Draconian or not, this situation exists. These sweeping state powers mean that a person targeted by NCA, the SFO or CPS needs to make sure that he or she has specialists in defending civil recovery proceedings on side, or risk losing even legitimately earned assets.
At Mary Monson Solicitors, we have a dedicated Proceeds of Crime department with specialist confiscation solicitors who understand this area in which the civil law framework interacts with criminal allegations.
We have included a free guide to the basic principles of this area of law below. Of course, It is an introduction, and not intended to constitute legal advice.
What are Civil Recovery proceedings?
Civil recovery cases are brought by the state against property held by individuals who it alleges have obtained that property through crime.
A civil recovery order is aimed at stopping people from benefiting from criminal conduct. In the majority of cases, proceedings start after the acquittal of the defendant facing criminal charges, at which point the defendant may bring in specialist confiscation solicitors to replace his original criminal defence team. Sometimes a defendant acquitted of an offence may find that his assets are then subject to further restraint (see below) and that an order is sought for its recovery.
Who brings these proceedings and how do they work?
In April 2008 the Serious and Organised Crime Agency, SOCA, later NCA became the principal agency tasked with bringing civil recovery proceedings. It collected £16.7 million in civil and tax recovery in its first full year. Other enforcement authorities include the Serious Fraud Office (SFO), the Director of Public Prosecutions (DPP), and the Revenue & Customs Prosecutions Office (now part of the Crown Prosecution Service).
The NCA's internal criteria before commencing proceedings are that:
Criminal investigation and prosecution must have been considered and either the defendant was found not guilty or no prosecution was considered possible in the circumstances.
The claim must relate to property with a minimum value of £10,000 and it must have been acquired within the last 12 years. This time limit is because the
applies to civil proceedings.
(A period of 20 years may apply if the proceedings relate to tax.)
In tax cases it must be reasonably suspected that the untaxed income was created by criminal conduct.
If the case has been referred by a third party agency such as the police, the NCA will require all relevant case papers including financial material.
The NCA have to establish that the property which it seeks to recover is or represents the proceeds of unlawful conduct. The standard of proof is the civil standard. This means that the case is decided on a balance of probabilities, not on the higher ‘beyond reasonable doubt' standard which applies in criminal proceedings.
Key concepts that confiscation solicitors should be aware of
There are several concepts that experienced confiscation solicitors should advise a client of when he or she is facing the possibility of a civil recovery order. The main concepts are listed below.
What property is recoverable in confiscation proceedings?
Property obtained through ‘unlawful conduct' is ‘recoverable property'. Unlike in post-conviction confiscation proceedings, the target is the property itself, not the defendant. If the claim is for £100,000 and the defendant has additional assets of a further £200,000 he may use part of that additional £200,000 freely, including in order to fund his defence. That is because Part V proceedings are not concerned with all property, only property which has been obtained by unlawful conduct.
‘Property' includes property abroad. The term is widely defined. It includes money, tangible or intangible property, and interests in any land or property. Even pension funds can be recoverable property.
‘Unlawful conduct' is conduct which is unlawful in the UK. It includes conduct which, if it occurred abroad, is unlawful according to the law of that foreign country and is unlawful according to UK law had the conduct occurred over here. So, if a drug dealer who made his cash in Spain repatriates it here, since drug dealing is unlawful conduct according to both domestic and Spanish law, the money can be the subject of a claim.
If property has been obtained ‘by or in return for unlawful conduct' then it is recoverable. For example, if money has been received for agreeing to act as a middle man between a brothel owner and a money laundering accountant, the money obtained for that service is ‘in return for unlawful conduct' and therefore recoverable. It is quite likely, of course that it will be subject to an interim property freezing order (see below).
Third Parties affected by a Civil Recovery Order
The reality is that many innocent third parties may be severely affected by a civil recovery order or even a temporary court order such as a property freezing order. This is because of the concept of ‘associated property'. Associated property means innocently acquired property held by the respondent or someone else.
A consequence of something being associated property is that it can be frozen or restrained. An example might be where a business partner buys a yacht with the respondent on a 50/50 basis.The innocent partner's share is associated property. Not only may the yacht be frozen so it cannot be sold, but it may also be confiscated. However, in that instance the owner of the associated property would be given an option to buy out the whole of the yacht.
If property which is the product of unlawful conduct is disposed of, it can be ‘traced' if it is ‘held by a person in whose hands it may be followed'. So if someone steals a car and gives it to his wife who gives it to her brother, the property may be the subject of a claim. If however, property obtained through unlawful conduct is purchased by a bona fide purchaser for value and in good faith, the property ceases to be recoverable.
This would mean that if the brother was unaware of the fact that the car had been purchased before with criminal money, and he paid for it, it is not recoverable property, and therefore should not be ultimately forfeited in confiscation proceedings.
The concept of tracing extends to property which is left in a will. It also includes property which represents unlawful conduct. This may apply if a person uses money from his VAT fraud to buy antiques, then sells those antiques, the resulting cash on sale is capable of being traced.
What must be proved?
It is not necessary to prove the commission of a specific offence in order for the claim to have been proved. The court will regard it as enough ‘if it is shown that property was obtained through conduct of one of a number of kinds, each of which would have been unlawful'. This low level of proof can make the state seem particularly unaccountable, and this is something that experienced confiscation solicitors will warn their clients of early in proceedings.
Can a claim be proved solely on the basis of unexplained wealth?
It has been held (in the case of Green) that just alleging that unexplained wealth must be the result of some unspecified unlawful conduct is not enough. There must be some evidence to support this and the type of conduct alleged should be specified at least in general terms, for example, drug trafficking, VAT fraud or whatever conduct follows from the facts.
The Property Freezing Order
A Property Freezing Order (PFO) is available where the enforcement authority may take proceedings for civil recovery. The authority (usually the NCA) can preserve its position by applying for a PFO before it even starts a claim or proceedings. It may be applied for without the respondent being given notice if the judge believes that there is a real risk of assets being dissipated if the respondent is informed before the hearing. Frustratingly, this is often treated as more or less self evident where the respondent is said to be a criminal.
The NCA do not have to prove an overwhelming case to be granted a PFO but it must have a good arguable case. The standard of proof at this stage is perhaps lower because the order is not a permanent one. The NCA also have to give full and frank disclosure, including highlighting any weaknesses in its case. The application must also set out the value of the property concerned and identify whether it is recoverable or associated property. If it is applied for prior to the commencement of proceedings the application must set out a timescale for the commencement of confiscation proceedings.
A PFO, even if all the above is complied with, is a discretionary remedy and may be varied or discharged in certain circumstances. This includes a power to vary the order to enable the respondent to continue to trade or to meet his reasonable living expenses or to pay his legal expenses. However any such exclusion cannot unduly prejudice the right of the enforcement agency to recover the property. This basically means that it must not diminish the available amount too much. Civil legal aid is sometimes available for the confiscation solicitors to contest the proceedings, although permission for this can be difficult to obtain.
An interim receiver (IR) is a court appointed expert who investigates the origin and ownership of assets. If the enforcement authority is considering proceedings it may apply for an Interim Receiver Order (IRO) before even starting proceedings. Similar rules about full and frank disclosure apply when the authority applies for this at court.
The IRO allows for the detention, custody and preservation of property held by the respondent. The IR can enter and search premises, seize property referred to in the order, require persons to provide information and even sell depreciating assets.
As with the PFO, notice does not have to be given if there is a chance that assets will be dissipated etc. If the evidence of the IR cannot be contradicted effectively, the court will give significant weight to it.
Compensation if the Authority Loses the Claim
If the enforcement authority loses the claim, the court has the power to award compensation for financial losses which the respondent has suffered as a result of a PFO or an interim receiver being appointed.