Joint thematic report on the Proceeds of Crime Act 2002

The Act is a UK Act of parliament, but in recognition of the fact that two different legal systems were to implement this law, separate sections relate to Scotland.

Essentially there are three distinct tools for law enforcement to tackle financially motivated crime:

• criminal confiscation
• civil recovery
• taxation

In addition, the Act made provision for three new substantive law offences concerning money laundering.

Part 3 - Confiscation

Section 92 of the Act lays out the method for the court to confiscate a sum of money from the accused, once convicted, which represents either his benefit from general criminal conduct or his specific benefit from the crime of which he has been convicted. For a confiscation order representing general criminal conduct, the court must find that the accused has a criminal lifestyle.

'Criminal lifestyle' is defined in s142 of the Act. (See Appendix 6) This is where the accused has committed one or more of the specific offences in Schedule 4 of the Act. This schedule lists the offences such as money laundering; drug trafficking; directing terrorism; people trafficking; arms trafficking; counterfeiting; breaching copyright and trademarks legislation; living off immoral earnings; and trafficking in prostitution. (See Appendix 5 where Schedule 4 is reproduced in full.)

In addition to the listed offences which specifically bring the offenders within the ambit of the Act, there are more general provisions. These relate to those who have committed a continuing offence of at least six months duration and have made a benefit of £5,000 or more as well as those who have committed at least four offences which appear on one indictment or complaint, or in the previous six years have been convicted on at least two occasions of an offence from which he or she has benefited to the extent of £5,000 in cumulo ³². These general provisions are designed to include the criminal who has gained financially from repeat or continuing offending in the "acquisitive" area of criminality.

If the court finds that the accused has indeed made a financial benefit from a criminal lifestyle, or has made a benefit from the particular crime libelled, the court must then decide what the recoverable amount is and make an order for this amount.

The standard of proof required for the Crown to show the criminal lifestyle, criminal benefit and recoverable amount are on the balance of probabilities. The Act provides that certain assumptions should be made by the court in deciding how to calculate the benefit. This entitles the court to look at the income and expenditure of the accused over a 6-year period starting from the date on which proceedings were commenced. Any income which is unaccounted for is deemed to be from criminal conduct and liable to confiscation. In practice, the Crown presents a Statement of Information to the accused, on his conviction, which, if unchallenged, is taken to be accurate. It is for the accused to rebut the presumptions raised in that Statement. In short a reverse burden of proof exists with regard to the financial information submitted to the court by the Crown.

In addition provision is made in the Act for property in the hands of others which can be described as a "tainted gift" where it can be linked to the criminal conduct. ³³

Restraint

There is provision in the Act for restraint of assets, to prevent dissipation of these while the criminal case proceeds towards its conclusion. Such provisions were first enacted in the 1980s in legislation concerning drug trafficking and have been brought forward into the current legislation as a vital tool in ensuring that the opportunity to confiscate post conviction is not lost.

The effect of a restraint order is that it freezes the estate of the person against whom the action is taken. It forbids the person from dealing with or disposing of the property, and effectively holds the property in abeyance until the question of confiscation is dealt with. A common misconception is that such assets are immediately removed from criminals. Effectively the assets remain with the person who continues to have the use of them, but which may not be disposed of once restraint is in place.

Restraint can be sought by the Crown where a criminal investigation has been instituted, or criminal proceedings have been commenced. Thus, even at the earliest stage, before a suspect has been charged, it is possible to move to restrain, where it is considered appropriate. It also applies to later stages of proceedings, where, for example, post-conviction and post-confiscation, assets have been identified which were not known at the time of confiscation, allowing for freezing of these additional assets with a view to seeking a variation of the confiscation order.

Investigative orders

There are a number of specific court orders which can be sought by investigators in the course of their endeavours in establishing proof of money laundering or in obtaining information for potential confiscation. The following can be obtained, on reasonable grounds being shown, at Sheriff Court level:

• search warrants;
• production orders (self-explanatory order to produce material);
• customer information orders (these require the financial institution or body to provide details of the identity of the customer); and
• account monitoring orders (this typically might be an order to require a bank to produce details of transactions in an account within a 90 day period, but the court might require justification for such a request, where a production order might suffice.)

Also, on application to the High Court:

• disclosure orders (these are only available from the High Court and were described in the guidance notes to the Act as "invasive" and anticipated to be used rarely.

Civil recovery

There are two aspects to civil recovery within the Proceeds of Crime Act. The enforcement authority has power to:-

1. Recover property which is or represents property obtained through unlawful conduct.

2. Seek forfeiture of cash which is or represents property obtained through unlawful conduct or which was intended to be used in unlawful conduct.

Civil recovery/cash forfeiture can be sought whether or not a criminal prosecution has occurred in the first instance. Where no criminal proceedings have been brought, this might be because of a lack of sufficient evidence to the criminal standard, or because of the death of a suspect. However, even where prosecution has taken place, civil recovery is possible on acquittal or where conviction did not result in confiscation. The time limit for bringing a civil action for recovery of property obtained through unlawful conduct is twelve years from the date of acquisition.

As will be discussed further in this report, in Scotland, the enforcement authority for civil recovery is the Scottish Ministers. However, the responsibilities of the Scottish Ministers are in fact discharged by the Lord Advocate, not as head of the system of prosecution in Scotland, but in an entirely separate function. In practice, the Civil Recovery Unit ( CRU) a specialised unit in Crown Office carries out this work which is entirely civil in nature.

Property

With regard to recovery of assets there are similar provisions to those in the confiscation regime regarding freezing of property called property prohibition orders. In addition there are provisions allowing an interim receiver to secure and preserve the property involved to ensure that the property remains in good condition in order that it can be eventually realised. There is a minimum value of such property to avoid trivial actions (currently £10,000).

The provisions of the Act for investigative orders, such as production orders, search warrants, disclosure orders, customer information orders and account monitoring orders all apply to the civil recovery regime on reasonable grounds being shown for such applications.

Following upon extensive investigation the Scottish Ministers may seek a recovery order for the property concerned. The court, if satisfied, must make a recovery order for the relevant property and appoints a trustee (this can be an internal appointment (so the accountant within CRU can carry out this role) to secure the property and amount for realisation. The trustee accounts to the Scottish Ministers who, in turn, pay the proceeds of the realised property to the Scottish consolidated fund.

Cash seizure and forfeiture

A constable or customs officer has power to seize cash if he has reasonable grounds for believing that it is recoverable property or intended for use in unlawful conduct. Initially the minimum amount was fixed at £10,000 in the 2002 Act. The current minimum was lowered to £1,000 in July 2006. The cash may be detained for up to 48 hours before an application must be made to a Sheriff for the continued detention of the cash for up to three months. There is provision for further requests to the Sheriff to continue to detain the cash for a period not exceeding 2 years. At any point during the cash detention period an application can be made by the Scottish ministers (in practice, the CRU) to the Sheriff, to forfeit the cash. Such forfeited cash is remitted directly to the Scottish Consolidated Fund, administered by the Scottish Government. Again, the standard of proof is on the balance of probabilities.

There are two essential differences between the criminal and civil regimes instituted by the Act:

1. Whilst confiscation can only follow on from a criminal conviction, for which the standard of proof is "beyond reasonable doubt", the standard of proof for a civil action to recover property or to forfeit cash is "on the balance of probabilities".

2. The criminal confiscation order is a monetary order for value, against a person, whereas the civil remedy attaches not to the person, but to the property.

Taxation

Part 6 of the Act provides that the Director of the Assets Recovery Agency (functions now taken over by the Serious Organised Crime Agency) has revenue functions. If there are reasonable grounds to suspect that income, profits or gains accrued to a person or company as a result of that person's or another's criminal conduct, then the Director can assume taxation powers. No source for the income need be identified. The powers include inter alia those to tax income, capital gains, corporation tax, and inheritance tax (on criminal property). Criminal conduct is widely defined as conduct which constitutes an offence in any part of the UK, but not tax offences themselves. Property is viewed as criminal property if it is linked with criminal conduct.

Money laundering

Three new provisions were enacted in the 2002 Act, designed to simplify and strengthen the law against "money laundering". (The term "money laundering" is derived from the Mafia's ownership of laundro-mats during the prohibition years, when they mixed legitimate income with their income from bootlegging, gambling and prostitution.) It is recognised that money laundering can have various stages: placement of funds to disguise their provenance; layering the funds by changing the form of asset and/or location; and integration when the proceeds are returned to the direct control of the criminal, having acquired an apparently legitimate source. It was recognised in passing these provisions that differentiating, for money laundering charges, between drugs offenders and others was artificial. For the first time in the UK, money laundering offences related to all criminal property, rather than separating the drug related crime from other forms of criminality. In addition, the distinction was removed, between laundering one's own criminal property as opposed to that of another.

The offences include:

• concealing, disguising, converting, transferring and removing criminal property. (section 327)
• The Act also strikes at facilitators who know or suspect that the property is criminal. (section 328)
• Lastly, acquiring or possessing criminal property. (section 329)

For the first time, it became possible to convict for money laundering without specifying the predicate (underlying) criminal offence. (for example, drug trafficking) However, in order to show that the property is "criminal" property, it is still necessary to establish, to a criminal standard of proof (ie beyond reasonable doubt) that the property is derived from criminal conduct of one sort or another. Since the passing of the Act in 2002 this definition of what constitutes criminal property and how it can be proved has been the subject of much deliberation in appeal courts both north and south of the border.

It is clear from recent court decisions that although the Act was framed in such a way as to allow a conviction for money laundering without specifying the type of criminal conduct which led to the criminal property in question, it is, in practice, very difficult to establish beyond reasonable doubt that the property is criminal without some evidence to show the type of conduct, or, circumstantial evidence which tends to show criminal conduct. In recent times, there have been two important decisions in the English Courts which have been followed with interest in Scotland.

In R v NW (R v NW, SW, RC and CC [2008] EWCA Crim 2

The court of appeal in England said that there had to be some particulars of the criminal conduct relied upon. This seemed to contradict the wording of the Act and the explanatory notes. However, another English case in 2008 on the same matter, R v Anwoir , McIntosh, Meghrabi and Elmoghrabi [2008] EWCA Crim 1354, provides a more helpful interpretation of the law, finding that there were two ways in which the Crown could prove that property derived from crime:

1. by showing that it derived from specific crime, or

2. by proving circumstances that give rise to an irresistible inference that the property can only be derived from crime.

In Scotland, these decisions have some bearing on how the law is interpreted. At the time of writing this report, the Appeal Court decision in the case of Zohaib Assad and Mohammad Ahmed was awaited. This appeal rests on the very issue of whether money laundering can be established in a situation where large sums of money were being transferred abroad by a money service bureau in incriminating circumstances.

On 24 June 2009, the court of appeal issued a judgement in relation to some of the grounds of the appeal by Mohammad Ahmad. In this judgement the court adopted the rational in the Anwoir case (supra). The court confirmed that circumstantial evidence leading to an irresistible inference that the property was obtained through criminal means, even when it was not possible to establish the exact nature of those criminal means, could be relied upon to establish a money laundering charge. Such a clarification of the interpretation of the money laundering provisions will be of great assistance to all in law enforcement and prosecution striving to prove such cases.