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Early intervention needed to improve effectiveness of confiscation orders, says expert

Out-Law Analysis | 20 Apr 2016 | 10:42 am | 6 min. read

FOCUS: Earlier intervention and more formal measures of success are needed if confiscation orders are to be successfully used by the UK courts to deprive fraudsters of the proceeds of their crimes.

It has been well documented that the criminal economy resulting from fraud and organised crime is high, and the recovery rate of the bodies involved in tackling the issue is disproportionately low. Against this backdrop, the House of Commons Home Affairs Committee should consider a radical review of the proceeds of crime legislation as part of its inquiry into the effectiveness of the recovery measures introduced by the 2002 Proceeds of Crime Act (POCA).

Confiscation orders are made by courts after conviction to deprive someone of the benefits they have obtained as a result of their criminal activity. This is an ambitious and wide-ranging objective. But, as the National Audit Office (NAO) found in its 2013 report on confiscation orders, the lack of a coherent overall strategy combined with the absence of good performance data or benchmarks across the system is significantly reducing the effectiveness of the confiscation regime.

In written submissions to the committee, the civil fraud and corporate crime teams at Pinsent Masons, the law firm behind Out-Law.com have called for more concise objectives and success measures for the confiscation regime as well as more of a focus on freezing assets as early as possible in order to address these fundamental concerns with the existing regime.

Our recommendations

Confiscation orders are an essential tool in the prosecutors' toolkit. When used to full effect they can deprive offenders of the proceeds of their criminal conduct, deter the commission of further offences and reduce the profits available to fund further criminal enterprises. However, enforcement and recovery rates for recovering the proceeds of crime in the UK are disappointingly low. In 2012/13, 673,000 offenders were convicted of a crime, many of which had a financial element. Nonetheless, only 6,392 confiscation orders - equating to less than 1% of convictions - were granted, and only 26 pence in every £100 of criminal proceeds actually confiscated.

In order to improve the effectiveness of confiscation orders, law enforcement should focus on obtaining restraint orders and disclosure orders as quickly as possible. These orders will allow the authorities to identify and freeze criminal assets at the beginning of the investigation, which will lead to more effective enforcement of confiscation orders when they are obtained.

Restraint or freezing orders should be sought by the relevant agencies within two months of the commencement of an investigation, and disclosure orders against the suspect and any third parties believed to be holding assets on their behalf should be obtained at the same time. The disclosure order should cover the nature, extent and location of all the suspect's assets. By undertaking these steps at the beginning of an investigation, the prosecutor will be in a position to police a restraint order effectively - which, in turn, maximises the chances of recovery by identifying avenues for further enquiry which can assist with the enforcement of confiscation orders.

Unexplained wealth orders

Greater use of unexplained wealth orders (UWO) should also be considered to assist in the enforcement of the confiscation regime. UWOs also aim to deprive criminals from acquiring or benefitting from unlawful activities. Their distinguishing factor is the reversal of the burden of proof once the state is able to prove, on a balance of probabilities, that the individual under suspicion owns or possesses unexplained wealth. The use of UWOs will also reduce the ability of third parties associated with criminals to retain their ill-gotten gains and frustrate the application of the confiscation regime.

The committee should also consider what is known in civil proceedings as the 'Chabra jurisdiction', which refers to a freezing order made against a third party that appears to hold assets on behalf of the suspected criminal. The order can be obtained where there is reason to suppose that assets which appear on their face to be those of the third party, against whom there is no claim, are actually those of the suspect, against whom a freezing order has already been made.

Raising awareness among agencies

It is imperative that prosecuting agencies consider the issue of confiscation at the very beginning of an investigation involving financial crime. Where it is believed that the crime under investigation has resulted in some financial benefit to the suspect or loss to a victim, the prosecuting agency should be working closely with the financial investigators to collate the information necessary to obtain a restraint order without delay. Too often, cases are investigated and prosecuted without due consideration for how a confiscation order would ultimately be enforced.

Members of the relevant investigation and prosecution agencies should be provided with compulsory yearly training on the use and benefits of:

  • restraint orders;
  • disclosure orders;
  • confiscation orders; and
  • enforcement methods.

The agencies must begin to consider all four in tandem, and to consider them at the beginning of an investigation, to maximise the effectiveness of the confiscation regime and ultimate recovery of monies.

Agencies investigating a crime with a financial nature should be under an obligation to consider the use of a restraint order at the beginning of an investigation, in the same way that prosecutors are under an obligation to monitor the need for restraint throughout the investigation and criminal proceedings. Both investigators and prosecutors should reconsider whether a restraint order is appropriate at the following stages:

  • within two months of the start of the investigation;
  • before any raids are carried out on any properties;
  • after two months but within 12 months of the start of the investigation; and
  • before any charges are formally brought against any individuals or any arrests made.

If the decision is made not to pursue a restraint order at any of these stages, the relevant agencies should document why and provide full reasons. In the event a restraint order is not obtained at the beginning of an investigation, account monitoring orders should be sought instead in order to identify any patterns of behaviour on the accounts which could indicate a risk of dissipation of assets. This will require the purposes for which account monitoring orders may be obtained to be widened beyond money laundering investigations.

The judiciary should also be provided with mandatory training in this field, while consideration should also be given to appointing judges to work solely on confiscation-related matters. Dedicated proceeds of crime judges would benefit from training to understand the complexities of the legislation. Judges who have experience in the POCA principles and, more importantly, matters relating to restraint orders and disclosure orders, would be better suited to hearing matters where prosecution agencies are seeking to use these tools.

Increasing accountability

The variety of agencies and stakeholders involved in the confiscation order process causes difficulties for effective governance, accountability and performance measurement. Having no single department responsible for the obtaining or reporting of confiscation orders and no formal reporting obligations on any government agencies in respect of their statistics on confiscation orders makes accountability difficult.

To address this, Proceeds of Crime Units and all other relevant departments which deal with restraint orders and confiscation orders should be required to report to a single, designated department within the National Crime Agency (NCA). Having a central point for the collation of data on all confiscation matters will, in due course, increase accountability. This reporting obligation should be a yearly duty. The NCA should itself be under an obligation to release an annual report to the public on the data it receives through this reporting obligation.

The information submitted to the NCA and then analysed and reported to the public should include:

  • how many restraint orders were sought in the last 12 months;
  • how many restraint orders were obtained in the last 12 months;
  • the lowest, highest and average amounts restrained in relation to orders obtained;
  • how many confiscation orders were sought in the last 12 months;
  • how many confiscation orders were obtained in the last 12 months;
  • the lowest, highest and average amounts confiscated in relation to orders obtained;
  • how many confiscation orders obtained in the last 12 months have been successfully recovered, successfully recovered in full and are being actively investigated and pursued;
  • how many confiscation orders remain unpaid for a period of over 12 months;
  • how many confiscation orders remain outstanding, and the total amount outstanding.

More concise objectives and success measures for the confiscation regime should also be considered. Merely obtaining a confiscation order should not be deemed a success. Instead, further consideration should be given to identifying a threshold from which actual recovery will be deemed a success – for example, recoveries which are equal to or exceed 65% of the amount ordered to be paid in the confiscation order. This information should also be included in the NCA's annual report, along with a comparison of the amounts actually recovered as compared with the costs incurred in seeking recovery.

Separately, a new system similar to the Joint Asset Recovery Database (JARD) should be created to increase intelligence sharing with financial institutions and enable the efficient enforcement of the confiscation regime. JARD records all restraint, confiscation, cash seizure and civil recovery orders made throughout the UK together with brief details of the assets taken into account in making such orders. The new 'Central Confiscation Database' would capture similar information and be made accessible to designated departments of all financial institutions operating in the UK. Financial institutions should also be required to regularly review the Central Confiscation Database and ascertain whether they operate accounts for individuals or entities which appear to be subject to the confiscation regime.

Alan Sheeley is a civil fraud and asset recovery expert at Pinsent Masons, the law firm behind Out-Law.com. Pinsent Masons' full response to the Home Affairs Committee's proceeds of crime inquiry is available on the committee website.