Proportionality and the Proceeds of Crime Act 2002

The end of a criminal trial may bring about a sigh of relief for those involved.  Unfortunately, it is not always the end of things.  If you have been convicted of a corporate crime, you may face confiscation proceedings under the Proceeds of Crime Act 2002 (POCA).  These proceedings are designed to determine how much you financially benefitted from the crime or crimes you have been convicted of.  And if it is found you have benefited, the Court can make a confiscation order to reclaim some of the benefits you received.

The proceeds of a confiscation order can be used to either compensate the victims or be divided between HM Treasury (50%) and the investigators, prosecuting authority and HM Courts and Tribunals Service (Collections Agency).

The value of a confiscation order is worked out by a series of steps set out in POCA section 6.  Firstly, the Court will establish whether you had a ‘criminal lifestyle’.  The ‘criminal lifestyle’ test will be met if the defendant satisfies one of the below three criteria:

• He or she is convicted of an offence specified within Schedule 2 of POCA, for example, drug trafficking, money laundering, terrorism, counterfeiting.
• He or she is convicted of an offence that forms part of a wider course of criminal activity; or
• He or she is convicted of an offence committed over six months or more, resulting in a benefit of at least £5,000.

If a ‘criminal lifestyle’ is established, the Court will look at the benefit gained from the specific offence they were convicted on.  However, if a ‘criminal lifestyle’ is established, all the defendant’s past criminal conduct will be considered, regardless of when it occurred.

Under POCA, it is assumed the following was gained thanks to criminal activity if the defendant was shown to have a ‘criminal lifestyle:

• Property transferred to the defendant within six years prior to the criminal charge.
• Property owned following the conviction.
• Anything brought or sold within six years prior to the charge of criminal activity.

It is for the defendant to prove that these assumptions are flawed.

The recoverable amount and the available amount

The terms ‘recoverable amount’ and ‘available amount’ are frequently used in confiscation proceedings.  The recoverable amount is the value of the financial benefit gained, whilst the available amount refers to the amount calculated after an assessment is made of the defendant’s assets.

Unless the defendant is found to have insufficient funds and/or assets to cover the recoverable amount, this is what he or she will be ordered to pay.  However, even if the available amount is ordered to be paid, the Court can retrospectively order the recoverable amount to be settled should the defendant’s financial position change for the better in the future.

Payment is normally due immediately, with interest payable should a delay occur.  Proof of more time needed to pay can secure a three month payment period.  This can only be extended in exceptional circumstances.

The proportionality requirement

Article 1 of the First Protocol to the European Convention on Human Rights provides for the protection of private property from state interference.  However, the state’s right to control or expropriate property is recognised, as long as it is within the public interest to do so.

The Supreme Court case of R v Waya [2012] UKSC 51 qualified section 6 by effectively adding the words "save insofar as such an order would be disproportionate" to ensure that this section is compliant with section 3 of the Human Rights Act 1998.

The facts of the case were thus - In November 2003, the defendant purchased a property for £775,000 using his own money (£310,000) and a mortgage advance (£465,000, the latter of which was obtained by fraud.

In July 2007, Mr Waya was convicted of under section 15(A) of obtaining a money transfer by deception (Theft Act 1968).  The confiscation proceedings uncovered:

• The property had increased in value.
• The original mortgage had been redeemed.
• The property had been remortgaged to a different lender, and a sum of £862,000 remained outstanding.

The Court at first instance ordered Mr Waya to pay £1.54 million, which was the value of the house less the untainted funds Mr Waya had contributed on the original purchase.  This was reduced to £1.1 million by the Court of Appeal.

The Supreme Court, the Lords unanimously allowed Waya's appeal, substituting a confiscation order of £392,400: 60% of the increase property’s market value over its acquisition price.  The Court ruled that the benefit a defendant obtains does not evolve from acquiring the mortgage itself.  However, a benefit can arise when the property purchased with that mortgage increases in value.  In this instance, the fraudulently obtained mortgage represented 60% of the purchase price, and hence the benefit gained was 60% of the increase in the value of the purchase price.

Investing in a legal team that has worked to understand your business and the industry in which you operate means that any hint of disproportionality in POCA confiscation orders can be strenuously defended against.

If you require legal advice and representation regarding confiscation orders, please contact us on 01709 828044.