Often described as draconian – frequently by judges – the confiscation regime under the Proceeds of Crime Act 2002 (POCA) has had attention focused on it by the recent decisions in R v Waya and R v Ahmad & Ahmed. In both these cases the benefit initially ordered was reduced, significantly so in Ahmad – from £184m to £32m – although the case is currently subject to appeal to the Supreme Court.
In Waya the Supreme Court emphasised the need to observe the provisions of the European Convention on Human Rights to ensure a proportionate result was achieved without risk of injustice. This risk is already safeguarded by virtue of S10(6) POCA which allows a Court to avoid the making of an assumption where there would be a serious risk of injustice. There can be little doubt that Waya has explicitly stressed the need to consider it in all cases from now on.
Furthermore, the Supreme Court repeated comments expressed by Lord Bingham in Jennings (2008) that the object of the legislation is to deprive the defendant of the product of his crime and not to operate by way of fine.
While Waya is a case based on particular benefit gained from the proven offence (in this instance, a mortgage fraud case charged as obtaining a money order by deception), it is clear that the rulings affect confiscation proceedings generally. Application of this should mean that benefit relates to the amount actually obtained, as opposed to hypothetical benefit derived from criminal activity.
Application of POCA has resulted in many large confiscation orders which remain unpaid. Consequently, as LJ Hooper observed in Ahmad, they end up represented in over £1billion of unpaid confiscation orders recorded as an asset in the Ministry of Justice accounts. Perhaps this is an unforeseen consequence of allowing prosecuting bodies to supplement their budgets by retaining a proportion of the monies they recover under POCA as they seek to maximise the potential value.
The ability to arrive at the largest claims in fraud cases often follows the “corporate veil” being removed, so that company money is conflated with personal wealth. Consequently money in company bank accounts, momentarily in carousel fraud cases, is regarded as “obtained” and then claimed as benefit.
At Court it is often the lawyers and Judge who grapple with the financial calculation of benefit. The conceptual problem for accountants, though, is often that the basic premise of profit as benefit is dismissed and turnover is equated with benefit as POCA allows. The prosecution of carousel fraud invariably involves values relating to company turnover. When confiscation follows, the trial figures are recited by the Crown, often unchallenged. At trial the Crown will have asserted the trade in goods is shambolic; it seems paradoxical then to claim that benefit arises from the value artificially traded.
The Courts have routinely made confiscation orders based around gross values, not considering the “real” benefit obtained, as Waya must now demand. One possible consequence of this on calculation of the recoverable amount has been a preconception that large benefit must convert into valuable assets. When no such tangible assets are found (because the hypothetical benefit is not extracted or received) a misconceived belief is expressed that the ill gotten gains are hidden away. The defendant has to prove their non existence, facing a further prison term in default if he cannot rebut this claim.
The two recent cases seem to represent a sea change the other way. I was recently instructed by Spicer Zeb & Co on confiscation following the Operation Duma carousel fraud trials. The Crown initially claimed over £400m benefit as the figures showed at trial. The rulings in Ahmad and Waya meant all sides agreed the need for the Court to decide how it would approach benefit . Views were argued at length before HHJ Mayo, who handed out a 51 page judgement.
Our counsel, M Wood QC and G Payne Esq argued the principle in Ahmad, namely it should be VAT repayments banked. The Crown recalculated its claim on input VAT on purchases, giving up the huge claim on gross invoice values.
In the event HHJ Mayo ruled in favour of the revised Crown claim of around £16m but still did not rule out the Crown being entitled to make their claim on invoice values. He acknowledged that if they had done, he would have regarded that as being wholly disproportionate to the loss actually suffered by HMRC and as such would have risked injustice under S10(6) POCA. This seemingly reflects the new mood post-Waya.
Experience of this matter and the change in case law emphasises the assistance forensic accountants can give at confiscation. This is particularly pronounced in cases where no expert forensic accounting assistance has been deployed at trial and the Crown uses as fact financial schedules it has served which have not been critically reviewed with a forensic accountant’s eye.
I am left wondering how many cases decided on the basis of the previous approach have resulted in unrealistic benefit calculations and assumptions made as to hidden assets, when very little is really obtained by the defendants personally. Is it fair, even for convicted criminals, that they suffer additional prison time as a consequence of enforcement of a default prison term, for sums not proven beyond reasonable doubt, using a methodology which has now been called into serious question?
Note on the author
Gavin Cunningham is a Forensic Accounting Director in BTG Global Risk Partners. His background includes nearly 14 years at the SFO as a Principal Investigator and a decade spent working in Corporate recovery where he qualified as an Insolvency Practitioner.
Julie is a law graduate who qualified with Price Waterhouse in 1994. Julie joined Smith & Williamson in 1997 and became a partner in 2001. With Mike Stevenson, Julie set up Middleton Partners offices in Salisbury and Southampton, both of which are now part of Begbies Traynor.
Julie is a member of the Insolvency Practitioners Association and the None Administrative Receivers Association and is a Fellow of The Association of Business Recovery Professionals. Julie deals with all aspects of Corporate Recovery and turnaround work and takes all form of personal insolvency appointments.