The Proceeds of Crime Act 2002 (POCA) increased the already wide ranging powers available to the courts in relation to the confiscation and asset forfeiture regimes provided under the Criminal Justice Act 1988 and the Drug Trafficking Act of 1994.
However, not only did POCA enhance the existing confiscation regime by extending the benefit provisions, it also introduced ‘Lifestyle Offences’ and enhanced and strengthened the “Cash seizure and Forfeiture” provisions available to the Magistrates Court.
Whilst there is little doubt that for those who have been convicted of offences which attract the provisions of POCA, the powers of the State have been increased to an extent whereby the defendant is now placed in a much more difficult position with regard to discharging the burden of proof and assumptions. One of the most talked of new provisions introduced by the Act in to English law is the concept of ‘Civil Recovery’.
What is Civil Recovery?
In short it is a civil power available in the High Court by which an investigating agency (SFO, CPS, RCPO, SOCA) can seek an order that specified property is recoverable (liable to forfeit) on the basis that it is or represents the proceeds of criminal conduct. In other words a confiscation order without the triggering conviction. The action is against the property not against the person!
Such proceedings normally begin with a civil recovery investigation. This is an investigation into the following areas; whether property is recoverable property, associated property, who holds the property, and its extent or whereabouts.
Often the first thing one would know of such an investigation is when a property freezing order (PFO) is served. A PFO is granted by the High Court to preserve the status quo during the civil recovery investigation. It will normally contain a requirement to disclose details about property held and ensure that the property cannot be dealt with in any way. Alternatively a disclosure order may be made pursuant to s.357 of POCA.
Recoverable property and associated property are defined in Part 5 of POCA. ‘Recoverable property is property that is or represents property obtained through unlawful conduct and associated property is property which is not itself recoverable property but is any interest in the recoverable property or any part of it.’ (Mitchell Taylor and Talbot , POCA s.341(2),240,245)
What this essentially means is that if there is reason to believe that a person or persons are holding/controlling property which it is believed has been purchased through or is connected with the proceeds of crime or criminal conduct an application can be made by one of the authorised agencies (SOCA, SFO and all other main prosecuting agencies) to freeze and potentially recover that property. To date Revenue and Customs and indeed the CPS have not used their civil recovery powers but we are sure that given time they will become regular users of the legislation.
The agency that is most active in this area of work is SOCA (dubbed Britain’s FBI).It is often the case that they will act on a tip off from other law enforcement agencies or even the Taxman (Custom and Excise have now merged with the Inland Revenue to form Her Majesty’s Revenue and Customs which means that information sharing is now normal procedure within this agency).
A tip off could include such factors as a lifestyle which is not commensurate with tax returns which have been filed over a number of years.
For example if a ‘target’ lived in a luxurious property which it is clear on any view would require a considerable income to upkeep, if the tax returns of that ‘target’ showed little if any taxable income, a question may well be raised by the requisite investigating agency as to the source of income which funded the purchase of the property. However the burden of establishing that property is recoverable property remains firmly on the shoulders of the Applicant. It is not for the Respondent to satisfy the court although that is often how it feels to a Respondent.
The criminal proceeds may be traced to property acquired a long time after any criminality, this is known as after acquired property.
The “touchstone” remains always that civil recovery proceedings relate to things not people. Of course if the property in question is shown to be recoverable within the meaning of the Act then it can be recovered from a person (the Respondent). The fact that the proceedings are in respect of property and not a person illustrates graphically the lack of any requirement for a conviction, as long as the High Court is satisfied that the property is recoverable in that it has been obtained through unlawful conduct, a civil recovery action will follow.
If the investigating agency can prove on the balance of probabilities (i.e. the Civil Burden) that the property in question was obtained through unlawful conduct then the High Court can make a recovery order. This would state that the property in question is recoverable property and order that it be handed over to the investigating authority with vacant possession within a specified time period without any mechanism built in to compensate dispossessed parties.
What is the effect of the Civil Action?
This in reality is a two stage action, the first stage is usually the PFO itself often being obtained without the knowledge of the target respondent at the request of the investigating authority. The application will be a request to a High Court Judge (sitting in private) to grant an order temporarily freezing a property backed up with some basic evidence which meets the civil threshold and requirements of POCA. In reality these orders can remain in force for long period while the investigation is undertaken, an affected party can apply for the discharge and or variation of the PFO.
Once the Order is obtained it will be served on the ‘target’ inviting a response to an array of questions usually requesting disclosure of financial affairs, purchase monies, tax returns and registered income.
To be in the best possible position it is advisable to have the information in relation to the initial requests available at the earliest opportunity so that an affected person is in a position to provide evidence that the property in question is not recoverable. This permits proper consideration to be given to “next steps” whether to make an application to the High Court to vary or discharge the freezing Order at the earliest opportunity or to wait.
If matters are allowed to drag on this can result in protracted investigations and negotiation with the requisite authority to ensure life under any order is manageable. These proceedings can if not managed effectively be an extremely costly exercise. As has already been made clear the nature of these proceedings is that they are civil, this means two things, only very limited civil Legal Aid may be available and s252(4) prevents access to frozen/restrained funds for the payment of legal fees. This often means that funding must be sought from third parties.
It is also worthy of note that as a consequence of the proceedings being civil, costs lie where they fall meaning the investigating authority (SOCA etc) will actually seek costs from the ‘target’ whilst attempting to prove that the property in question was obtained through unlawful conduct (the double whammy- the property is lost and the costs against the ‘target’ have to be paid by the ‘target’, the investigating authority will often not hesitate where possible to initiate bankruptcy proceedings to recover their costs, if not at least threaten them).
The second stage of any action would of course be the civil recovery hearing itself, this would be before a High Court Judge and not a jury and the rules of civil evidence apply. In essence this means that the investigating authority would have to prove on the balance of probabilities that the property itself was or represents in part or in whole the proceeds or unlawful conduct. It must be borne in mind that an investigating authority is an agent of the State and therefore has a relatively limitless budget in comparison to an individual. It is not uncommon for the authority in question to utilise an array of investigating measures in piecing together it’s evidence, this could include enquiry agents, surveillance, tax inspectors, local police intelligence and information obtained from members of the public in the form of witness statements.
This means that any defence to a recovery action must be well put together with firm evidence to rebut any assumptions, if strong evidence can be put forward at the earliest opportunity this may result in a freezing order being lifted by consent or the Court discharging it at a much earlier stage.
Civil recovery proceedings therefore by nature can be a long and arduous affair. These types of proceedings will become more common as time goes on. The Serious Fraud Office has recently turned to civil recovery procedures rather then prosecute a large international construction company. This new approach to asset recovery requires specialist skills and management. The correct advice at an early stage is key to a successful defence of these proceedings.
Navigating your way out of the civil recovery maze requires good skills and advice that experience brings, the touchstone though is a good starting point for anyone that being the aim is to go after the property and not the individual as it is clearly easier to obtain a civil finding rather than a criminal conviction and after all, who needs a conviction?