How Far Should POCA 2002 Assumptions Go?

The confiscation framework is a powerful tool that is applied not only to its intended use of removing the proceeds of crime from criminals, but also for its unintended use as a further punishment for those convicted of a qualifying offence (or series of offences).

In order to make the framework viable, it transfers the burden of proof from the prosecution to the convicted criminal, when determining how much a person may have benefited from a life of crime.  In this respect assumptions can be made by the Crown regarding the source of funds and other assets handled by the Defendant. In order to bring some proportionality to the framework, a time limit is set during which transactions can be said to have a criminal provenance, and therefore deemed to contribute to the criminal benefit enjoyed by the convicted person. The Relevant Period commences on the Relevant Date, six years before the start of the predicate criminal proceedings, normally when charges are first laid against the defendant.

The practical effect of this is that the Crown may look back during these six years and assume that transactions represent criminal activity. It is up to the defendant to prove that they are not. Thus when a deposit is noted in a bank account, it is deemed to be criminal benefit. If the defendant can show that the deposit was salary for example, by matching it to a pay slip, he has then provided a strong response in defence to the Crown’s allegation. In such a case it is unlikely that the Crown would continue to petition the Court that this particular deposit was benefit.

A forensic accountant will examine the Crown’s allegations regarding criminal benefit that are contained within the S16 Statement of Information. He will try to identify and exclude legitimate income such as salaries, loans and gifts. The forensic accounting exercise will also identify transfers between linked accounts, to prevent double counting of items that might be criminal benefit. As transactions being considered become older, towards the start of the Relevant Period six years ago, it can become hard to verify the source of income. This may be because records have been destroyed or simply due to the difficulties in remembering what events took place so long ago. By the time a matter reaches confiscation proceedings, the Relevant Date might be eight or nine (or more) years in the past.  This would appear to be why the Relevant Date limit of six years has been written into legislation. Rebutting assumptions dating back say twenty years would impose a substantial hardship on any defendant.

However, there are some issues that arise from cases where I have been instructed that illustrate how the Crown might exploit its right to make assumptions and where a defence team may need a stronger argument than that “the assumption is incorrect”, and argue that there is a “serious risk of injustice” if allowed to stand.

Criminality Preceding the Relevant Date

POCA 2002 clearly states that any transfers and expenditure must take place within the Relevant Period in order to be considered criminal benefit. This normally results in schedules of transactions prepared by the Crown’s Accredited Financial Investigators that include deposits or payments taking place only after the Relevant Date. However “property held” at the time of conviction can be assumed to have come from the proceeds of crime, even if it was acquired before the Relevant Date. However, if the source of funds used to acquire the property can be shown to be legitimate, the assumption can be argued to be incorrect.

If a defendant receives a sum of £100,000 before the Relevant Date, it cannot be assumed to be a transfer of criminal funds. However, if used to buy a property still owned at the time of conviction it might be argued to be criminal property held (at any time). This is clearly a contradiction, and in my experience an assumption made on these grounds is not normally allowed to stand. Defendants would have to explain how family properties had been acquired, often decades ago, when details of historical mortgages or inheritances have not been retained.

In this case, the forensic accountant will demonstrate the proportion of funds used to finance the property that were obtained from legitimate sources prior to the Relevant Date and calculate the proportion of the property that was obtained during the Relevant Period that may have been funded by additional criminal funds (such as paying off any remaining capital owing using the proceeds of crime). This is a common sense approach normally accepted by the Crown that excludes transfers of historical funds used to buy property obtained prior to the Relevant Date, effectively “explaining” the source of legitimate funding.

Supplementary Benefit Fraud

There are some crimes that take place over a long period. Some of the benefit frauds that I am asked to examine involve regular payments of supplementary benefit dating back ten years or more. Ensuing confiscation proceedings must take note of the restrictions imposed by POCA 2002.

My feeling is that in such a case, earlier criminality is captured by the assessment by the authorities of the amounts of supplementary benefit that has been overpaid. This will form part of the criminal benefit. The lifestyle benefit is then considered, as intended by the legislation, only from the Relevant Date. The defendant is likely to receive a benefit order that includes the amount of money wrongly claimed (including during the years before the Relevant date) along with any lifestyle benefit that may be assessed (that could include income that cannot be satisfactorily explained from after the Relevant Date).

Is Rental Income Benefit?

The appeal case of R – v – Folarin Oyebola ruled that rental income from properties obtained with fraudulent mortgages was benefit. This is despite the fact that that mortgage advance itself is not normally a transfer of criminal funds, being accompanied by a balancing indebtedness with no actual money usually flowing through the defendant’s hands.

Rental income is derived from a legitimate source (i.e. the tenants), therefore under most circumstances cannot be considered proceeds of crime even when received by a criminal if his property acquisition is otherwise legitimate. The Crown will often try to justify the inclusion of rental income as benefit, by citing irregularities in a mortgage application. For example, the application form may indicate that the defendant earned a larger sum than was the case, in order to encourage the facilitation of the loan. Even though the mortgage was being repaid, the rental income from the property will be included as transfers of criminal funds on the basis that the mortgage was obtained fraudulently.

This is wrong because the defendant has not been convicted of mortgage fraud. Furthermore, having carried out investigations on behalf of the Department for Business and other clients that involve the activities of property companies, lending companies and mortgage brokers, I am aware of the common practice, especially leading up to the 2008 “crash”, for brokers to complete mortgage applications on behalf of clients after the applicant has simply signed the back page. While this might not be correct, it is the mortgage broker that was instigating any fraud and the lending companies all turned a blind eye at the time, so long as they obtained the business. It was a common theme leading up to the “credit crunch” with buy to let lending criteria only concerned with levels of rental revenue, not the applicant’s income.

Concluding Forensic Accounting Remarks

Thus, a decade and a half after the Proceeds of Crime Act 2002 was introduced as a very lengthy and seemingly detailed framework for dealing with criminal money, the outcomes of each and every case of money laundering or criminal confiscation are uncertain. The Crown will use the interpretation of the Act from ever developing case law to its best advantage and criminal defence lawyers will continue to instruct forensic accountants to establish a balanced and independent interpretation of the evidence. Despite any efforts to streamline the system and make financial cases more efficient, the adversarial stances between the Crown and the defence will ensure many more lengthy and sometimes seemingly wasteful battles will take place.

The examples noted in this article are only a few of the issues that arise on  a regular basis. Very often the Crown will ignore some seemingly very relevant issues, focusing on others. An independent forensic accounting report must be balanced, meaning that any issues that have been overlooked by the Crown must not be ignored, even if they do not improve the defendant’s case. The challenge is to arrive at a report that assists the defendant by allowing both sides as well as the Court to fully understand the complicated interactions taking place within the defendant’s finances, resulting in an outcome that is potentially fairer perhaps than the Crown’s opening position.

However, there are occasions when an interdependent opinion enforces the Crown’s allegations. This can still lead to a better outcome for the defendant who might plead earlier or accept a confiscation order that would be lower than if belligerently battled out in Court.

2 Responses to How Far Should POCA 2002 Assumptions Go?

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