Criminal Confiscation, Trusts of Land and Financial Remedies

Published: 01/04/2022 06:04

Background

Convicted criminals may find themselves subject to confiscation applications and orders. These might be accompanied by a trust of land or financial remedy application, by a (perhaps not so) innocent applicant. How do confiscation proceedings work generally? How do they interact with family proceedings? This article gives a general introduction to confiscation, before looking specifically at its interaction with trusts of land and financial remedy applications.

Criminal Confiscation: Proceeds of Crime Act 2002, Part 2

Background: the purpose of confiscation

Part 2 of the Proceeds of Crime Act 2002 (PoCA) ‘is concerned with the confiscation of the proceeds of crime. Its legislative purpose, like that of earlier enactments in the field, is to ensure that criminals (and especially professional criminals engaged in serious organised crime) do not profit from their crimes, and it sends a strong deterrent message to that effect’.1

A confiscation order deprives the criminal, directly or indirectly, of the benefit of crime, by ordering the payment of a fixed sum of money. Personal not proprietary, the order may be satisfied from criminally or legitimately acquired assets. ‘Confiscation’ is a misnomer; ‘Although “confiscation” is the name ordinarily given to this process, it is not confiscation in the sense in which schoolchildren and others understand it.’2

Confiscation orders

Jurisdiction: The Crown Court must consider making a confiscation order if (a) a defendant (‘D’) is convicted in proceedings before the Crown Court or committed to it under various provisions; and (b) either the prosecutor asks the court to proceed, or the court believes that it is appropriate to do so.3

How does confiscation work? The court must ask itself three questions:4

‘(i) Has the defendant (D) benefited from the relevant criminal conduct?

(ii) If so, what is the benefit D has so obtained?

(iii) What sum is recoverable from D?

Where issues of criminal lifestyle arise the questions must be modified. These are separate questions calling for separate answers, and the answers must not be elided.’

Answering the questions: the wording of PoCA. PoCA defines many of the relevant terms. It is important to ‘focus very closely on the language of the statutory provision in question in the context of the statute and in light of any statutory definition’.5 However, there is a vast array of caselaw as to their meaning and application.

Standard of proof: The standard of proof is the balance of probabilities,6 with limited possible exception.

Question 1. Identifying the benefit from criminal conduct: ‘Criminal conduct’ is conduct which constitutes an offence in England and Wales, or would do if it occurred there.7 D ‘benefits from conduct’ if D obtains property8 as a result of or in connection with the conduct.9 The benefit is the value of the property10 or pecuniary advantage11 so obtained. Benefit takes two forms: benefit from ‘general criminal conduct’ (GCC) and from ‘particular criminal conduct’ (PCC).

Question 1(a): GCC occurs where the court decides that D has a ‘criminal lifestyle’.12 D has a criminal lifestyle only where (a) D is convicted of an offence specified in Schedule 2 PoCA;13 (b) the offence constitutes conduct forming part of a course of criminal activity as statutorily defined;14 or (c) the offence is committed over a period of at least six months, and D has benefitted from the conduct which constitutes the offence.15 Other than conviction for a Schedule 2 PoCA offence, D must also have obtained ‘relevant benefit’16 of not less than £5,000.17

If D has a ‘criminal lifestyle’ the court decides whether D has benefitted from his GCC.18 GCC is all of D’s criminal conduct, and it is immaterial whether it occurred, or whether property comprising the benefit was obtained, before or after the passing of PoCA.19 Four statutory assumptions must be made for the purpose of deciding (a) whether D benefited from his GCC; and (b) his benefit from the conduct:20 first, that any property transferred to D at any time after the ‘relevant day’ was obtained by D as a result of his GCC, and at the earliest time D appears to have held it;21 secondly that any property held by D at any time after the date of conviction was obtained by D as a result of his GCC, and at the earliest time D appears to have held it;22 thirdly, that any expenditure incurred by D at any time after the ‘relevant day’ was met from property obtained by D as a result of his GCC;23 and fourthly, for the purpose of valuing property (assumed to have been) obtained by D, that D obtained it free of any other interests in it.24 The ‘relevant day’ is the first day of the period of six years ending with the day when proceedings for the offence concerned were started against D, or the earliest such day when there is more than one set of proceedings.25 The prosecution must initially prove the underlying facts to which the assumption is applied (e.g. that property was transferred to D).26 The standard of proof is the civil standard,6 although the criminal standard may apply where it is necessary to prove a criminal offence with which D has not been charged in order to engage the assumption.28 However, the court must not make a required assumption in relation to particular property or expenditure if (a) it is shown to be incorrect; or (b) there would be a serious risk of injustice if it were made.29

Question 1(b): PCC is much more confined. It is all of D’s criminal conduct which constitutes (a) the offence(s) concerned; (b) offences of which D was convicted in the same proceedings as those in which D was convicted of the offences concerned; and (c) offences which the court will take into consideration in sentencing D for the offences concerned.30 The assumptions do not apply. Once PCC is identified, the court then identifies the benefit D has obtained from it.

Question 2. Valuing the benefit from criminal conduct: Once identified, the benefit must be valued. The value of the benefit is the value of the property10 or a sum equal to any pecuniary advantage32 obtained. There are detailed valuation provisions.33 The basic rule is that the value at any time of property then held by a person is its market value at that time,34 subject to third-party interests,35 but ignoring specified charging orders.36 This is however subject to other provisions.37 The value of property obtained as a result of or in connection with criminal conduct is its value at the time when the court makes its decision,38 and this is the greater of (a) its value (at the time D obtained it) adjusted to account of later changes in the value of money; and (b) the value at the time of the court’s decision of (i) the property held by D; (ii) if D no longer holds it, property directly or indirectly representing it in D’s hands; and (iii) if D holds only part of it, then that part and any property directly or indirectly representing the other part in D’s hands.39 References to ‘value’ at (a) and (b) are to the values found in accordance with the basic rule.40

Question 3. The recoverable amount: The amount recoverable from D is the amount in which the confiscation order will be made; however, the order will be made only if, or to the extent that, it would not be disproportionate to require D to pay the recoverable amount.41 The starting point is that the recoverable amount is an amount equal to D’s benefit from the conduct concerned.42 However, if D shows that the available amount is less than that benefit, then the recoverable amount is either the available amount or, if the available amount is nil, a nominal amount.43 The available amount44 is the aggregate of the totals of the values (at the time the confiscation order is made) of all the free property then held by D minus the total amount payable in pursuance of obligations which then have priority,45 and the total of the values (at that time) of all tainted gifts.46

D is to be treated as making a gift if he transfers property to another for a consideration whose value is significantly less than the value of the property at the time of the transfer.47 Whether such a gift is ‘tainted’ will depend on whether D was found to have a criminal lifestyle.48 If D has a criminal lifestyle (or no decision about this has been made), the gift will be tainted where D made it within six years of commencement of proceedings for the offence concerned (or the earliest of two or more offences and proceedings);49 or where D made it at any time, and it was of property D obtained as a result of or in connection with his GCC, or it represents such property (wholly or in part, directly or indirectly) in D’s hands.50 Where there is no criminal lifestyle, a gift will be tainted if made at any time after the date of the offence, or the earliest of several offences, including those taken into consideration.51 It is immaterial whether PoCA had been passed at the time.52 Tainted gifts are valued by a similar (but not identical) statutory method to property obtained from conduct.53

Proportionality: Once the court has decided the recoverable amount, it must make a confiscation order requiring D to pay that amount, but it must make such order only if, or to the extent that, it would not be disproportionate to require D to pay the recoverable amount.41 Proportionality is assessed against the statutory purpose of removing from Ds the proceeds of their crime; but there is not a more general discretion not to make confiscation orders than this.55 There are many decided cases on proportionality. It will, for example, be disproportionate to make a confiscation order where the loser has been repaid in full (or potentially analogous cases).55 So, for example, where D corruptly procured contracts from Network Rail, but gave full value under those contracts, a proportionate order was confined to the gross profit and, in principle, the pecuniary advantage obtained by obtaining market share, excluding competitors, and saving on the costs of tendering properly.57 Where two or more Ds jointly obtain benefit, each obtains the whole, but subject to a caveat that at enforcement, double recovery would be a disproportionate violation of Article 1 of Protocol 1 ECHR.58

Proportionality: Article 8: Article 8 ECHR rights and proportionality issues are engaged at the enforcement stage when considering sale of the family home, rather than at making the confiscation order.59

Default term: When making the confiscation order, the court will fix a custodial term to be served in the event of default, subject to statutory maximum terms.60

Payment: D must pay the confiscation order on the day it is made.61 However, in certain circumstances, the court may extend this, initially for three months, but to a maximum of six months from the day of the confiscation order.62

Variation: Making the confiscation order is not always the end of the matter. In certain circumstances,63 PoCA allows for applications for confiscation orders where none was initially made; for confiscation to be reconsidered where no benefit was initially found and no order initially made; for benefit and/or available amount to be reconsidered in respect of an existing confiscation order; for an existing confiscation order to be varied or discharged where the available amount is inadequate to meet the amount outstanding; and for discharge where a small amount is outstanding or recovery from the estate of a deceased defendant is impractical.

Procedure: Proceedings usually begin with D being ordered to provide information.64 Next, the prosecutor will file and serve a ‘statement of information’, setting out specified information;65 D will then provide a response.66 The prosecutor may then file a reply, and the application will be case-managed to a final hearing.

Third parties: the confiscation stage: Third parties were never entitled to participate in confiscation proceedings, save insofar as D may have called the third party as a witness at the confiscation stage; third party participation occurred (if at all) if an enforcement receiver was appointed at the enforcement stage. Consequently, at confiscation, and given that confiscation orders are personal not proprietary, third-party interests were unaffected. This changed in 2015, with amendments made to PoCA, which concern the determination of the extent of D’s interest in property.67 Now, where it appears to a court making a confiscation order that (a) property held by D is likely to be realised or otherwise used to satisfy the order; and (b) a person other than D (may) hold(s) an interest in it, the court may, if it thinks it appropriate to do so, determine the extent of D’s interest it, at the time the confiscation order is made.68 The court must not exercise this power unless it gives to anyone it thinks is or may hold an interest in the property a reasonable opportunity to make representations to it.69 Such a determination is conclusive in relation to any question as to the extent of D’s interest in the property that arises in connection with (a) its realisation, or the transfer of an interest in it, with a view to satisfying the confiscation order; or (b) any action or proceedings taken for the purposes of any such realisation or transfer.70 This binds neither the Court of Appeal nor Supreme Court.71

To assist the court in considering whether to make (and in making) such a determination, the court may order a third party whom it thinks may hold an interest in the property to provide specified information.72 So, too, when D complies with any order requiring the provision of information,73 and when the prosecutor provides its statement of information,74 prescribed relevant information must be provided. However, the 2015 amendments were not intended to be used in every third-party case; they were designed to streamline the system by combining confiscation and enforcement in simple cases where there could be no sensible debate about enforcement of the confiscation order; in more complex cases, third-party interests could be considered at enforcement.75 There is prescribed scope for appeal to the Court of Appeal against such determination.76

Third parties: enforcement receivership: The court may appoint an enforcement receiver to enforce the confiscation order,77 and confer upon the receiver various powers, including taking possession of the realisable property, to realise as the court specifies.78 ‘Realisable property’ is any free property held by (a) D; and (b) the recipient of a tainted gift.79 ‘Held’ is widely defined as ‘holding an interest’ in the property, including beneficial interests.80 The receiver deals with the realisable property, in order to obtain the recoverable amount. The receiver must exercise their powers without taking account of any obligation of D, or a recipient of a tainted gift, if the obligation conflicts with the object of satisfying any confiscation order that has been or may be made against D,81 but with a view to allowing a person other than D or a recipient of a tainted gift to retain or recover the value of any interest held by them.82 Third-party interests may therefore be considered here, if not precluded by their involvement at the confiscation stage. However, determination at the confiscation stage83 will bind the court, unless the third party was not given a reasonable opportunity to make representations when the determination was made and has not appealed against the determination, or if it appears to the court that there would be a serious risk of injustice if that person were bound by it.84

Restraint orders

Restraint orders85 are tools for the preservation of assets. They can be very widely drawn. They may prohibit any person (not just D) from dealing with any realisable property held by the specified person, whether or not it is described in the order, and whether it was transferred to that person before the order is made.86 This may extend to third-party assets, if the court considers that assets held by a third party are in fact D’s. Restraint orders may be subject to exceptions (e.g. for reasonable living expenses, business expenses, reasonable legal aid expenses87) and must include a ‘legal aid exception’.88 The court may also make ancillary orders for ensuring the effectiveness of the restraint order.89 There is also the potential for a ‘reporting requirement’ to be made where the restraint order is made during the course of a criminal investigation.90

If a court in which proceedings are pending in respect of any property is satisfied that a restraint order has been applied for or made in respect of it, it may either stay the proceedings or allow them to continue on any terms it thinks fit;91 but before doing so it must give an opportunity to be heard to the applicant for the restraint order, and any statutorily specified receiver.92

Financial remedies and criminal confiscation

How does this all tie-in with third-party interests, whether pursuant to applications under the Trusts of Land and Appointment of Trustees Act 1996 (ToLATA) or the Matrimonial Causes Act 1973 (MCA)?

Subsisting legal and beneficial interests: ToLATA

Established third-party interests held under trusts of land will not be included in the ‘available amount’ within the value of all free property held by D,93 although in principle their value as ‘tainted gifts’ may be included.46

In Gibson v RCPO ((2008 CA))95 D (H) was convicted in May 1999 of drug trafficking between 1996 and 1998. A confiscation order was made, including the equity in a property held in the joint names of D (H) and his former W, which had been bought in 1990, three associated endowment policies and two bank accounts (all held in joint names). In enforcement proceedings, to which W was joined, the High Court held that whilst W was the 50% beneficial owner of the equity in the FMH and the jointly-held assets, she knew at least from 1993 that the source of the money used to pay the mortgage and endowments and to fund the accounts was not legitimate, ‘tainting’ her half-share; further, whilst the legislation did not permit W to be deprived of her half-share, as a matter of public policy, the taint of which W had guilty knowledge should be taken into account against her, and her share reduced to 12½%. The Court of Appeal disagreed. W’s share was not realisable property, regardless of knowledge and taint; she had owned 50% from acquisition, which did not depend on any later agreement to pay the mortgage from criminal monies. The court also found that W’s share was not a gift, W having provided consideration by bringing up the children and looking after the family home., the prosecution having made this concession

However, in R v Hayes (Tom) ((2018) CA)96 the Court of Appeal distinguished the approach to tainted gifts in Gibson. It held that the ‘tainted gift’ provisions97 must be applied in accordance with the statutory purpose behind their enactment, so will focus on the monetary value of any alleged consideration.98 Whilst accepting that the question of ‘gift’ is intensely fact-specific, the tight definitions97 make it potentially arguable as to whether ‘consideration’ arising solely from bringing up children or looking after the family home can ever suffice to be valuable consideration for these purposes; and even if it could, it would need to valued objectively and in monetary terms, and on an evidenced basis. Importantly, the relevant statutory provisions are in terms of ‘money or money’s worth’, to be objectively assessed, not in ‘human terms’. However, the court considered that it would be wrong to commit to a wholly inflexible purported statement of principle; but where the consideration is not direct financial contribution(s), the evidence must be closely and rigorously examined to establish if it may be assessed as consideration of value and, if so, to what extent.100

Re: B ((2008) HC (Admin))101 demonstrates potential for apparently harsh outcomes. D (H)’s confiscation order reflected his half-share in the equity in the FMH, bought many years before the offending with a joint mortgage. Following D (H)’s arrest, W applied for a re-mortgage in her own name and, shortly before conviction, D (H) transferred his share into W’s sole name for no monetary value. The court accepted that this was not to evade confiscation, and that the transfer into her sole name simply reflected the reality that W had been financing the family for many years, including paying the mortgage, whilst D (H) had contributed very little (being long-term unemployed through serious illness), and his offending was inept. However, D (H) had an equity in the house, and ‘the law in this area can sometimes be harsh in its application. Here it treats the … transfer as a gift of [D (H)’s] equity to [W]. Thus it is available to be realised to pay the confiscation order.’102

Financial remedy applications

In confiscation applications: When making a confiscation order, the court must disregard what a third party may obtain in financial remedy proceedings over and above any interest which the third party holds at the time the confiscation order is made. The right to apply for relief under the MCA is not ‘an interest’ within the PoCA definitions. The court neither has regard to, nor allows for, any possible adverse consequences for a former spouse and her child when deciding the amount to be confiscated: Webber v Webber ((2006)) HC (Fam)).103 Even under the pre-PoCA legislation, it had been held that ‘the right to apply [for a property adjustment order], and the application itself, do not of themselves confer any property rights on the party making the application’: Re: MCA ((2002) CA).104

In financial remedy applications: The core principles were set out in HM Customs and Excise & Anor v MCA & Anor, A v A ((2002) CA):105

  • Neither MCA nor PoCA takes priority.106
  • Both statutes confer a discretion, the exercise of which depends on the facts of the individual case.106
  • It is not axiomatic that the public interest lies more in enforcing a confiscation order than in making a property adjustment order.108

However, where assets are tainted with the proceeds of crime and subject to confiscation, in most cases they should not ordinarily be distributed, as a matter of public justice and policy; but the court is not deprived of jurisdiction to make such distribution, and circumstances may exist where such order is justified: CPS v Richards & Richards ((2006) CA).109 Indeed, whilst pending confiscation D remains the owner of the assets, D has in reality forfeited entitlement for s 24 MCA purposes; and the court cannot protect children from every consequence of their parents’ behaviour.110

Whilst the decided cases are to an extent fact-specific, there are a number of basic factors. In exercising the discretion to make a property adjustment order, the court will consider:

  • the applicant’s [lack of] knowledge of D’s criminality;111
  • whether the property was:
    • purchased with the proceeds of crime or ‘tainted’;112113
    • preserved by D’s criminal conduct.114

Financial order not made: In CPS v Richards & Richards ((2006) CA),115 a property adjustment order was refused. All family assets (other than a gift to W from her parents, which gave W a 13.3% beneficial share in the FMH) were the proceeds of drug trafficking. W ‘knew that the husband was involved in criminal activities and that she really knew that from the word go’.116 In the High Court, W was awarded a lump sum of £39,250 from the net proceeds of sale of the FMH, together with a sum reflecting the 13.3%. The Court of Appeal disagreed. The family assets were tainted (save for the gift); W knew they were tainted; so all family assets were susceptible to confiscation (save for the gift). ‘In the instant appeal the whole of these tainted assets should be subjected to confiscation procedures and simply not distributed to satisfy any ancillary relief order.’117 ‘The error of the judge lay in thinking that the requirement to conduct a balancing exercise meant that in every case, all factors are relevant. In cases such as this the knowledge of the wife, throughout her married life, that the lifestyle and the assets she enjoyed were derived from drug trafficking is dispositive.’109 Further, an order in favour of the child under s 23(1)(f) MCA would be ‘clearly open to the same objections that no assets available should be distributed where, to the knowledge of the applicant seeking relief, they were derived from drug trafficking’.117

In Stodgell v Stodgell ((2009) CA),120 D (H) fraudulently evaded tax for many years during the marriage. A confiscation order was made in the full benefit figure of £900,453 (reflecting unpaid tax, interest and penalties), but by the time of the enforcement hearing, there was insufficient to meet it. The Court of Appeal refused W permission to appeal against a stay of her financial remedy application until the discharge of the confiscation order. W was not complicit in the criminality; she was entirely innocent. However, non-complicity was a necessary condition but not sufficient condition for W to succeed in her application. The critical fact was not that the properties were not acquired from crime; it was that they could not have been and could not be preserved without the non-payment of tax and penalties.121

Financial order made: In Re: MCA ((2002) CA),105 a property adjustment order was made. None of the equity in the FMH or the associated endowment policies was acquired with the proceeds of crime; D (H) and W had separated before the drug trafficking began; and W was not only innocent of any involvement in it, but she also lived in a house and enjoyed the benefit of policies all untainted by it. For Schiemann LJ, this was of critical importance. If the confiscation proceedings precluded the MCA application, W would lose her home, and given her state of health would become dependent on the state for housing and benefits. ‘In short, if the appellant is right, a substantial injustice will be done to Mrs A in order to garner the sum of £29,360 into the coffers of the state. I cannot regard that, on the facts of this case, as a proportionate outcome, or one which is in the public interest.’123

H v CPS ((2007) HC (Admin))124 was decided under general property principles. A house was bought with proceeds of the sale of the FMH post-separation. W sought variation of a restraint order and transfer of D (H)’s interest in the house. The court held that D (H) held no beneficial interest in the house, so it was not an available asset for confiscation purposes. Alternatively, the court considered that any such interest which D (H) might have retained would be transferred to W. Although it was not as clear that there was no ‘taint’ as in Re: MCA, the case was nowhere near as far towards ‘taint’ as Richards. There was no criminality at all during the marriage; criminality came post-separation, and many months after the parties’ agreement at the time of acquisition. There was no suspicion that W had the least knowledge of D (H)’s criminality. W had made, and continued to make, a very significant contribution. Even if D (H) made some of the interest payments on the mortgage with the proceeds of crime, W was unaware of this, and their sum was no more than D (H) ought to have been paying to maintain the children. D (H) had been deprived of his property in confiscation, and public policy did not require any part of the house to remain available for satisfaction of the confiscation order.

Concurrent applications: Where there are concurrent confiscation and financial remedy applications, there is no strict rule requiring one to be considered first; it is fact-specific.125

Costs: A costs order is in principle available where a prosecutor intervenes in ToLATA proceedings.126 A costs order is also available in financial remedy proceedings, as the prosecutor’s application is not ‘for’ but ‘in connection with’ financial remedies; and rather than ‘no order’, the starting point is therefore a ‘clean sheet’ but with a ‘soft’ presumption that costs follow the event.127

A practical example: Ai (‘the wife’) v Mki (‘the husband’) v CPS128 is a good example. D (H) was subject to a confiscation order flowing from a drugs-related conspiracy. The FMH was the sole asset in financial remedy proceedings. CPS submitted that D (H) was its sole legal and beneficial owner, and its whole net value should be subsumed in confiscation. W sought a transfer into her sole name so she could occupy it with the three children. The court found that the FMH was bought in D (H)’s sole name with the intention that it would be treated as his, that it was highly probable that it was bought with a deposit that was funded by his offending, W knew from the outset that D (H) was involved in crime, and also knew that the family household was being funded at least in part by D (H)’s crime. This was therefore a Richards rather than a Re: MCA case. CPS’s concession in confiscation that D (H) and W held 50% beneficial interests each was not legally binding129 and it was not treated by D (H) and W as being jointly owned thereafter. The mortgage payments were from money tainted by D (H)’s criminality at least until his imprisonment in 2012. W made mortgage payments until that time, and there were no subsequent payments to ground a constructive or resulting trust. D (H) was therefore solely entitled to the legal and beneficial interests in the FMH. The court refused to exercise its MCA discretion to transfer to W any part of D (H)’s beneficial entitlement or proceeds of sale of the property (save to the extent of any surplus after the confiscation); this was tainted by D (H)’s criminality and W’s MCA application was tainted by her own knowledge of his criminality. The court accepted that this was devastating for W and three children whose home would be lost in the confiscation proceedings; but Richards involved a five-year-old child. D (H) was ordered to pay the CPS’s costs of intervening. Finally, in the unlikely event of any surplus at the conclusion of confiscation proceedings and satisfaction of the order for costs in the financial remedy proceedings, H’s interest would be transferred to W absolutely; save to that extent, W’s capital and proprietary claims were dismissed. A nominal periodical payments order from D (H) to W of £0.05 p.a. was also made.

Effect of financial order on confiscation: A financial order made against D does not relieve D of his personal obligation to satisfy an existing confiscation order. The purpose of the confiscation legislation is not defeated because, in default of payment, D is liable to serve the default term.130 However, an application may be made to the court to adjust the available amount under the confiscation order; and, if no confiscation order has yet been made, the court must have regard to the financial order when determining the available amount.131 However, the third party in related financial order and confiscation proceedings may be in a better position than ‘commercial’ third parties. A restraint order cannot be varied prior to the making of a confiscation order unless variation does not conflict with the satisfying of the confiscation order, so commercial third-party creditors must wait and see if D retained any assets after its satisfaction; however, the Court of Appeal has considered that the competing public policy objectives of confiscation and financial remedies are a ‘special situation’.132

Conclusion

The interplay of confiscation with trusts of land and financial remedy proceedings is therefore intensely fact-specific, as is the case management of concurrent proceedings. One size does not fit all. However, the best advice ‘is that where a family knowingly builds its house upon the sand of drug related activity in this way the house (and other finances) may well fall to confiscation. Or, put more simply, the best advice to any family contemplating behaving in this way is: “Don’t do it”.’133

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