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RESCUING THE CONFISCATION REGIME

rescuing blogOur portal editor, Jonathan Fisher QC, discusses the recent House of Commons Public Accounts Committee Report on Confiscation Orders, the deficiencies it highlights in the confiscation order regime and how best to tackle these problems going forwards.

SPEED READ

On 5 March 2014, the House of Commons Public Accounts Committee published its Report on Confiscation Orders which assessed the implementation and efficacy of the Confiscation Order regime in the UK. The Report criticises the current regime as being ineffective and makes a number of recommendations for its reform. In order to improve the efficacy of the confiscation order system, prosecuting authorities must launch financial investigations alongside criminal investigations at an early stage and apply for search warrants and restraint orders simultaneously.

COMMENTARY

The Confiscation Order regime was implemented in the UK by the Proceeds of Crime Act 2002, in order to prevent criminals from enjoying the proceeds of their criminal conduct, and to disrupt and deter future criminality. Unfortunately, almost 14 years after its implementation, the system remains largely ineffective.

On 5 March 2014, the House of Commons Public Accounts Committee (‘the Committee’) published its Report on Confiscation Orders (‘The Report’) which assessed the implementation and efficacy of the Confiscation Order regime in the UK. The Committee makes a number of observations, criticisms and recommendations for reform. The Report begins by highlighting that in 2012-13, while 673,000 persons were convicted of a crime, only 6,392 confiscation orders were made and only 26 pence out of every £100 generated by crime was collected. The cost of administering the Confiscation Order regime annually is £100 million, however in 2012-2013 only £133 million was confiscated from offenders. While 90% of confiscation orders for under £1,000 are collected, the collection rate for orders for over £1 million is only 18%. The system is clearly failing.

In its Report, the Committee begins by drawing attention to the poor implementation of the scheme, and how this has hampered its effectiveness. The Report notes that although many bodies are involved in the confiscation regime, there is “no clear direction, failure to act promptly, weak accountability and no understanding of what makes good performance and delivers value for money.” According to the Report, the relevant agencies are “missing opportunities to impose confiscation orders” and not enough are being imposed. The Committee also concludes that not enough is being done to enforce confiscation orders once they have been made, especially in higher value cases, highlighting that only 1,368 restraint orders were imposed in 2012-2013, 27% less than in 2010-2011.

The Report criticises the present incentive scheme aimed at encouraging the relevant bodies to confiscate proceeds of crime as being opaque and ineffective as it rewards the amount of money the relevant bodies collect, while ignoring other key policy objective like deterrence. The Committee also found that the bodies involved do not have the enforcement mechanisms they need to manage the system effectively. The Report outlines that there is a lack of detailed information on how much enforcement costs, how successful the various enforcement activities are, and how much can realistically be expected to be collected from each individual case. Finally, the Committee concluded that the sanctions imposed on offenders for failing to pay confiscation orders simply do not work. This is because many criminals are apparently willing to serve lengthy prison terms rather than pay their dues, particularly in high value cases. At present approximately £490 million is outstanding, with the relevant offenders serving default sentences.

In relation to these high-value cases, the Report observes that although such cases require specialist financial investigators, they are often not recruited on time. The report blames a lack of collaboration or information sharing for this problem. The Committee’s recommendation for solving this issue is that the relevant law enforcement agencies work together to ensure that financial investigators are brought in earlier in high value cases and that restraint orders are sought quickly to prevent assets being hidden.

It is agreed that acting quickly is an effective way to improve the efficacy of the restraint and confiscation order regime in this regard. However, instead of ensuring that financial investigators are brought in at an early stage only in high value cases, what would be more effective would be for prosecuting agencies to launch financial investigations in line with criminal investigations from the outset in all cases with a financial element. If this is done, prosecutors could than apply for both a restraint order and a search warrant simultaneously, based on a thorough investigation into both the suspects financial and criminal conduct. Since the evidence needed in practice to obtain a search warrant is similar as that for a restraint order, finding sufficient financial evidence to apply for a restraint order should not be overly problematic. This is the only way assets can be effectively frozen in order to make the confiscation scheme truly effective in future.

Many consider the recent decision in R (Eastenders Cash & Carry) v Revenue & Customs Commissioners [2010] EWHC 2797 (Admin) a serious stumbling block for prosecutors in their pursuit of restraint orders at an early stage of proceedings. However, this is not the necessarily case. In R (Eastenders Cash & Carry) v Revenue & Customs Commissioners, HMRC suspected that Eastenders Cash & Carry (‘Eastenders’) has perpetrated a serious tax fraud by not paying the requisite excise duty or VAT on alcohol. HMRC applied for, and was granted, various search warrants (under the Police and Criminal Evidence Act 1984) and restraint orders (under POCA) against Eastenders. However, later Eastenders succeeded in quashing both orders upon judicial review.

In challenging the restraint orders, Eastenders submitted evidence of their legitimate business proceeds and showed that HMRC could not establish reasonable cause to believe they had benefited from the criminal conduct alleged against them – a necessary requirement for the granting of a restraint order under POCA.

This decision should not be considered the impediment to the granting of future restraint orders that some consider it to be. It is clear from the facts of this case that HMRC, instead of conducting a thorough investigation of their own, relied on weak second hand information from foreign authorities. Where a prosecuting agency conducts its own thorough independent financial investigation at an early stage, there should be no impediment to the court granting a restraint order. If this approach is adopted, the overall efficacy of the restraint and confiscation system will be significantly improved.
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The views expressed in this article represent those of the author and not Bright Line Law.

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