As specialist forensic accountants focusing on fraud and financial crime, providing criminal defence expert accounting services in proceeds of crime confiscation proceedings has become a routine part of our work, along with other areas of financial dispute including money laundering and tax evasion.
Confiscations under the Proceeds of Crime Act 2002 arise following a qualifying conviction for criminal offences and are intended to deprive criminals of any wealth that they have obtained illegally. They are not intended as a fine – i.e. an additional punishment over and above that dished out following the conviction for the predicate offence. However, an accredited financial investigator who examines a person’s finances is allowed to make “assumptions” when attempting to quantify the amounts to be confiscated by the Courts.
Asset Tracing Is A Forensic Accounting Skill
The Crown’s accredited financial investigator is not a forensic accountant, and does not fully trace a defendant’s finances. He or she will examine bank statements, mortgage accounts and property records in order to propose a level of wealth that should be confiscated. Income or assets that are not readily identifiable will be assumed to be the proceeds of crime and the amounts presented within a S16 Schedule of Information for the Court to decide on whether or not it is reasonable to confiscate. It is then the defendant’s responsibility to prove that his income and assets were obtained legitimately.
The forensic accountant must therefore drill much deeper than is required by the Crown’s financial investigator. There is a need to properly unpick a defendant’s finances to show where any money or assets have come from. The assets must be traced to legitimate sources of income. This raises a number of issues:
Problems With Cash?
Cash is a hallmark of criminal activity. Drug dealers, fences, extortionists and duty evaders are some examples of criminals that deal in cash and must launder it in order to either finance their illegal activities or to take the profits of their crime. While cash is used by criminals to avoid detection (addicts generally avoid using their debit cards to buy drugs) it poses a problem to the criminals when trying to launder their proceeds of their crime. One of the basic assumptions made by an accredited financial investigator is that large or regular cash deposits into a bank account, or the acquisition of assets using cash, must indicate criminal funds being moved.
The defendant must, usually with the supporting credibility of a forensic accountant’s expert report, present an argument (if indeed he has one) for a more reasonable benefit assessment based on evidence. This is why, if somebody runs a cash based business, there is an even greater reason for keeping accurate accounting records. It is not illegal dealing with cash, even large amounts of it, but given the lack of audit trail it is essential that credible contemporaneous accounting records are maintained.
Criminal Tax Evasion And Confiscations
Anybody running a business or being paid in cash will no doubt be aware of the need for maintaining records, because HMRC will need to be satisfied that all income is being properly declared. Given the criminals’ nature, there is often a tendency to be less than honest when it comes to tax affairs, notwithstanding any other criminal activity that may have take place. This is where the Crown’s accredited financial investigator may attempt to make assumptions to the disadvantage of the defendant.
The convicted defendant may have been running a legitimate business that explains cash and other deposits being received. It is much easier for him to explain this income if it has all been disclosed to HMRC. Where somebody has been committing a crime and running a legitimate business side by side, it may be difficult to separate legitimate funds from other income. If tax has not been paid on the legitimate income, the question rises as to whether or not these un-taxed profits can be treated as the proceeds of crime for the purpose of confiscation.
The Proceeds of Crime Act 2002 (as amended and updated in the ensuing years) also provided for the taxation of any income where its source could not be explained. Thus unidentified income could be taxed retrospectively in a way that, together with penalties and interest, the sums in question were being effectively confiscated. So, yes, un-taxed income that is assumed to be the proceeds of crime is a target for the confiscation hearing – but the question of whether or not the criminal confiscation court is the best arena to establish the quantum of unpaid tax often arises and it can be in a defendant’s best interest to still separate legitimate income (albeit un-taxed) from any criminal proceeds and hope for a beneficial settlement to be accepted by the prosecutor.
Hidden Assets – How Do You Prove That You Don’t Have The Money?
When the level of criminal benefit is being proposed by the Crown, there will often also be an attempt to suggest that there is more money available to the defendant with which to settle a confiscation order than is apparent from the bank balances held or properties owned. This is because money “spent” can be deemed to be hidden assets. For example, if there is a withdrawal of £100,000 in cash from a defendant’s bank account shortly before he is arrested, there is the reasonable assumption that the money was being hidden away (for example by giving it to somebody for safe keeping). In this case the defendant would be obliged to account for the missing funds.
The example is fairly clear, but often the sums are less obvious. Often, routine withdrawals of modest amounts of cash from ATMs are added together and deemed to be hidden assets. Over the years (six or more years of financial activity can be examined by the Crown during a confiscation) such withdrawals can add up to a tidy sum, and may include additional odd amounts representing other innocuous outgoings.
Presented with the accusation that a substantial quantity of spending represents hidden assets, it can be very hard for somebody to prove that the money has been spent, and has not been squirreled away. It is not possible for most people to remember what £300 ATM cash withdrawals were being spent on, or the destination of a £500 withdrawal (that was in fact a gift to a brother or a son etc). I would suggest that most will keep less complete records for domestic spending than they keep for their income.
The Need For An Expert Forensic Accountant’s Report
The fact that most people do not keep good records for their personal affairs, and many keep pretty poor business records also, can create a substantial problem for their tax affairs, but things get worse if they also gets hauled up for criminal activity. It is bad enough trying to keep HMRC happy when accounting records are incomplete, but the problem is exacerbated when the criminal confiscation court is involved. This is why a rational and balanced forensic accounting examination is needed to present a convicted criminal’s finances and prevent a confiscation from becoming an additional punishment following conviction and sentencing for a predicate crime.