Update on the UK Confiscation and Restraint Regime

The National Audit Office has published a report dated 17 December 2013 (the “NAO Report”) on confiscation orders, which are the main mechanism that the UK Government uses in carrying out its policy to deprive criminals of the proceeds of their crimes.

Confiscation orders in tax fraud, corruption, insider dealing and other white collar cases can run into millions, if not tens of millions, of pounds and can be made against companies as well as individuals.

The NAO Report indicates that the confiscation regime is not functioning well with the key statement being that an estimated £0.26 is confiscated for every £100 of criminal proceeds.

The Proceeds of Crime Act 2002 (“POCA”) is the main legislation underpinning confiscation. Under POCA, following conviction of a relevant offender, the presiding judge will:

  • Define the “criminal benefit” obtained by an offender either in terms of a specific crime, or based on a judgment that the offender has had a criminal lifestyle. In the latter case, assets and expenditure over the previous six years can be included in the benefit calculation.
  • Impose an order with a value based on the amount of criminal benefit unless the offender does not have the assets, in which case the order value is reduced to the available amount. The burden is on the defendant to show how much he is able to pay.

The NAO Report indicates that:

  • The National Fraud Authority’s estimated loss to the UK economy from fraud in 2012-13 is £56 billion.
  • In 2012-13, courts in England and Wales set 6,392 confiscation orders, which together encompassed £1.6 billion of criminal benefit, and had a total imposition value of £318 million based on the assets deemed available.
  • In 2012-13 enforcement agencies collected a total of £133 million from confiscation orders.
  • The estimated annual cost of the end-to-end confiscation process is £102 million.

One of the problems the confiscation regime faces, particularly in cases involving complex financial fraud, is that offenders under investigation may have hidden assets across the world using opaque legal structures. Investigators then face difficulties in tracing the assets. Even if assets are successfully traced, it can be difficult to enforce a confiscation order overseas. Third party claims regarding assets are a further complicating factor.

A restraint order is one way a prosecutor can deal with this issue. A restraint order freezes property in order to preserve those assets which may subsequently be considered necessary to satisfy a confiscation order. Under POCA, a restraint order can be made at an early stage of the investigation, before an individual is charged.

The NAO Report notes that 1,368 restraint orders were imposed in 2012-13, freezing £424.9 million of assets. However, the NAO considers that the restraint regime is underutilised and that this means that offenders are being allowed the opportunity to hide or dispose of assets. The NAO are of the view that if specialist financial investigators are instructed early on in a case, they are better able to assess a suspect’s assets and should a confiscation order be made, the assets should be easier to recover.

The initial stages of an investigation are often the most important. Not all investigations will result in court proceedings and expert advice at an initial stage may mean that an investigation does not proceed. Restraint at an early stage can therefore be devastating to the defence as under the POCA restraint regime there is no carve out for the private payment of legal fees regarding the suspected or charged offence which triggered the restraint proceedings or the restraint proceedings themselves. This means that if a defendant or suspect is restrained, they will be unable to pay privately for their legal representation of choice, unless they have access to a third party funder such as an insurer or employer. The state will therefore fund the defence, subject to any contribution regarding such legal aid that the defendant is required to make.

The argument for this infringement on the rights of an individual is the availability of a publicly funded lawyer. However, a privately funded defence will always be preferable for an individual as it will be free of any limitations set by the Legal Services Commission and enable a defendant and their solicitor to conduct a case in the best way possible.

There is legislation not yet in force which requires that a restraint order must be made subject to an exception enabling a defendant to make mandatory contributions towards public funding. However, given that the confiscation regime is not as effective as originally envisaged in depriving criminals of their assets, a similar carve out for private legal fees enacted by Parliament would be both proportionate and in the interests of justice. This would allow a defendant with significant assets to fund their case, rather than having to rely on the public purse to do so. It also avoids the scenario where the state funds a defendant, the defendant is convicted and only a small percentage of the confiscation order is ultimately recovered by the state.

Topics:  Criminal Proceeds, EU, Forfeiture, Frozen Assets, Restraining Orders, UK

Published In: Business Torts Updates, Constitutional Law Updates, Criminal Law Updates, Finance & Banking Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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