWCA Crim 2237

JUSTICES: Lord Neuberger (President), Lord Kerr, Lord Reed, Lord Hughes and Lord Toulson

BACKGROUND TO THE APPEAL

A fraudster, B, established four “ghost” websites falsely pretending to offer cut-price motor insurance. In order to carry out this plan he recruited associates to open bank accounts for channelling the proceeds. H was one such associate.

One website was named AM Insurance, which operated from 1 September 2011 to January 2012. Shortly before the website went live, H opened two bank accounts, one with Lloyds Bank and one with Barclays Bank. Subsequently, B took control of these accounts and the related bank cards. In total, members of the public were duped into paying £417,709 into the Lloyds’ account and £176,434 into the Barclays’ account for non-existent insurance cover.

B pleaded guilty to a number of offences. H stood trial at the Central Criminal Court charged with entering into or becoming concerned in an arrangement which he knew or suspected would facilitate the retention, use or control of criminal property, namely the money received into the accounts, by or on behalf of B, contrary to section 328(1) of the Proceeds of Crime Act 2002 (“POCA”). The trial judge upheld the submission that H had no case to answer, finding that at the time H entered into the arrangement no criminal property existed. The Court of Appeal dismissed the prosecution’s appeal; although it was not necessary for criminal property to exist when B and H came to the prohibited arrangement, the arrangement must relate to property which was criminal property when the arrangement begun to operate on it. In this case, the money was not criminal property when the arrangement began to operate on it, in other words at the moment the money was paid into the accounts. The prosecution appealed to the Supreme Court.

JUDGMENT

The Supreme Court unanimously allows the appeal. Lord Toulson (with whom all the other Justices agree) delivers the judgment of the Court.

REASONS FOR THE JUDGMENT

Whether s 328 POCA requires property to constitute “criminal property” prior to the arrangement operating

“Criminal property” in sections 327-329 of POCA refers to property which already has the quality of being “criminal property” (as defined in section 340 of POCA) by reason of prior criminal conduct distinct from the conduct alleged to constitute the commission of the money laundering offence itself.

This accords with the natural meaning and underlying purpose of these sections [32], the explanatory notes to POCA [33] and Council Directives 91/308/EEC and 2005/60/EC [34]. If section 328 did not require property to constitute criminal property before an arrangement came into operation, it would have serious potential consequences in relation to, for example, banks and other financial institutions who are already under onerous obligations to report known, suspected or reasonably suspected money laundering [37].

Whether “criminal property” has to exist when the defendant enters or becomes concerned with the arrangement

The Court of Appeal was correct to hold that it does not matter whether criminal property existed when the arrangement was first made. What matters is that the property should be criminal when the arrangement operates on it [40].

Whether the sums received into the bank accounts constituted “criminal property” before being paid into the accounts

The submission that the money paid into the accounts represented underlying choses in action and that, therefore, criminal property existed before money was received in the accounts would presumably have involved a contract between AM Insurance and the victims. There is a stark absence of material to substantiate the existence of such a contract [42].

Whether the actus reus of the s 328 POCA offence was committed

Nonetheless, in the present case the character of the money – although lawful at the moment of payment – changed on being paid into the bank accounts. The money became criminal property in the hands of B by reason of the fraud perpetrated on the victims. As such, it is legitimate to regard H as entering into or becoming concerned in an arrangement to retain criminal property for the benefit of another. Consequently, the ruling that H had no case to answer was erroneous [47]. Although this same reasoning applies to sections 327-329 of POCA, the wide ambit of these sections can be managed by: (i) the prosecution only adding parasitic counts to substantive ones where there is a proper public purpose in doing so [48]; and, (ii) courts using their powers to discourage inappropriate use of the POCA provisions to prosecute conduct sufficiently covered by substantive offences [49].

References in square brackets are to paragraphs in the judgment

NOTE

This summary is provided to assist in understanding the Court’s decision. It does not form part of the reasons for the decision. The full judgment of the Court is the only authoritative document, see: https://www.supremecourt.uk/decided-cases/docs/UKSC_2014_0035_Judgment.pdf