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POCA WORK & ASSET FORFEITURE: An Introduction

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The Proceeds of Crime Act 2002 has changed considerably over the almost 20 years since it was first enacted. So much has been added that the section dealing with the new summary forfeiture of bank accounts now goes to section 303Z19 (an additional 45 sections). From what was the consolidation of schemes that had previously, over a period from 1984, dealt separately with confiscation for drugs and other indictable crime, the 2002 Act provided for all-crimes confiscation, civil recovery, taxation of 'criminal income' and cash forfeiture wherever the cash was found (no longer just at ports of entry), which is now set at the minimum sum of £1,000 to trigger a potential detention and forfeiture application.

What was a new and reinvigorated approach to dealing with criminal proceeds has increasingly become a scheme that has sought to control such proceeds in order to achieve their 'forfeiture' without a criminal trial and conviction. From the lowering of cash amounts steadily from £10,000 to £1,000 there are now provisions for the summary forfeiture of bank balances (Account Freezing Orders – AFOs), applying the same processes and procedures as for cash. It follows that there are an increasing number of applications using the summary process before the magistrates’ court to forfeit significant bank balances. Against that backdrop, in the early part of 2018, a new process to attack the ill-gotten gains of the very rich and previously untouchable people was introduced. Unexplained Wealth Orders (UWOs) will result in the forfeiture through the civil recovery process of property worth many millions which is not capable by evidence from the legal or beneficial owner to be legitimately sourced. There have already been some successful UWO applications.

The trend towards the non-conviction based pursuit of criminal proceeds follows the general trend in the level of criminal prosecutions brought by the authorities. These are down 16% in the period 2008-2018 for all offences. The introduction of Deferred Prosecution Agreements (DPAs) in relation to significant corporate financial wrongdoing, thereby avoiding very lengthy and costly criminal prosecutions, confiscation and enforcement, demonstrates the government's endorsement of non-conviction outcomes for some of the most serious financial wrongdoing.

The result of these changes has led to an increasing realisation of the reach and significance of the 2002 Act and this in turn has led to an increased role for lawyers to advise and represent individuals, companies, trust companies and trustees on their potential liability for confiscation, forfeiture or civil recovery (including dealing with responses to any UWO applications), which involves being burdened with explaining the source of funds.

The growing requirement for absolute compliance with 'know-your-client' processes and the ability to be able to prove the legitimate tax-paid (if appropriate) source of the funds is also increasing the workload of lawyers worldwide to assist clients. The compliance work requires, in the early stages, for lawyers with skills in the proceeds of crime area to be able to sign off on transactions, sometimes giving the comfort necessary to allow a commercial transaction to conclude. This will entail the ability to identify the evidence that supports the source of funds and sign off on transactions. This process is one that increasingly is not answered by simply ticking the proverbial boxes regarding the identification of the beneficial owner and the bank or source of funds, but involves being much more alive to the risks of particular transactions and therefore the country and/or individuals involved, necessarily taking those matters into account when determining the advice being rendered.

Advice must be soundly based, plainly, and sometimes that means using greater experience where ducks may not all be in a row to make a proper evidence (including inferences where appropriate) based decision. One might instinctively inquire more of an oil company from a former Soviet state than of one that has been established for many decades in Europe or North America, although that may not necessarily be so, as often things are not what appears to be on the tin.

There may be difficulties with establishing the authenticity of accounts, or it may be that there is evidence of political control, both of which may require the advising lawyer to drill further into the transaction. The reach of the 2002 Act is significant, it has been copied or mimicked in much of the Caribbean and in particular in the UK Overseas Territories which, without their increasingly robust approach to compliance, would be open to abuse in relation to the placement of funds in the jurisdiction. An example of this can be understood from looking at real estate transactions. Whereas in the UK the approach to due diligence and knowing clients for estate agents can be achieved by passport, internet searches and judging the client against the property to be bought, in the Overseas Territories the regulators are so concerned about international money being invested that they will not permit the realtors to transact unless there are, in addition to source of funds, identification documents including proof of residence and a letter of reference from an attorney registered in the territory. This can present extra difficulties for the compliance team within the firms of attorneys because writing reference letters can entail a little overreach from the actual nature of the transaction being undertaken. Attorneys have to ask themselves how well they really know this client and whether they can speak to their character, and that might present difficulties for such attorneys. It follows that the role of the solicitor or legal advisor is becoming increasingly wrapped in the client’s affairs and that has the impact of not only exposing the attorney to reputational risk but, if the advice and support given is without proper and detailed due diligence, there are also regulatory and even possible prosecution risks for the badly performing advisor. The answer may lie in the legal advisor seeking advice for his own protection in order to 'insure' himself against any adverse issues arising from the comfort he might be minded to give to his own client.

Andrew Mitchell QC