In the Media

Proceeds of crime

PUBLISHED May 8, 2012

Sentence - Confiscation order

R v Bagnall and another: Court of Appeal, Criminal Division (Lord Justice Moses, Mrs Justice Macur and Mrs Justice Sharp): 18 April 2012

Section 72AA(6) of the Criminal Justice Act 1988 provides, so far as material: 'Where the assumptions specified in sub-section (4) above are made in any case, the offences from which, in accordance with those assumptions, the defendant is assumed to have benefited shall be treated as if they were comprised, for the purposes of this part of this act, in the conduct which is to be treated, in that case, as relevant criminal conduct in relation to the defendant.'

The first defendant was convicted of money laundering after being caught with a bag containing £99,200 in cash. A confiscation order in the amount of approximately £1.8m was made against him (the first confiscation order) pursuant to the Proceeds of Crime Act 2002 (the 2002 act), together with a financial reporting order for a period of four years (the reporting order). The subject matter of the first confiscation order was money credited to the bank accounts held jointly by the first defendant and his wife over the period of six years leading up to his conviction. The sources of those credits had been a number of businesses.

Whilst the first defendant had submitted that he had been carrying out a legitimate trade, that had been disputed by the prosecution. It had asserted that the sums in excess of £50m, which had passed through the first defendant's bank accounts from the start of the relevant period, had been wholly or in part related to his criminal conduct, particularly VAT fraud and drug trafficking. There had also been close consideration of whether the first defendant should be prosecuted for an MTIC carousel fraud (MTIC fraud). That consideration had arisen from a document seized at the time of his arrest, which had led to the suspicion that he had been involved in MTIC frauds (the document).

Consideration had been given as to whether to prosecute the first defendant, or seek to recover the proceeds of the MTIC fraud through confiscation proceedings. The view had been taken that it had not been worth spending resources on a criminal prosecution for MTIC fraud when the first defendant's benefit could be recovered by way of confiscation proceedings. The approach adopted by the prosecution had been that allegations of participation in the MTIC fraud would be made against the first defendant for the purposes of the confiscation proceedings, but that there would be no prosecution (the approach).

The prosecution position statement stated, inter alia, that the first defendant would not be prosecuted for criminal conduct in respect of MTIC fraud, but that allegations of participation in MTIC fraud would be made in the course of the confiscation proceedings. The second defendant was convicted of nine offences of procuring the execution of a valuable security by deception, one count of false accounting and one count of doing an act tending and intended to pervert the course of public justice which resulted in a benefit of just under £40,000. He claimed to own no real property, no car, nor any shares and had never declared income of over £17,500.

However, the bank accounts associated with or controlled by him were found to contain transactions in excess of £16m. At the confiscation hearing, the second defendant contended, in his written statements and through numerous statements of witnesses, that the explanation for the bank transactions lay in hawala banking. Neither the second defendant, nor any of his witnesses gave evidence at the hearing. A confiscation order was subsequently made against him pursuant to section 72AA of the Criminal Justice Act 1988 (the 1988 act), as amended by the Proceeds of Crime Act 1995, in the amount of approximately £4m (the second confiscation order).

The assumptions within section 72AA of the 1988 act were applied in the process of making the second confiscation order and property which it was not disputed had been held by the second defendant at the date of conviction was assumed to have been received by him as a result of or in connection with the commission of the relevant offences. The defendants appealed against the two confiscation orders (the orders) and the first defendant further appealed against the reporting order.

The first defendant submitted, inter alia, that the court ought not to have applied the assumptions set out in section 10 of the 2002 act when making the first confiscation order, because the prosecution, in the particular circumstances of the case, had charged the first defendant with a criminal offence other than that of which he had been convicted and was thus required to prove that offence to the criminal standard in order to safeguard his rights enshrined in article 6 of the European Convention on Human Rights (the rights). It was common ground that the bringing of confiscation proceedings did not amount to the bringing of a criminal charge within the autonomous meaning under the convention.

However, the first defendant submitted that, in the particular circumstances of the instant case, the reliance on a specific accusation that he was involved in MTIC fraud required that allegation to be proved to the criminal standard. The first defendant further submitted that the amount of £200,000 which had been loaned to him in 2004 to provide working capital for his company (the loan) had been counted as part of his benefit for the purposes of the confiscation order and that that was incorrect. The second defendant submitted, inter alia, that there was an absence of proportionality between the offences of which he was convicted and the offences he was assumed to have committed for the purposes of section 72AA of the 1988 act.

Further, that section 72AA(6) of the 1988 act had the effect of deeming the defendant to be guilty of indictable offences with the effect that the burden was placed upon the prosecution to prove guilt of those offences to a criminal standard (the submission). The issues that fell to be determined were, inter alia: (i) whether, in relation to the first confiscation order, the prosecution's reliance upon a detailed analysis of the document, inter alia, which formed part of the second statement served pursuant to section 16 of the 2002 act, amounted to the bringing of a criminal charge within the autonomous convention meaning; (ii) whether it had been unfair to use the first confiscation proceedings as a means of imposing the burden on the first defendant of having to disprove his involvement in the MTIC fraud; (iii) whether, in relation to the first confiscation order, the loan should have been counted as part of the first defendant's benefit; (iv) whether, in relation to the reporting order, the judge should have confined his consideration to the one offence of which the first defendant had been convicted, namely, money laundering, rather than rely upon his view as to the source of the first defendant's assets; (v) whether the second confiscation order was disproportionate; and (vi) what the correct construction of section 72AA(6) was.

Consideration was given, inter alia, to sections 71 and 72AA of the 1988 act.

The court ruled: (1) The mere fact that the prosecution had accused an appellant of specific offences and had adduced evidence to make that accusation good did not amount to the bringing of a new charge. The prosecution was obliged to include in its statement of information that which was relevant in connection with the making by the court of assumptions required under section 10 of the 2002 act (see [18], [20] of the judgment).

On the facts of the instant case, the first defendant had not been at risk of any further conviction, there had been no finding of guilt and the findings reached by the judge, upon the application of the assumptions under section&
nbsp;10 of the 2002 act, had merely gone to the amount of the confiscation order the court had been obliged to make. The prosecution had been obliged to set out the information it had had which had been relevant to the fraudulent MTIC activity in which it had said the defendant had been involved. As a matter of fairness and obligation, it had set out all that it had known and suspected in relation to the source of the assets which, it had not been disputed, had been transferred to the first defendant or had been held by him (see [19], [20] of the judgment). Engel v Netherlands (Application 5100/71, 5101/71, 5102/71) 1 EHRR 647 applied; Phillips v United Kingdom (Application 41087/98) [2001] ECHR 41087/98 applied; R v Briggs-Price [2009] 4 All ER 594 distinguished.

(2) Applying established principles, on the facts of the instant case, there had been no unfairness in requiring the first defendant to establish that the trade in which his companies were involved was not MTIC fraud (see [23] of the judgment).Phillips v United Kingdom (Application 41087/98) [2001] ECHR 41087/98 applied.

(3) Applying established principles, through no fault of his own, the judge had erred in adding to the amount of the benefit the sum of £200,000 (see [25], [26] of the judgment). The appeal against the first confiscation order would be allowed and the amount assessed in it as benefit would be reduced by £200,000 (see [26] of the judgment). R v Ahmad [2012] All ER (D) 44 (Mar) applied.

(4) It was established law that, when considering whether to make a financial reporting order, a judge was entitled to have regard to the whole picture of the defendant's lifestyle (see [27] of the judgment). On the facts of the instant case, the judge had been entitled to take into account the first defendant's very high standard of living and his evasive and dishonest evidence in relation to confiscation. There had been a sufficiently high risk to justify the making of a reporting order (see [27] of the judgment). The appeal against the reporting order would be dismissed (see [27] of the judgment). R v Hancox [2010] 4 All ER 537 applied; R v Bell [2011] EWCA Crim 2728 applied; R v Webb [2011] EWCA Crim 882 applied.

(5) It was not disproportionate to require a defendant to establish that the source of monies which he held in his accounts or accounts with which he had a connection were from a legitimate and not a criminal source (see [34] of the judgment). On the facts of the instant case, there could be no question of absence of proportionality. There was nothing unfair in requiring the second defendant to disclose and explain where monies that he held had come from. Any suggestion that the view that the judge had taken was disproportionate or unfair would be dismissed. It had been quite unacceptable for the second defendant to have relied upon a vast amount of written material which had been internally inconsistent and in respect of which no witness had given live evidence (see [34], [36] of the judgment). R v Rezvi [2002] 1 All ER 801 applied; R v May [2008] 4 All ER 97 applied.

(6) The purpose of section 72AA(6) was to bring section 72AA within the scope of section 71 of the 1988 act. Section 71(1) and (1)(a) required a court to determine whether an offender had benefited from 'any relevant criminal conduct'. Section 72AA(6) enlarged the scope of section 71 to cover benefit derived from offences other than those of which the defendant was indicted. There was no basis for contending that to impose the burden upon the defendant of showing that the source of his property was legitimate was unfair, nor contrary to article 6 of the convention (see [39], [40] of the judgment). The submission was incorrect (see [39] of the judgment). The appeal would be dismissed (see [44] of the judgment).

James Pickup QC and Simon Gurney (instructed by Judge and Partners Ltd) for the first defendant; Andrew Campbell-Tiech QC and Matthew Buckland (instructed by IBB Solicitors) for the second defendant; Mark Lucraft QC, Lisa Freeman and Kennedy Talbot (instructed by the Crown Prosecution Service) for the Crown.