POCA WORK & ASSET FORFEITURE: An Introduction

The legal landscape of asset forfeiture is rarely static and the past year has been no exception, with both new legislation and further consideration of existing law by the Courts.

The granting of the Royal Assent to the Criminal Finances Act 2017 (CFA) introduced substantial amendments to the proceeds of crime and anti-terrorist financing legal framework. The changes include the ability to materially extend the “consent regime” moratorium period, new powers in unexplained wealth orders and the development of existing powers in further information orders. The first unexplained wealth orders have been obtained and, in at least one case, discharged. Further, the first magistrates’ court account freezing orders have been obtained although again, in at least one case, discharged.

Some of the changes introduced by the CFA were first signalled by the 2016 UK “Action Plan for anti-money laundering and counter-terrorist finance”. By far the most radical, and controversial, of the suggestions was that the Suspicious Activity Report ‘Consent’ (SAR) regime be abolished and replaced with enhanced information sharing, both with law enforcement and across private institutions. That proposal was met with a number of critical responses, in particular from the representatives of the legal profession, concerned as to both the increased burdens it would place upon their clients and the threat of inroads into a client’s legal professional privilege. Some suspected that, at a time of straitened public finances, the intention was to remove the operative cost of the consent regime from the public purse. In the event, SARs were left on the statute book. However, the possibility of the moratorium period being extended to up to six months, whilst potentially buying the intelligence-gathering and investigative authorities a substantial period of time, has left many aghast. A legal adviser awaiting the outcome of an SAR is unable to carry out his or her instructions but also unable to inform his or her client of the reason why. To be left in such a position for any material period of time creates substantial professional difficulties and to be in that position for six months would be intolerable.

More recently the 2017 Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations have come into force. Both pieces of legislation follow on from earlier additions and alterations to the already frequently amended law in this field. The Regulations gave effect to the 4th EU Anti-Money Laundering Directive. In April 2018 the European Parliament adopted the 5th EU Anti-Money Laundering Directive. Changes include the widening of the scope of the Directive, a requirement to grant public access to registers of beneficial ownership, enhanced transparency obligations upon trusts, increased powers to obtain and exchange information for FIUs, an enhanced due diligence regime for entities in high-risk jurisdictions, the regulation of e-currencies and further restrictions upon the use of pre-paid cards. The UK has 18 months to bring it into domestic effect - a deadline that post-dates 19 March 2019 and the UK’s planned departure from the EU.

As noted in previous editions of this guide, the late Lord Bingham’s valiant attempt to clarify the law in relation to Proceeds of Crime Act 2002 (POCA) confiscation proceedings, seems, sadly, to have had little impact. The “proliferating case law” (R v May [2008] 1 A.C. 1028), that in his judgment added little comprehension to the statutory provisions in question, continues to flow.

Decisions of the Court of Appeal related to the Supreme Court’s statement of the importance of the application of Article 1 Protocol 1 of the ECHR to confiscation proceedings in the case of R v Waya [2013] 1 AC 294 have become a regular, almost monthly event. This may be because the asset forfeiture provisions of POCA continue to evoke strong reactions from those who encounter them.

The calculation of confiscation orders remains a particular bone of contention. A defendant is said to have ‘benefited’ by reference to what the crime ‘obtained’, not what he or she ‘retained’. In short, simple couriers aside, the convicted criminal has ‘benefited’ from everything that passed through the criminal enterprise (i.e. its turnover), even if someone other than the defendant enjoys the final ‘benefit’ of it. Many defendants find this hard to understand or accept – it seems at odds with a common understanding of ‘benefiting’. Understandably, it has spawned much litigation.

The reverse burdens of proof within POCA’s ‘criminal lifestyle’ provisions require the defendant to provide an historic account of his or her income, expenditure and capital, worldwide. Failure to adequately demonstrate their non-criminal origin leads to the defendant being found to have ‘benefited’ in that sum. For many it is an uphill struggle.

Designed to ensure that assets cannot be retained by the expediency of placing them into the hands of another, the POCA ‘gift’ provisions can lead to a defendant being liable to pay over a sum equal to that found to have been donated to a third party, even if the sum is in fact “practically or legally irrecoverable.”

The Act has also been interpreted to require the defendant to prove that he or she does not have assets to the value of the benefit figure, i.e. that he or she does not have “hidden assets”. The consequence of failing to prove that negative is that the defendant is found to have (somewhere, place unspecified) assets to the amount of the “hidden assets” and is obliged to pay that sum over.

The practicalities of paying such an order do not seem to form any part of the calculation. With no identifiable assets that can be secured and sold, unpaid orders remain outstanding, an executed prison sentence in default and interest notwithstanding. Un-nourished by payment, but still in existence, often in substantial sums, “hidden assets” orders plague the enforcement courts and government statistics, like zombies at a deserted shopping mall.

It is legitimate to ask, what purpose is this serving? The July 2016 PAC Report found that unpaid orders amounted to £1.9 billion, only 10% of which was considered realistically recoverable. Large sums of public money are expended attempting to enforce those orders. Is this sensible? As the Chair of the Committee said at the time of the publication of the Report:

"This sends an appalling message to criminals who stand to benefit from crime – and equally importantly, to their victims and taxpayers.

"Such relatively meagre returns do nothing to alleviate public concerns about crime, nor to encourage the perception that justice is being done.

"Taxpayers will question whether [this is] money well spent."

Given the costs, the process resembles the pursuit of a mouse on a wheel. Reform is long overdue.

Asset forfeiture remains the quintessential specialist area, yet it requires the ability to command disparate disciplines: from crime to property law and equity, from commercial law to receivership. It demands of its practitioners the insight and judgment obtained from hard-won experience.

Clients will need, and with this Guide will find, those practitioners who possess the required abilities to lead them through the hazards that are inherent in litigation in this field.