Chapter 2 – Strategy
34. In this chapter we provide further detail on the existing strategic approach to serious organised crime, as well as further develop our recommendation for a Scottish Proceeds of Crime Strategy to mainstream the use of POCA.
Serious Organised Crime Taskforce and Strategy
35. In the last chapter we commented on the Serious Organised Crime Taskforce, chaired by the Cabinet Secretary for Justice and noted the strong strategic leadership that has emerged here. During the course of this inspection the Taskforce launched its Serious Organised Crime Strategy which outlines a joint plan to divert, disrupt, deter and detect serious organised criminality. The Proceeds of Crime legislation was acknowledged to be an important tool in tackling serious organised crime. A genuine sense of joint ownership from the participants of the key criminal justice partners was seen to emerge during the development of the strategy. For this reason we have recommended that the Taskforce and its members adopt a similar approach to POCA.
The Scottish Strategic Assessment
36. The Scottish Strategic Assessment, produced annually by ACPOS, provides an intelligence-led strategic profile of crime and disorder in Scottish communities. On the basis of this evidence it also sets out recommendations for prevention, intelligence and enforcement activities.
37. Having first appeared in the 2007 Scottish Strategic Assessment, serious organised crime has again been identified as one of a number of 'very high priority' areas in the Scottish Strategic Assessment for 2009/10 6. To support this, a number of proposed intelligence and enforcement activities advocate the use of POCA powers. We are therefore satisfied that arrangements in the Scottish police service reflect, in general terms, the priority given to serious organised crime nationally through the Serious Organised Crime Taskforce.
Mainstreaming financial investigation
38. If the true potential of POCA to remove the financial incentive to commit crime is to be realised, then financial investigation also needs to be a proactive rather than reactive tool. In other words, police officers need to gather intelligence on the assets and lifestyles of criminals at all levels as a matter of routine. This would overcome the current situation whereby financial investigations are only started after a predicate offence, typically of a serious nature, comes to light. At the present time there is little evidence of financial intelligence gathering or investigative techniques being used, beyond the small number of specialist investigators in force-level FIUs across Scotland. Consequently, financial investigation remains for the time being a largely peripheral discipline rather than a generic investigative technique.
39. As we have already observed, effective arrangements have been developed in order to deal with POCA offences committed by Organised Crime Groups ( OCGs). The Scottish Money Laundering unit ( SMLU) within the SCDEA, and Strathclyde Police have developed significant competence and expertise in this area in particular. However it is clear to us that overall efforts are hampered by a lack of financial investigation capability and awareness at force and divisional level across the country. OCGs are active across Scotland, with criminal networks operating at national, regional and local levels simultaneously. In order to be effective local police forces and law enforcement agencies generally need to pursue the assets of the major criminal players as well as the assets of lower level criminals.
The range of crimes combated
40. During the inspection it was clear to us that law enforcement agencies were focusing on drug offences and paying less attention to the POCA opportunities in particular in relation to acquisitive crime and more generally for the entire range of offences contained within the Act. Even within the reactive casework currently being dealt with, the scope of the Act was not being fully recognised and many offences which ought to attract the attention of financial investigation units were not being highlighted.
41. This situation is borne out by a review of all cases resulting in confiscation since 2003, an examination of which revealed the following:
- 440 confiscation orders were made in Scottish courts during the period April 2003 to March 2009;
- 80% of confiscation orders were a result of offences under the Misuse of Drugs Act 1971;
- fewer than ten per cent of all confiscation orders were for crimes of dishonesty: offences of fraud accounted for four per cent; embezzlement two per cent; theft one per cent; and reset 0.9%;
- copyright and trademark offences and video recordings offences accounted for just under five per cent of confiscations;
- other assorted crimes for which confiscation was ordered included brothel keeping (one per cent) and money laundering (one per cent), as well as offences of extortion, fisheries, insolvency, betting and gaming, money lending, and forgery; and
- VAT fraud accounted for only 0.9% of all confiscation orders, although the largest confiscation amount of over £1.2 million was recorded in 2006 for VAT offences.
42. Confiscation can apply to a wide and varied criminal casework as is shown in section 142 of the Act and in Schedule 4 7. Whilst drug related offences appear in Schedule 4 of the Act, a wide variety of other offences are also listed. The criteria are wide enough to relate to common law offences of dishonesty of any type, such as robbery, housebreaking, theft, fraud, forgery, embezzlement, as well as to statutory offences such as breaching trademarks and copyright legislation, and brothel keeping (see Appendix 5). It is evident that greater awareness of this fact is needed if the full impact of the legislation is to be realised. Indeed the Scottish Serious Organised Crime Strategy proposals for reducing the 'benefit of crime' threshold from £5,000 to £1,000, and extending the range of offences covered in Schedule 4 of the Act indicates a willingness to broaden the impact of the legislation.
43. Furthermore, the substantive law of money laundering, contained in sections 327 to 329 8 of the Act is also perceived as specialist and difficult. It appears to be the domain of financial investigators rather than of mainstream operational officers. This may be partly due to uncertainty over interpretation which is only now being clarified. 9 We believe that this substantive law could be used more widely than is currently the case.
44. As part of the inspection we visited the Metropolitan Police Service in London and were particularly impressed with the way that financial investigation techniques were used alongside more traditional investigative tools across a broad range of crimes there. An example of this approach is given below. We believe that the police service in Scotland can achieve similar results by developing its POCA competence and capability at a local level across Scotland.
Problem: Anti-social behaviour and violence
Solution: Subject forced to sell house and then moved out of the area
A recidivist criminal was responsible for a significant amount of anti-social behaviour in a housing estate. This had caused misery to the local community for many years. He was linked to theft, burglary, drugs and road traffic offences but local residents were reluctant to give evidence against him. As a result he was seldom convicted.
Financial investigation revealed that the criminal was unemployed yet had obtained a mortgage and several loans on the strength of false information provided to finance companies. It was also discovered that he was claiming benefits, including disability benefit, under false pretences.
Subsequently, sufficient evidence was obtained and the criminal was arrested and charged with four counts of obtaining and retaining wrongful credit. His details were then passed to Department of Work and Pensions investigators in relation to fraudulent benefit claims. Consequently the criminal was forced to sell his home and moved out of the area. Further investigation is continuing with a view to confiscate profits made from the sale of his house.
45. In conclusion we have observed that the Serious Organised Crime Taskforce ( SOCT) has produced a comprehensive strategy to tackle serious organised crime, and has highlighted therein the importance of POCA as an essential tool in this regard. There is some evidence that the Scottish Strategic Assessment is providing effective arrangements in relation to serious organised crime. Below that level of criminality, we found no evidence of strategic thinking around using POCA.
46. For mainstreaming to occur in policing, every operational officer would need to have a basic understanding that any crime motivated by financial gain should be considered for POCA potential. Rather than the FIU trawling reports for potential it should be brought to their attention by reporting officers. Further, operations should be planned with a financial investigative angle, where appropriate so that proactive measures to identify assets for restraint are applied early and operational officers are alert to the possibility of money laundering offences.
47. In COPFS too, the prosecution of serious organised crimes are prioritised through strategic planning. The role of confiscation and asset recovery is highlighted in its latest strategic and business plans in support of this priority. This strategic focus ensures that the provisions of POCA are well used and understood by those regularly dealing with such cases in Crown Office.
48. COPFS strategy for POCA appears to support the use of the legislation at the serious crime level. The adoption of central specialist units to deal with all aspects of POCA follows a pattern that has emerged in recent years, towards creating specialist units to deal better with complex fields of law. The Proceeds of Crime Unit ( POCU) in NCD is a specialist unit dealing centrally with all aspects of confiscation, restraint and investigative orders preceding confiscation. This is a central unit whose staff have accrued expertise and knowledge to ensure that considerations about investigative orders, restraint and ultimate confiscation are properly made. Money laundering offences are also, in the main, dealt with in NCD and are not widely understood or used outwith the specialist unit. Such a strategy has resulted in very patchy awareness of the Act among those who do not work in the units. Thus, while the police have been slow to recognise the full potential of acquisitive crime for confiscation, so COPFS has done little to challenge the situation.
49. Specialist units have the perhaps unintended additional consequence of de-skilling or under-skilling those working in the mainstream investigation or prosecution arena: if the message from the centre is that this is complicated work requiring expertise, then generalists tend not to get involved. The wider effect has therefore been to instil a perception among many legal staff that confiscation is a mysterious and complicated adjunct to conviction, rather than a tool which can and should be used widely. In addition, Procurators Fiscal, for the most part, have been content to wait for law enforcement to identify opportunities to use POCA rather than adopting a more proactive position.
50. Nevertheless we did find some exceptions to this general trend from staff who had previously worked in NCD. One former NCD depute told us of the under-noted example:
C was reported to the local PF by the police for a number of offences relating to the theft of tractors and caravans. The crime report showed that he had previous convictions over the preceding six years. The case papers for his previous offending were examined by the marking depute and showed that these previous offences related to crimes of dishonesty. This was a time-consuming exercise for the marking depute as it required him to examine closed cases to ascertain the value of the items stolen.
The PF then contacted the local FIU. No financial investigation had been carried out on the accused. However, when the FIU began to probe the financial means of the accused, it became clear that there were substantial assets. A restraint report was submitted and C's estate was restrained.
51. This example underscores both our contention that POCA should be applied to more than just drug offences, and how the awareness of Procurators Fiscal can be vital in spotting omissions made by law enforcement agencies. Of course, COPFS rightly expects law enforcement agencies to identify such cases. After all, the information about the suspect's lifestyle and assets necessary to assess whether confiscation is appropriate or viable is the domain of those at the frontline of an investigation. However it is apparent that, aside from serious crime reported directly to NCD, COPFS has been content to leave such considerations almost exclusively to these law enforcement investigators.
Harm reduction - is prosecution the only option?
52. Given that COPFS is a prosecution service, it is not surprising and indeed it is right that COPFS' strategy should focus on the conviction of an accused first and confiscation as an adjunct. But whilst acknowledging the policy of giving priority to the criminal investigation and prosecution of those suspected of committing criminal offences 10, all parties recognise the need to review how this is implemented. Indeed it has become evident to those working in the area that such a policy could work against the stated aim of the law, i.e. to disrupt and deter financially-motivated criminality.
53. During this inspection we repeatedly encountered the view, both north and south of the border that the objective of POCA should be to disrupt criminality in order to reduce the harm caused to communities. Though we share this sentiment, we saw no evidence of it being translated into either explicit strategy or tangible reality; on the contrary, partner agencies were, by default, operating with an almost exclusively prosecution mindset. The civil and taxation provisions in particular did not appear to feature greatly in strategic thinking, suggesting to us that they are not being fully exploited in Scotland.
54. We do not suggest that the current approach is flawed. Rather, we would urge that the timing of decisions about which route to pursue be tightened, so that where prosecution is not viable other options including direct referral to CRU by the police (subject to guidance issued by COPFS) are considered more swiftly. The Act itself sets no such strict framework and we welcome the views of many senior officials in both the police and COPFS that a swifter, more strategic use of all the powers of the Act could and should be used to greater effect.
55. In adopting a prosecution-focussed strategy, COPFS created structures and processes to suit. The result is that the recovery of criminal assets by civil recovery is considered only following failed or abandoned prosecutions, where confiscation has been considered or where an accused has died. The time-lag that this inevitably causes can prejudice the civil investigation. In the present structure, case papers reach the CRU at a time when the information about assets is considerably out of date. It is accepted that such a situation is inevitable in some circumstances, for example where prosecution has failed.
56. In cases where the Crown decides that no proceedings are appropriate because the evidence does not reach the criminal standard, a referral can also be made to the CRU. Again this system seems to cover only cases reported to NCD as substantive crimes such as money laundering or cases for potential confiscation. Referrals are not made to CRU by Procurators Fiscal around the country.
57. Anecdotal reports from some forces suggest that the system too can be subject to delays. Unfortunately, the absence of performance information meant that it was not possible to confirm the existence or the length of delays. In many cases we understand that there were good reasons for delays eg where further enquiries are needed before a proceedings decision can be made. Nevertheless, we believe that these matters could be resolved by more effective communication on a case-by-case basis between parties.
58. Although we heard of the willingness of all parties to give greater consideration to how they might use POCA more appropriately, encouraging initial discussions had yet to be formalised and acted upon. We understand that a draft Memorandum of Understanding ( MOU) for referring cases from SCDEA for early CRU consideration has been prepared. It is our contention that such an arrangement should be open to all police forces and other relevant law enforcement agencies in Scotland.
59. The draft MOU retains the condition that the route for referral to CRU should be via NCD. Whilst such an arrangement would allow NCD to confirm that criminal proceedings are not appropriate, we are reassured by the current effective mechanisms in place in CRU to return cases for prosecution should sufficient evidence come to light. We believe that there is room for a more direct route to CRU for cases where there is no prospect of a criminal prosecution and that the route need not always be via NCD. In order for such a change to take place, law enforcement agencies would require clear guidelines as to the criteria and evidential standards required by CRU.
60. In the same way that local Procurators Fiscal need to have a better awareness of the criminal confiscation elements of POCA, there a need for similar awareness about civil recovery. In addition just as prosecutors taking criminal proceedings need to think about POCA opportunities, prosecutors marking cases 'no proceedings' should also consider the potential appropriateness of a civil recovery option and discuss this with the reporting agency.
61. Just before the start of our inspection, the head of the CRU initiated a scoping process requiring forces to review individuals known to them whose property might fall into the category of property obtained through unlawful conduct, for the purpose of civil recovery. Early indications were that forces were able to identify a considerable number of individuals meeting these criteria. While it may not be possible to gather sufficient evidence to prosecute them, if their property has criminal links then civil recovery may offer an alternative route. At present there is no direct route to bring such cases to the attention of CRU. Indeed, they may never be reported to the Crown at all due to acknowledged lack of evidence. We suggest that the current strict referral procedure to CRU via NCD has perhaps unintentionally blinkered the approach of law enforcement agencies who have not been encouraged to consider the civil recovery option in a strategic way.
62. It is acknowledged that some activities involving the provisions of the Act are best left to specialists. That said, it is essential that those in general practice in COPFS know and understand how and when such provisions might affect their casework. Therefore we suggest that the strategy of COPFS relating to POCA should be to develop and maintain a mainstream understanding and awareness of the criminal and civil potential of POCA to support the law enforcement agencies who report cases to them. In this way, we suggest, the strategic aims of the Taskforce in relation to serious organised crime might be furthered and the provisions of the Act used.
63. In conclusion, we found that the strategic direction set by COPFS at the time that POCA was enacted was consistent with its prosecution focus. The processes and structures that were then put in place again reflect that focus. Over time the legislation has became embedded and perceptions have altered as to how the Act can, when utilised to its full extent and in partnership with other agencies, solve local community problems as well as delivering swift effective justice against serious organised criminals.
64. Many practitioners have come to a wider view that advocates full use of the Act to disrupt criminality. This is consistent with the intention of the Act. Therefore we believe that COPFS should broaden its strategic approach to POCA. In doing so it will better be able to:
- support the broader intention of the legislation;
- support the SOCTF strategy; and
- support delivery of COPFS current draft strategic objectives.
We acknowledge that there will be implications in delivering this strategic intention in terms of changed processes and increased resourcing within the current COPFS structure. We return to these in more detail in the following sections of this report.
65. Our inspection also involved looking at other jurisdictions. We considered how the Irish had tackled criminality using their proceeds of crime legislation. We visited both the Criminal Assets Bureau and the Director of Public Prosecution ( DPP) in Dublin to carry out our research. Our findings are particularly relevant in relation to the civil and taxation powers of our own legislation.
The Irish Experience
During our inspection we met members of the Criminal Assets Bureau ( CAB) in Ireland and the senior solicitor at the Office of the Director of Public Prosecution ( DPP) heading the specialised proceeds of crime unit responsible for criminal confiscation. CAB is a multi-agency, multi-disciplinary body that applies non-conviction civil forfeiture and taxation and welfare sanctions.
Confiscation is an integral part of the criminal prosecution work carried on in the DPP. In 2007 a specialised Proceeds of crime unit was set up within the Office of the DPP to deal with all freezing orders and High Court proceedings arising from this work. It is a small unit, comprising one full-time senior solicitor and other legal staff on a part-time basis as required.
Where a case is prosecuted and criminal confiscation is appropriate, the DPP will seek confiscation. Such an order will take precedence over any civil recovery order. Good communication between the two organisations minimises any duplication of effort and, where both agencies have an interest a decision is taken after consultation as to the most appropriate method of dealing with a reported case.
Around 70 staff work in the CAB team in Dublin, and law enforcement agencies can report directly to the CAB. Often they will receive reports from members of the public concerning suspected criminals and such reports are encouraged by CAB. Some of those targeted by CAB have tended to distance themselves from direct involvement in criminal activity but nevertheless have substantial assets. An early decision is made as to whether civil recovery, taxation, or social welfare sanctions, or a combination of these, is appropriate. The decision is made by the head of the CAB in consultation with the bureau legal officer.
The CAB annual report of 2007 states that funds paid to the Minister for Finance in civil recovery cases amounted to nearly 255,000 euros, whilst taxation receipts accounted for just over ten million euros. Thus whilst the civil recovery option is used, it is taxation that accounts for the larger sums that are reclaimed. Interestingly though, the Irish government does not set monetary targets for the CAB. Nor is there any direct relation to funding the CAB from proceeds of crime receipts.
The recent experience of CAB showed that whilst the tactic of targeting the bigger criminal players had netted considerable sums of money, local communities had also felt the benefit of targeting some of the lower level criminals whose negative impact on local safety and wellbeing was more immediate to them.Lastly, assets subject to Irish civil court order but held abroad were more difficult to seize, as many foreign legal systems have concerns about a non-conviction asset recovery regime.
66. Potential lessons for Scotland from Ireland include the method of directly reporting potential civil cases, and the relationship with taxation where civil recovery is not feasible. This is not to detract from the current criminal confiscation process but rather to complement it.
67. In sum, with much of Scotland's prosecutorial capacity and capability centred in NCD, criminal offenders can be convicted, sentenced AND ordered to pay back their proceeds of crime. Where this is possible it is the right thing to do. However, the size and capability of the Irish CAB model shows that a multi-agency approach to civil recovery and taxation, which receives direct reports from law enforcement agencies and shares information effectively, can be very successful.
68. Although the scope of our inspection did not extend to the use of taxation powers under the Act, we observed a developing partnership working arrangement between CRU and the tax authorities, namely SOCA and HMRC. In some cases a dual approach was adopted by the CRU and tax authority so that both civil and taxation options were considered simultaneously to good effect.
69. The financial investigations carried out by tax authorities were in themselves a rich source of information that could assist law enforcement agencies in pursuing associated criminals. Moreover, the experiences of Ireland and England showed that taxing one member of a criminal gang often led to cash flow problems for the criminal enterprise as a whole, which in turn could lead to new criminality coming to light elsewhere in the structure of the enterprise. Therefore, the tactical use of taxation powers was a relevant consideration in strategic criminal investigations.
70. The CAB officers felt that their success was partly due to their co-location and partly to their ability to share information. In the UK, the merger of Customs and Excise with the Inland Revenue has created Her Majesty's Revenue and Customs ( HMRC). Under section 20 of the Commissioners of Revenue and Customs Act 2006, information about taxpayers may not be shared with other government departments except through a recognised legal gateway. Concerns were expressed to us during the course of this inspection about the ability of HMRC to share information with its criminal justice partners. Activities such as information sharing between criminal justice agencies may require high level agreements and memoranda of understanding. We believe that these should be addressed by a Proceeds of Crime strategy group.
71. In this chapter we have described effective strategic approaches to serious organised crime at a national multi-agency level as well as within the police service and COPFS. At the same time we have emphasised the need to mainstream knowledge and awareness of the powers contained within the Proceeds of Crime Act fully in order to disrupt and reduce the harm caused by all the types of criminality the to which the Act applies, and at all levels. In this regard we have recommended that a Scottish Proceeds of Crime Strategy be developed with mainstreaming as one of its main aims. We have also called for greater use, and earlier consideration of, civil (and taxation) powers.
72. We suggest that the Proceeds of Crime Strategy focuses on the following:
- creating sufficient capability and capacity across partner agencies;
- ensuring that criminal, civil and taxation powers contained in the act are used as effectively as possible; and
- establishing a proactive rather than reactive approach to financial intelligence gathering and investigation.
73. Although we make the following recommendation at this point in the report it is a common thread throughout:
Recommendation 1 . That as a matter of routine, the use of the Proceeds of Crime Act be mainstreamed within the police service in Scotland and COPFS so that from intelligence gathering to investigation and prosecution;
a) all confiscation opportunities are considered and where appropriate brought into effect against the full spectrum of relevant crime as provided in the Proceeds of Crime Act 2002; and
b) where it is clear that criminal proceedings are not appropriate, that civil recovery (and taxation) provisions are considered at an early stage of investigations and that a direct route is made available to the Civil Recovery Unit in clearly defined circumstances.