Chapter 3 – Processes
74. In this section of our report, we look at the various processes in place to support the provisions of the Proceeds of Crime Act. From the police perspective we focus upon financial intelligence-gathering and development, the identification of cases with confiscation potential, investigative techniques and the Suspicious Activity Report ( SARs) regime. Under COPFS, we examine communication between local Procurators Fiscal ( PFs) and Crown Office staff, the processes in place both at local level and within Crown Office, how PFs identify potential confiscation cases, and other aspects of local work relating to POCA. In Crown Office we examine arrangements in the confiscation unit of National Casework Division relating to restraint, investigative orders, confiscation, and post-confiscation. We also consider money laundering processes and how this is considered by the Crown. And lastly, we examine the processes involved in the civil options of cash seizure through to forfeiture, and asset recovery.
Intelligence-gathering and development
75. Good financial intelligence is clearly vital to successful financial investigation. It also has value beyond activities relating to POCA. During the inspection we saw how intelligence about criminal finances and assets is valuable in many investigative settings and can lead directly or indirectly to operational success, as shown below.
The benefits of financial intelligence at divisional level
Financial intelligence can both instigate investigations and provide additional and new material in support of existing investigations. Consequently financial intelligence can assist at a force and divisional level in a number of ways:
76. Given how important financial intelligence can be, we were disappointed at how little is actually gathered, developed and entered on the Scottish Intelligence Database ( SID). As we have already observed, each force in Scotland has recognised the need for a Financial Investigation Unit in order to carry out the specialist work required to support confiscation, money laundering cases and cash seizures. What is still lacking though, to the detriment of wider investigation, is an appreciation of the more general value and applicability of financial intelligence-gathering.
77. We urge that efforts be made to redress this intelligence shortfall across the police service as a matter of urgency and that this is done so through the proposed Scottish Proceeds of Crime Strategy. There are many, relatively easy ways to enhance the quantity and quality of intelligence in this area, such as when conducting searches of people, vehicles or premises or being more alert to visible cues of sudden or unexplained wealth such as expensive cars or exotic holidays. Recording such intelligence on SID makes it accessible to investigations throughout Scotland.
78. In the text box below we outline the approach developed in England, Wales and Northern Ireland to ensure that intelligence opportunities in the custody setting are fully exploited. We believe that such an approach has particular merit and should be considered in Scotland.
Intelligence opportunities in custody and compliance
In England the CPS in Greater Manchester devised a system whereby police were required to complete a form ( MG17) designed to assess an offender's assets at the time of arrest. The form must be completed by the arresting officer and then passed to the appropriate CPS lawyer, together with all other relevant reports and associated paperwork. Thereafter the forms, which are treated as restricted documents, are passed to the FIU. This intelligence is pivotal in allowing prompt action on restraint for confiscation or a potential money laundering investigation.
In 2007 the National Police Improvement Agency ( NPIA) conducted a review of POCA arrangements in England and Wales, based on their observations in eight pilot sites. They found that completion rates of MG17 forms were disappointing low - for example, only 12% of arrests for acquisitive crime resulted in a completed form. Recognising the importance of this intelligence, and of the early discussion between the police and the CPS that it prompts, one pilot has made improving performance in this area a priority. The 66% completion rate now achieved in the pilot area has been brought about by:
The NPIA concludes that:
"The information on the MG17, or equivalent, will determine the success of potential prosecution for money laundering offences, confiscation assessment, consideration of early use of restraint, and considerations concerning searches of premises for financial evidence and intelligence."
(Source: 'Practice Advice on the Management and Use of Proceeds of Crime Legislation', 2008. NPIA)
79. It is our view that a programme of awareness-raising is needed if the progress required in this area is to be made. Possible methods might include stressing the need for financial intelligence in force and divisional intelligence requirements, operational orders and briefings.
80. During the inspection, anecdotal concerns were raised regarding the storage of financial intelligence on the Scottish Intelligence Database. Specifically it was suggested that if and when financial intelligence is entered on SID, it may be weeded out by local intelligence officers who fail to recognise its potential worth or understand the need to keep financial intelligence for up to 12 years. We believe that the Service should review its guidelines for storing and weeding financial intelligence. This is particularly relevant given the fact that the criminal provisions in POCA cover the previous six-year period, while the civil provisions cover a 12-year period.
Suspicious Activity Reports ( SARs)
81. In our view, the SARs regime offers another rich source of financial intelligence that has yet to be fully exploited in Scotland. Part 7 of POCA established two distinct regimes for handling suspicions about criminal funds. The first requires institutions in the regulated sectors to disclose (as SARs) to the Serious Organised Crime Agency ( SOCA), any suspicions that arise concerning criminal property. The second allows persons and businesses in general, and not just those in the regulated sectors, to defend themselves against complicity in money laundering charges by seeking the 'consent' of the authorities (via SOCA) to conduct a transaction or undertake other activity (a 'prohibited act') about which they have concerns.
82. The legislation provides the authorities with seven days in which to respond, and if consent to proceed is refused the transaction or activity must be frozen for a further 31 days. In addition, POCA makes it an offence, having made a disclosure, to reveal information that is likely to prejudice any resulting law enforcement investigation. It is worth noting that the definition of criminal property in the legislation is sufficiently broad to include property obtained in or following acquisitive crime and the proceeds of crime generated overseas, and not just serious organised crime and the proceeds of criminality obtained within the UK.
83. In 2005 Sir Stephen Lander reviewed the SARs regime and noted a perception that law enforcement agencies were not using SARs enough to detect and prevent crime and recover criminal proceeds 11. This finding was subsequently reflected in a number of recommendations targeted at financial investigators. Progress against all 24 recommendations of the final report is documented in the SARs Annual Report produced by SOCA. In general terms, efforts by the UKFIU in SOCA to improve both the quantity and quality of Suspicious Activity Reports have enjoyed some success 12.
84. For the purpose of this inspection, we were particularly interested in the objective to achieve a SARs regime that provides the best possible balance between:
- the costs to reporters and other regime participants;
- addressing the threats to the UK from crime and terrorism; and
- the reward that the regime potentially offers through reducing harm and recovering the proceeds of crime.
85. The scope of this inspection does not extend to SOCA or indeed the SARs regime, which are inspected by HMIC in England and Wales and the SARs Regime Committee respectively. However, it is appropriate for us to inspect the extent to which the Scottish police service is using the SARs regime as an intelligence source to reduce the harm caused to communities by crime and to recover the proceeds of crime in Scotland.
86. Here in Scotland the SMLU acts as a single point of contact with SOCA and receives in the region of 8,000 SARs every year. Each SAR is assessed and, where possible, enhanced by both open and closed sources of intelligence. In the region of eight per cent of SARs are subsequently enhanced before being forwarded on to the appropriate force. Due to the high volumes of SARS and the relatively small number of financial investigators available in each force to deal with them, the SMLU became concerned at the low level of response being achieved. Consequently a service level agreement ( SLA) was agreed between ACPO(S) and the SMLU which commits forces to, at the minimum, investigating enhanced SARs passed to them by the SMLU.
87. During this inspection it became clear that in many cases forces are doing little more than investigating enhanced SARs, largely because of the low number of officers working in FIUs and a range of competing demands. This is a cause for concern, not least because of the efforts made by the regulated sector to report what they believe to be suspicious incidents and those of SOCA to further increase the quantity and quality of SARs. Furthermore, where forces have adopted a proactive approach and further developed a greater number and wider range of SARs, they report that this has led to positive identifications of criminality.
88. Two English case studies produced by SOCA are included below to illustrate the potential contribution of SARs.
Case Study 1 - An apparently minor SAR
A SAR relating to a relatively minor financial transaction led to the arrest of an individual for money laundering and drug trafficking. Enquiries into the subject of the SAR identified a property portfolio that was inconsistent with the subject's status. Production orders were obtained in order to obtain evidence to support the intelligence provided by the SAR. The subject was arrested and searches revealed suspected criminal property valued in excess of £1.5 million and several hundred thousand pounds worth of controlled drugs.
Case Study 2 - SARs in support of ongoing investigations
A single SAR revealed a link between an individual and a well known criminal that pushed an existing financial investigation forward and assisted in the discovery of an underlying predicate offence - insurance fraud. The investigation resulted in one conviction for obtaining money transfers by deception and another for money laundering. In addition, over £250,000 was subject to confiscation. This illustrates the potential for a SAR to assist an ongoing investigation by identifying previously unknown details.
89. We therefore believe that, in line with our call for a more proactive approach to financial investigation in general, forces should consider reviewing current arrangements for developing and investigating SARs with a view to improving the use of SARs intelligence.
90. In January 2009, the SCDEA held its 'Risky Business' conference in conjunction with the Scottish Business Crime Centre. The conference, which was the first of its type in Scotland, was aimed at senior business leaders and sought to raise awareness of the risk caused by organised criminals and identify ways of protecting legitimate business. While we support this over-arching aim, further engagement with the regulated sectors in Scotland is needed to encourage compliance with the SARs regime and in turn enhance the quantity and quality of SARs reporting.
91. As part of the inspection we also attended the latest in a series of 'Payback' conferences held by the SOCAUKFIU across England and Wales. These events target small- and medium-sized regulated organisations in order to improve compliance with SARs requirements. Such an approach has not been adopted in Scotland but we believe that there is clear need to do so in the near future.
92. The potential for confiscation in criminal cases was for the most part identified not by operational officers but by financial investigators post- arrest. In this reactive environment the officers based in force FIUs have systems in place to check the reports submitted by divisional officers. Everyone we interviewed referred to systems that identified cases with reference to the offences listed in Schedule 4 to the Act. Some financial investigators described identifying acquisitive crime in the same way.
93. However as we have already noted the majority of cases in which confiscation is obtained are drugs crimes. We were not persuaded that robust methods had been used to identify those cases falling into the 'criminal lifestyle' categories listed in s142(2). In particular, we found no evidence of systems to identify criminals who had a record of offences of dishonesty which might place them in the category listed in section 142(2)(b) (see Appendices 1 and 2 for details of Schedule 4 offences and the 'criminal lifestyle' categories).
94. We accept that some research into the previous convictions of the accused is needed in order to determine whether his or her offending in the preceding six years accrued a gain of £5,000. However, we believe that the benefits of fully using these provisions far outweigh the additional effort likely to be required and urge the Service to develop arrangements to address this matter as efficiently as possible. We believe that this is another matter that should be dealt with through the proposed joint Scottish Proceeds of Crime Strategy.
95. We observed little consideration of the wide-ranging provision of 'particular criminal conduct' in identifying possible cases for confiscation. We take the view that identifying confiscation opportunities will in the main rest with law enforcement agencies, as they have the means to obtain the financial information needed to determine whether confiscation is viable. However, we go on to acknowledge the part that COPFS can play (see paragraph 117 et seq).
96. Although our remit did not extend beyond the police service and COPFS, over the course of this inspection we observed the processes developed by the police service to support a number of law enforcement partners in Scotland. In terms of criminal confiscation, we found that, for example, the Department of Work and Pensions ( DWP) had established a unit of financial Investigators in Scotland. However, there was no similar arrangement for Trading Standards departments.
97. Since offences under Schedule 4 13 of the Act include Copyright and Trade Marks offences, we were interested to learn how such cases were referred to NCD for potential confiscation. Some police forces have proactively developed good systems and procedures for working with their counterparts in local authority Trading Standards departments. For example, Dumfries and Galloway has developed an agreement backed up by a draft Memorandum of Understanding with its local Trading Standards department. Strathclyde Police maintain close links with a number of law enforcement agencies including Trading Standards, FACT (Federation Against Copyright Theft) and the Illegal Money Lending unit.
98. In other forces a more reactive situation exists. Since the local authority Trading Standards department reports crime directly to the Procurator Fiscal, the local Procurator Fiscal is relied upon to identify the confiscation potential. In such cases we are not convinced that identification is always being made. We suggest that there may be merit in reviewing current arrangements between police forces and partner agencies when drawing up the Scottish Proceeds of Crime Strategy, in order that a consistent approach can be developed across Scotland.
99. The Proceeds of Crime Act also contains provisions relating to circumstances, post-confiscation, in which new information comes to light that has an impact upon the assessment of the available amount at the time of confiscation. The case study outlined below illustrates one such circumstance.
In a 2007 14 case a late petition was made to the court for confiscation. The circumstances were that W pleaded guilty in July 2004 to a charge of contravening s4(3)(b) of the Misuse of Drugs Act 1971. Scottish police officers were aware in 2003 of his home address, which was in England, and an officer had checked the electronic database of the English Land Registry to find out if he was the owner of that property. The response to the electronic enquiry gave an inaccurate result which the officer relied upon without checking further. The officer who made the search believed in good faith that the information he obtained showed that W was probably living in a local authority house and had no assets. He therefore made no report of assets to Crown Office, and in the absence of any such report the Crown did not ask the court to make a confiscation order at the time of his conviction. The Crown later learned of W's proprietary interest in the house in question and was successful in petitioning the court for a confiscation order.
100. Where evidence comes to light after no confiscation order has been made, the Crown can ask the court to reconsider the case (s104), reconsider the benefit from new evidence (s105) or, where an order is made but evidence of a greater benefit comes to light, reconsider the benefit figure (s106). In order to preserve the integrity of the entire confiscation process it is vital that there are systems for reviewing a criminal's post-confiscation change of circumstance and for considering provisions concerning the benefit of crime. As a result, we urge forces to address the current lack of robust processes in FIUs for dealing with this.
Police financial investigation
101. The largely reactive arrangements in place across Scotland and the lack of financial intelligence being gathered support our overall conclusion that the police service in Scotland has not yet fully embraced POCA. There is a need to improve the technical ability of those working in the financial investigation field. In fact, during the inspection financial investigators frequently called for more advanced financial investigation training in order to extend their skills to include, eg money laundering investigative considerations and techniques or to attend the financial investigators course at the Scottish Police College (we return to the subject of training in the People section).
102. On the other hand we believe that a cultural shift is needed if the Service is to begin to consider using other police assets in support of financial investigations. For example, in our opinion greater use of surveillance resources in money laundering cases and indeed for other aspects of POCA, is likely to yield positive results. At present surveillance resources are much more likely to be used for investigations focusing upon the supply of controlled drugs or the activities of particular potential sex offenders. We do not suggest that these surveillance resources be redeployed to focus on money laundering cases and general financial investigations as a matter of course. But we do feel that there is merit in police forces considering the use of surveillance techniques to support a more proactive approach to financial investigation.
103. As we argue elsewhere in this report, we believe that a more proactive approach to financial investigation across all levels of criminality has the potential to disrupt criminality significantly at all levels and disincentivise many individuals from embarking upon criminal activity. The use of surveillance is likely to prove a rich source of additional intelligence to assist this endeavour. It should therefore be given more consideration in Scotland than it currently receives.
104. Throughout the Scottish police forces we found evidence of fairly widespread knowledge of cash seizure as a concept but, in some cases, less detailed awareness of the exact provisions of the Act. There were also clear and well developed processes relating to the cash seizure aspects of POCA.
105. All forces provide guidance to frontline officers, that is continuously available, often through an intranet application. This appears to work well. In addition, divisional financial investigators in Strathclyde Police offer local guidance and support on cash seizures to front-line officers. This further highlights the practice of mainstreaming financial investigation competence referred to elsewhere in this report. However, it was also noted that reacting to cash seizure cases is now taking up the majority of these divisional financial investigators' time and leaves little time for additional proactive activity.
106. FIU officers in a number of other forces, including Fife and Dumfries and Galloway constabularies, operated an out-of-hours on-call service providing round-the-clock expert advice on cash seizure cases. We highlight this as an example of good practice, whilst acknowledging the potential adverse impact on staff and the high costs associated with maintaining an on-call roster. For these reasons we are content to allow forces to make their own decisions rather than make a specific recommendation in this respect.
107. In one force, targets had been set for cash seizures which had contributed to an increase in the number of such seizures. However, anecdotal reports that this had led to a higher number of cases where the cash subsequently had to be returned through lack of sufficient grounds might suggest that further training is required. Concerns were also expressed that the drive to meet targets was having the unintended consequence of cash seizure being seen as an end in itself and that the opportunity to use cash as an adminicle of evidence for, say, forensic analysis, in support of a conviction was lost.
108. In cases where the cash can be seized as a production to support a conviction, this should always be done. Such cash may be subject to forfeiture on conviction, and in the event of an acquittal or the case not proceeding to trial, the option to seize the cash under section 295 of the Act would still be available. During our visits it seemed that officers were consistently being advised to treat sums of money potentially linked to criminality as productions in the first instance whenever appropriate, rather than as a cash seizure.
109. Therefore, whilst police officers appear to be well versed in the law in terms of when and in what circumstances it might be appropriate to seize cash, this should not be at the expense of potentially obtaining a conviction. We would encourage those charged with developing the Scottish Proceeds of Crime Strategy to give due regard to this.
PROCESS MAP 1 - CONFISCATION
CONFISCATION PROCESS MAP 2
Processes in Procurator Fiscal offices - The criminal case
110. Two process maps have been prepared which show a very simple, typically reactive case from arrest to confiscation and beyond. As can be seen from the confiscation process map 1 the process of confiscation runs parallel to a substantive criminal case. On the left hand side of the process map we have detailed the typical stages of a case involving, say, drug dealing. Whilst the reporting officer in the law enforcement agency reports the crime to the PF in the appropriate jurisdiction, the financial investigators within that reporting agency may consider that confiscation might be appropriate. As we have seen from the police processes, it is the financial investigators rather than the operational officers who look for POCA opportunities. Likewise, with a few exceptions, we found little evidence of Procurators Fiscal considering the substantive case contributing to this process.
111. In the current parallel confiscation process there are three main areas of their everyday work where Procurators Fiscal need to be more alert to opportunities to contribute to decisions around the POCA potential of cases. These are:
- case marking stage
112. A survey of legal managers involved in case marking revealed very few cases identified by them or their teams as potential confiscation cases in the last six months. This confirms our belief that in the main there is a reliance on the law enforcement agency to identify the potential for confiscation. We attribute this position to the lack of awareness of POCA generally among legal staff, with the exception of those with some experience of working in National Casework division ( NCD). For example we found instances where legal staff who had previously worked within NCD, either as trainees or as qualified legal staff, had, at the marking stage, identified cases that had not been identified by law enforcement, but which had the potential for confiscation under POCA.
113. Reporting substantive criminal cases by the police and indeed all law enforcement agencies is now carried out electronically in a format called the Standard Police Report 2 ( SPR2). This report is submitted to the Procurator Fiscal ( PF) in the jurisdiction where the crime was committed. In the present system, the officer submitting the report (reporting officer) may not know of the existence or outcome of any financial investigation regarding the Proceeds of Crime. Even if he is aware, there is no field in the SPR2 to complete, indicating the position. Where the Financial Investigation Unit ( FIU) has identified POCA potential, its report is submitted to the Proceeds of Crime Unit ( POCU) in NCD. It falls to the confiscation unit at NCD to advise the local PF of the position.
114. Very often the first that the local PF will know of confiscation potential is when the Statement of Information ( SOI) comes from NCD to be placed before the Sheriff in the event of a conviction. This is near the end of the process. The initial case report is unlikely to contain any details of the POCA considerations, as these are reported by separate (financial investigation) officers not to the PF but to the central confiscation unit in Crown Office.
115. Some law enforcement agencies include in the remarks section of the SPR2 a reference to an ongoing POCA confiscation enquiry. We suggest that providing such information in the body of the substantive crime report is good practice. It serves to bring to the attention of the PF the fact that confiscation may be sought at the end of the case on conviction. For PFs marking cases, regular reference to POCA considerations would serve to increase their awareness of the type of cases that are being picked up for confiscation.
116. Whilst a note in the remarks section of a crime report is helpful this is only likely to be added if the reporting officer is aware of the POCA enquiry. We suggest that to take matters forward it might be helpful for the law enforcement agencies and COPFS to examine the compulsory fields for completion in SPR2. If the reporting officer was required to indicate that POCA had been considered, it would bring the question into sharp focus at an early stage and encourage discussion with financial investigators in the force or agency. Such a system would not only focus the mind of investigators about POCA and whether it should be considered, as well as alerting prosecutors to the criteria for confiscation too.
117. In addition, for the local PF to play his or her part in identifying potential cases for confiscation, some financial information about the means and assets of the accused would be essential. At present, the SPR2 format has some fields in which agencies can enter this kind of information. A fuller financial picture in police reports could enable PFs to assist in identifying potential confiscation cases. This might be similar to the form MG17 used in England and Wales which we have already reviewed 15.
118. Essentially, the main aim should be to have both law enforcement agencies and prosecutors thinking of POCA whenever they report or mark charges where the crime alleged is one in which financial gain is the motivation or outcome.
119. For wider use of the confiscation provisions it is essential that operational officers and prosecutors are aware of how the Act applies not just in relation to the commonly known drugs cases but to a wide range of criminality. Case marking guidelines are available to all legal staff and are an excellent resource for legal staff for making informed decisions about if and how to take criminal proceedings. However we were disappointed to note that, with the exception of drug related cases, these guidelines contained no reference to the potential for confiscation post-conviction for the other offences listed in Schedule 4 16 of the Act. Nor was there any reference to POCA in the wide range of offences of dishonesty. Given the current focus in COPFS on outcomes in case marking we believe that POCA potential outcomes should be highlighted in these guidelines, in line with this approach. This gap in the content of case marking guidelines should be addressed through the mainstreaming of POCA.
120. Precognition is the process by which Procurators Fiscal investigate and prepare solemn cases for prosecution before a jury in either the Sheriff Court or High Court. At this point in the prosecution process we believe it is important for all legal staff to have some awareness of POCA. Our survey of legal managers in solemn units in the main offices across the country also revealed little general awareness or proactive consideration of the provisions of the Proceeds of Crime Act. Some responses acknowledged confusion between criminal confiscation and civil cash forfeiture. On the other hand, one legal manager with extensive knowledge and experience of working in the Proceeds of Crime Unit in NCD, reported that in her briefing guidance she routinely advised precognosers to check with the reporting officer whether the case had been considered for confiscation potential. She also regularly added charges for money laundering to draft charges in precognitions. This is good practice which, with additional training for legal managers, could be replicated across the country.
121. We heard also that precognosers should be alert to the fact that in carrying out investigations, financial investigators ( FIs) might be able to provide some useful insight and information that could be of importance in the prosecution case. For this reason it is important that precognosers are aware of any ongoing financial investigations and are able to discuss this with the financial investigator involved.
122. It is also vital that prosecutors are more fully aware of the provisions of the Act, so that cases where the intention is to seek confiscation post-conviction are not jeopardised by plea negotiation which removes the confiscation criteria. For example, in a 'criminal lifestyle' confiscation case (see Appendix 6), a conviction would be required for a minimum of four charges on one indictment or complaint where the accused had benefited from his crimes to the extent of £5,000 in cumulo. It would be crucial for the prosecutor in court to understand how a plea of guilty to a reduced number of charges on a complaint or indictment might affect this. Legal managers in solemn teams showed some awareness of the significance of accepting reduced pleas in substantive matters that might affect the confiscation position. Not surprisingly, this was often in connection with drug cases. However, our surveys and interviews suggested that more widespread knowledge and understanding were unlikely to extend beyond those who had worked in NCD previously.
Processes relating to confiscation
123. On the right hand side of process map 1 we describe the processes for confiscation using an example where restraint was applied for post arrest. Restraint is not always applied for or obtained; much will depend on the circumstances as we outline below. The process is that the financial investigators in the Financial Investigation Units ( FIUs) submit an application for restraint to the POCU unit in NCD. If this application is connected with a crime that has already been the subject of a report to the PF, then the restraint application must be submitted as soon as possible. For pro-active investigations, the restraint report may precede any crime report.
124. The power to restrain a person's estate pending confiscation was widened by the 2002 Act to enable restraint to occur at a time before proceedings had begun. Whilst in many cases restraint was obtained swiftly and effectively, we were directed to some examples where practical problems and communication shortcomings resulted in a less favourable outcome in terms of what was restrained.
125. The Crown seeks to process urgent requests for restraint within 24 hours of receipt and for those classified as non-urgent, within seven days. These can be challenging targets and the Crown accepts that they are not met in all cases. However those we spoke with pointed to a significant proportion of such requests being refused in the first instance due insufficient information being provided. NCD advised us that it was setting up a system for recording and monitoring the quality of police reports for restraint in light of these difficulties. We welcome any such review.
126. The Act provides that restraint may be granted provided an investigation has commenced. As soon as a suspect is aware of a police investigation the risk of dissipation of assets increases. For cases in which the accused has not been charged and no prosecution report has been received, the Crown must be satisfied that there is a prima facie case of a crime having been committed and is provided with sufficient details of the assets to be able to make a professional judgment.
127. The Crown has previously been challenged 17 in connection with a restraint order obtained in a pro-active money laundering case and had to release the restrained assets. In this case, H was a company against which restraint was granted in 2004. By 2007 no criminal proceedings had been instituted, nor could the Crown satisfactorily explain if and when proceedings might eventually be brought. The court, on application by H, recalled the restraint.
128. This case illustrates the difficulties the Crown can face when considering whether restraint should be sought. On the one hand there is a need to act swiftly to prevent dissipation. On the other, particularly in pro-active investigations that have not yet reached a conclusion, a balance must be struck so that restraint is not sought or obtained prematurely.
129. It is clear that interpretation by the judiciary of the provisions of the Act influences the decision to seek restraint or not. The Crown must persuade the court of the likelihood of dissipation of assets. If the application to restrain assets is brought to court some weeks after the accused has been charged with an offence it can be more difficult to persuade the court of the need to restrain. This is not necessarily reflective of the risks of dissipation though, as we discovered on examining some of the examples cited to us.
130. For the police and other law enforcement agencies the urgent requirement to provide accurate, full and detailed information within strict time frames is a challenge. In one case, an accused was remanded in custody and an urgent restraint request submitted to NCD. However, even here, where the urgent 24-hour timescale had been met, dissipation had already taken place. Clearly the law enforcement agency that drew this case to our attention was disappointed with this outcome in which, a substantial sum had disappeared by the time the restraint was granted and served on the bank (the same day the accused was liberated from custody).
131. Furthermore we learned that the restraint team in NCD had not been told of this outcome. We believe that it is only by communicating with each other when action does not go to plan will lessons be learned for the future. We would therefore encourage all parties involved to communicate with each other, particularly when difficulties arise, to ensure that solutions are found and if possible prevent a recurrence. A formal review or feedback system could be helpful in this respect.
132. It was also apparent to us that restraint applications sought post-arrest have less chance of restraining the maximum amount available to avoid dissipation. An analogy to this, in our opinion, would be disposing of drugs during a drugs raid. This led us to the conclusion that proactive investigations that include an intention to seek restraint, at the optimum time and with the fullest information to hand, were the most likely to be successful. This reinforces our earlier comments about the need to gather intelligence to inform pro-active operations.
133. Our investigations into the processes concerning restraint highlighted the importance of early restraint to the eventual sums that may be available for confiscation. They also demonstrate the need for constant two-way communication between the force and Crown Office to provide feedback when things do not go as planned so as to avoid the same problems recurring in future cases. We suggest that feedback be sought from the police on whether restraint has been effective so that lessons can be learned and such learning outcomes used to support the case for restraint when addressing the court in future cases.
134. We found that the processes involved were clear and posed no significant problem for COPFS aside from those relating to the availability of POCA resource deputes to carry out this work, as outlined above.
135. There are a number of investigative orders that can be obtained during the course of investigating a substantive case ( e.g. a money laundering investigation) or a confiscation, in order to prepare a financial profile of an accused and a Statement of Information. The most common of these are production orders. Only confiscation production orders are dealt with locally by the POCA resource depute (a depute fiscal selected by Area Procurators Fiscal to provide advice and assistance in confiscation proceedings at local level) for the jurisdiction of the crime. Less common orders, such as customer information orders, disclosure orders, etc are obtained only through application to Crown Office because of their more intrusive nature. Money laundering production orders are dealt with by NCD and search warrants in connection with money laundering and other proceeds of crime matters are always prepared by and mostly obtained by NCD rather than the Area resources.
136. The process for obtaining an investigative order involves the law enforcement agency submitting an application for an investigative order directly to the POCA resource depute in the PF office with jurisdiction for the crime. There the depute carries out revision of the draft application before submitting it to the Sheriff.
137. A number of police financial investigators told us that they found the process of obtaining these orders overly bureaucratic. South of the border senior officers grant some investigative orders. In Scotland, only the Procurator Fiscal has the power to ask the court for such orders. We are of the view that, on balance, the current law contains the necessary safeguards of legal revision by the Procurator Fiscal and of judicial decision, and conclude that current arrangements in Scotland should remain as they are. The law, as enacted, reflected the different legal systems in place north and south of the border and we see no reason to suggest a change to these provisions.
COPFS internal processes for restraint and investigative orders
138. The process for restraint application is not simple. The application is forwarded to NCD by the FIU. If the substantive criminal case is likely to be heard in the High Court, then restraint will be sought in the Court of Session. An application is then drafted in the POCU restraint section and an Advocate Depute represents the Crown in court. For Sheriff Court cases, the restraint application is drafted in POCU and then sent to the local PF office which has jurisdiction for the crime. There, specially appointed deputes designed as POCA resource deputes are tasked with presenting the application to the Sheriff.
139. Investigative orders are sought by law enforcement agencies directly from the POCA resource depute. These production orders or search warrants are considered by the depute and the application for court is prepared and submitted to the Sheriff.
140. The system of communication between the central POCU unit and the local resource deputes is via email to a list of named contacts. Consequently many whom we consulted were unclear about who was line-managing their POCA work. Such work is unpredictable and can take staff away from their core duties for lengthy periods. Some were not receiving the email instruction due to court commitments. In one office a managerial point of contact was also included in the email distribution list which appeared to be good practice.
141. These elements of POCA work are specialised in nature and can be complex and time consuming. The creation of specialist posts for this work is in keeping with COPFS strategy generally in favour of specialisms. There is a case for a small proportion of deputes to be allocated such work so that they can accrue a degree of expertise in this area. This was the reasoning behind the POCA resource deputes posts.
142. However in a mainstreaming agenda we suggest that one of the ways to extend POCA awareness in COPFS would be to bring all POCA work into one unit in the office. This would then remain part of the core function for those working in the unit for some time. We suggest that COPFS consider such a model, whilst retaining the posts of specialist POCA resource deputes to provide support and advise the members of the unit in particularly complex matters.
143. The process post conviction is shown in map 2 on page 41. Following a conviction, a Statement of Information ( SOI) is served on the accused. If restraint was obtained earlier, the accused will be aware of the impending confiscation. However, in some situations it may be the first notice to an accused that the Crown is seeking a confiscation order.
144. We noted a number of concerns expressed by practitioners on the law enforcement side about the process involved. These concerns were mainly about two core issues:
- perceived delays; and
- confiscation orders being for lower than anticipated values.
145. Our findings suggest that there are indeed time delays between conviction and the eventual granting of a confiscation order that are inherent to the current system. The Act provides for a maximum period of two years between the request for a confiscation order and the eventual order, indicating that it was always envisaged that the process would take some time. In addition, where legal aid is being relied upon this must be applied for again because the confiscation process is separate from the criminal case. Up until now there has been no framework of timescales. The Crown cites the paucity of defence answers to the SOI in the early stages of the confiscation proceedings as a source of frustration for them.
146. During the inspection we were advised of a new Act of Adjournal 18, following upon a review of the court process by the High Court Judge Lady Dorrian. This Act of Adjournal is due to come into effect on 5 August 2009. Contributions to the review from representatives of the Crown and defence have resulted in a new framework whereby the court will ensure that parties adhere to a timetable for answering the Statement of Information. However, we believe that this framework will only apply to confiscation cases in the High Court, although we understood that it had been intended to cover Sheriff Court proceedings too. Indeed the title of the statutory instrument refers to the Sheriff Court.
147. Under the new framework disclosure of productions in support of the SOI must be available to the defence promptly once the SOI has been served. This is in order to give the defence time to provide answers within the proposed timeframe. Preparations for this requirement are underway in NCD. This will require the co-operation of police forces in submitting their SOI together with supporting evidence earlier so that these items can be checked by the NCD accountant prior to service of the SOI.
148. Thus with the new framework provided by the Act of Adjournal, and with revised systems in place to ensure that the Crown is able to disclose evidence in support of the Statement of Information, it is anticipated that some of the delays and adjournments that have been a feature of these types of proceedings in the High Court up until now will cease to occur.
149. It is disappointing that the new Act of Adjournal does not extend to Sheriff Court proceedings as initially envisaged, particularly when a considerable proportion of confiscation proceedings now take place in that forum. In these circumstances the present "churning" of procedural diets, of which practitioners have complained in the course of this inspection, will continue. This view is endorsed by the Council of the Sheriff's Association, which observed that a common feature of Sheriff Court confiscation hearings was the excessive number of continued hearings before settlement was almost inevitably reached. It is our view too, that restricting the Act of Adjournal to the High Court is missing an opportunity, and we would urge those who represent COPFS at the Rules Council to press urgently for similar provisions for the Sheriff Court.
150. Given the importance of this issue for those whom we consulted during our inspection we have examined this matter in some detail. One of the concerns raised was the fact that the confiscation order was invariably made following a negotiated settlement, rather than at a court hearing. There was a perception among some officers in law enforcement that the Crown was too willing to settle rather than proceed to a court hearing. In contrast, the Crown's view was that such negotiated settlements were evidence of its strong position, giving the defence no option but to settle rather than argue the case in court.
151. Of the cases specifically sought from forces in connection with this topic, we found that each one appeared to follow the Crown's own settlement guidance. We also found some common problems. For example, restraint in many cases was obtained more than a year prior to the confiscation process. As outlined above, there is a need for speed in obtaining a list of assets that might be held by an individual at the point of seeking restraint. This can result in a different valuation of property at the confiscation stage of the process. In addition, the person's whole estate is restrained, irrespective of their benefit of criminality.
152. The first step in determining the amount for confiscation is to calculate the "benefit of criminality". In some cases, where the benefit is restricted to what has actually been gained from the crime itself (for example a fraud), the matter is simple. The benefit figure is the value of the crime itself. However, where it can be shown that the accused has a 'criminal lifestyle' then certain assumptions come into play and his or her assets acquired over the preceding six years can be taken into account. These assumptions are that any property transferred to or obtained by the accused was done so through criminal conduct and that any expenditure by the accused was from property obtained by criminal conduct. Thus a person, who has been convicted of five housebreakings where the value of goods stolen exceeded £5,000 in cumulo, may have been involved in other criminality of which the Crown has no knowledge. These provisions allow for confiscation of the amount owned by the accused which cannot be shown by him to be legitimate income.One example quoted by the Crown Prosecution Service in England was of a habitual petrol pump thief whose previous convictions were used to bring him into the 'criminal lifestyle' category. Although the offences for which he was convicted related to the theft of a car and £250 of petrol, a confiscation order of just over £1 million was made (although subsequently overturned on appeal for other reasons). 19
153. Once the benefit figure is established the second calculation to be made is the available amount. The restraint figure is the whole estate of the accused as known at the time of restraint. This does not allow for third parties who may have a claim on the property such as partners or spouses who may have rights under the Matrimonial Homes (Scotland) Act 1981. Other parties such as lenders or business partners may have legitimate claim to property held by the accused. In addition a whole host of other factors will come into play in this calculation such as depreciation, accuracy of valuations of property (which in the current climate are notoriously difficult), pensions and other policies. To complicate matters further, business accounts often have legitimate income which can make it difficult to distinguish what are criminal proceeds and what is legitimate income.
154. Indeed, even when the first Statement of Information is lodged by the Crown following conviction, this is only the first step in a long process. Financial investigators ascertain the financial status of the accused as it appears to be. However, explanations by the defence with accompanying vouching to support these explanations can give a very different picture. The procedures in place to ensure that vouching was provided by the defence and checked out by the police where appropriate seemed to us to be robust. However, NCD has identified some areas for further training in relation to the quality preparatory work by police analysts when drawing up SOIs and of legal staff dealing with such cases. We look at these in greater detail in the PEOPLE section of this report.
155. Nonetheless, the fact that the perception among law enforcement agencies was of a less than robust approach to confiscation by COPFS was of concern to us. On closer examination it became clear that communication or perhaps the lack of it, at crucial stages was a common underlying factor. Although defence answers were copied to the force FIU for the analyst to check or for further police enquiry, thereafter forces were not routinely kept informed as final discussions and vouching took place. Given the importance of this matter we were encouraged to hear of a new initiative by the confiscation unit in NCD to include the FIU's senior investigating officer and analyst in final settlement discussions. In this way the Unit hoped to minimise the risk of further misconceptions between the two organisations. Where such meetings are not possible, we recommend that feedback from NCD to FIU be an integral part of the process.
156. The matter is a significant one, affecting as it does relations between stakeholders in this important area of work. We found no formal system in place to monitor compliance with settlement guidance. Therefore in order to restore confidence we suggest that senior legal managers in NCD adopt a system of reviewing confiscation settlements to ensure their compliance with guidelines.
157. The three offences of money laundering contained within the Act all relate to dealing either directly or indirectly with 'criminal property' 20. The textbox below gives an example of one of the most successful money laundering prosecutions to date in Scotland.
Case Study - Operation Folklore
Operation Folklore was an intelligence-led SCDEA investigation which culminated in April 2007 with the sentencing of James Stevenson to twelve years and nine months at the High Court in Glasgow. Stevenson pled guilty to a series of charges relating to laundering around £1m from drug trafficking, including trafficking in Class A drugs. His stepson Gerard Carbin, from East Kilbride, was also imprisoned for five years and six months after an extensive undercover operation by the Agency.
Stevenson was jailed for the following offences: hiding £204,510 in cash; receiving £389,035 in cash; using criminal proceeds to buy watches worth £307,000; having criminal property worth £98,605; and using this money to buy ten Skoda Octavia cars. Carbin was jailed for his part in laundering cash through the purchase of luxury watches. The court was told that these watches could be worth up to £30,000 each.
Sentencing Stevenson, Lord Hodge described him as a major figure in the world of serious crime and said that money laundering was an "essential service and went hand-in-hand with the drug trade and contributed to its profitability". He added: "This is a significant success for the police as all too frequently it is only the small players connected with the drugs trade that are punished."
158. Due to some uncertainty about what constitutes 'criminal property' and how it might effectively be proved, money laundering is not a widely prosecuted offence in Scotland. Nevertheless the legislation has been successfully used in a small number of cases.
159. In this report we have outlined the money laundering offences enacted in the 2002 Act. The change from having to specify a particular predicate offence to an all-crime basis for money laundering has sparked a flurry of case law north and south of the border. One matter at issue is how to prove that property is criminal without specifying the predicate offence. The appeal court decision in the Mohammed Ahmad case 21 should now clarify what was an uncertain aspect of the law in Scotland.
160. With regard to the processes involved in money laundering we must differentiate between reactive and proactive cases: in the former, the charge of money laundering will follow other charges, say in relation to drugs supply or embezzlement; in the latter, money laundering cases arise where the evidence comes from intelligence tending to show movement of money or assets without obvious legitimate means. In the first category, a charge of money laundering may be included in a police report to the Procurator Fiscal, and this is sent to the district Procurator Fiscal in the normal way. The second category of stand-alone money laundering case has, since the inception of the Act, been dealt with exclusively by NCD.
161. NCD has created a system for considering all stand-alone money laundering investigations. Very often the first information about money laundering coming to law enforcement agencies would be from intelligence, possibly initiated by a Suspicious Activity Report ( SAR). An example might be a bank reporting a suspiciously large deposit or withdrawal. Such information on its own may not be enough to reach the required legal standard for an investigative order, such as a production order, to be sought. Therefore Crown Office requires all investigative orders for proactive money laundering investigations to be submitted to NCD for designation.
162. In effect the law enforcement agency has to satisfy the Crown that there are grounds for seeking the investigative order, before the Crown will agree to seek such an order from the court. This may be an argument for individual forces to use their resources for investigating money laundering suspicions, for example by the use of surveillance as discussed earlier in this chapter.
163. SCDEA detectives felt more confident about achieving the required standard for designation because they were able to use more sophisticated techniques. However, outwith SCDEA some officers found that the standard required for designation was too difficult to reach. It became apparent to us that the process of designating a money laundering case was simply an additional step introduced by Crown Office to ensure a consistent approach. The Crown requires to be satisfied that there are reasonable grounds for seeking investigative orders for money laundering investigations. At the point where law enforcement officers seek designation they are looking to secure investigative orders that will allow them to pursue further evidence to reinforce their case. After due consideration, we are satisfied that the process is appropriate, given that the designation aspect is simply a quality control mechanism to ensure that a legally required standard is reached.
164. In England, Wales and Northern Ireland there is no need for an enquiry to be designated a money laundering enquiry. There, investigative orders may be authorised by a police superintendent rather than by the judiciary, as we have outlined earlier in this chapter. In England the Crown Prosecution Service ( CPS) has never had the investigative function of a Procurator Fiscal in Scotland.
165. The current system for reporting such cases to COPFS given that case law is still uncertain is to involve the head or deputy head of NCD directly in the decision-making process. Once a decision is made either to proceed or to make further enquiries before making a decision, the work is allocated to a specialist unit in NCD. The size and complexity of some cases that have been prosecuted successfully shows that a dedicated unit, properly resourced and directing enquiries at an early stage, is the optimum approach.
166. As the law on money laundering becomes clearer, the hope is that there will be a better understanding of the money laundering provisions and a consequent rise in such cases being reported. We take the view that, as with other aspects of POCA, the need to mainstream money laundering prosecutions may become inevitable if their volume does increase. Whilst a central expert unit is best placed to handle the most complex of these cases, many could be dealt with at a more local level. Indeed there is evidence that such an approach has already being adopted in a select few cases. Thus our view is that gradual mainstreaming of money laundering is achievable and should be an aim of the proceeds of crime strategy.
167. The present structure of reporting stand-alone money laundering cases for the consideration of either the head or deputy head of NCD shows the level of importance that COPFS attaches to such cases. We were unable to verify anecdotal claims by some forces of delays in NCD in reaching these initial decisions because of a lack of performance information. However, assessing the evidence available or likely to be available to prove these cases is a critical issue; in complex cases such decisions are not taken lightly and are made only when it is clear that the fullest information available has been considered.
168. It is at this stage, particularly in money laundering cases, that tactical discussion about the range of options for civil recovery or taxation under the Proceeds of Crime Act can be very beneficial. We note encouraging developments to agree a framework for such discussion and possible referrals to civil recovery at serious organised crime level. In line with our main recommendation that all the provisions of POCA be mainstreamed, we recommend that money laundering should also be mainstreamed through training and awareness-raising. It therefore follows therefore that wider knowledge and awareness of the civil and taxation possibilities for money laundering cases that fail to meet the criminal test, are essential across COPFS.
Civil recovery - Cash seizures
169. Cash seizure processes are straightforward. We found that for COPFS these processes were efficient and worked well. Published figures 22 show a continuous increase in cash seized and forfeited by the Civil Recovery Unit ( CRU) in Crown Office. When the Act was passed in 2002, the minimum sum that could be the subject of seizure and forfeiture was £10,000. This was subsequently reduced first to £5,000, and since 2006, to £1,000. We were advised of a recent rising trend in the number of cash seizures occurring but a corresponding drop in their average value. This may well be a result of the minimum threshold for cash seizure.
170. It was also apparent that the training provided by lawyers from CRU in relation to cash seizure was well received and understood by those involved in operational work both in COPFS and in forces. This had undoubtedly contributed to the increased awareness among all concerned.
171. In criminal prosecutions where the police have seized money a production for use as evidence in the criminal case but where no conviction has resulted, either because of a decision to abandon proceedings, or in the event of an acquittal, the provisions for cash seizure could be invoked. At this stage, it would be open to Scottish Ministers (the CRU) to make application to the court for forfeiture of the cash. In spite of a guidance note issued to all legal staff in 2007 we found that this was not an option that prosecutors always considered in these circumstances. During the course of this inspection a reminder was issued to all legal staff in COPFS about this. Mainstreaming POCA will require the issue of regular reminders until these considerations become a matter of routine in COPFS.
172. In forces, some FIUs were encouraging their divisional police production keepers to alert CRU to the possibility of cash seizure in cases where cash had been seized for criminal prosecutions but where a no proceedings decision or acquittal had led to a Procurator Fiscal instruction to return the cash to the owner. We believe that this 'safety net' is good practice and a good example of how partners can work together to identify opportunities to apply the POCA. We understand that this good practice was highlighted in the multi-agency Cash Seizure Working Group, to which we refer in the Partnership chapter of this report.
Civil recovery - asset recovery
173. NCD has clear processes for referring cases to civil recovery where:
- a prosecution in which confiscation has been contemplated, has failed;
- a no proceedings or no further proceedings decision has been taken; and
- criminal property has been identified as belonging to someone who has died.
174. We have already discussed how some cases that are reported for prosecution to NCD are eventually referred to CRU because of evidential difficulties which may become apparent at early stages or later on during the trial. For civil practitioners in CRU the work of investigating and tracing assets over a 12-year period is made more difficult by any delay in cases being referred to them. This matter should be considered by those involved in formalising the framework for tactical referrals to CRU and in developing the Scottish Proceeds of Crime Strategy.
175. The process of asset recovery can be protracted particularly if it is commenced after a failed prosecution. Nonetheless, it can be an effective way to deprive criminals and their families of assets obtained through unlawful conduct, as is illustrated in the example below.
George Buchanan was acquitted in the High Court in July 2004 of supplying heroin. In May 2005 the Civil Recovery Unit raised an action in the Court of Session in the name of the Scottish Ministers, to recover property alleged to have been acquired through unlawful conduct. At a preliminary proof held in February 2006 the court held that Buchanan was a significant player in the trafficking of illegal drugs. Further court hearings examined claims raised by Buchanan that there had been a breach of the Human Rights Act in bringing the action against him. Finally, proof was held in October 2007 and in January 2008 the court decision ordered that assets be forfeited. These assets including a house, high value cars and money in bank accounts, were valued at approximately £200,000. They also included some assets transferred by Buchanan to other members of his family.
176. Whilst the above case proceeded to proof we learned that more often than not, civil cases were resolved by agreement. Although not cited to us as an issue during this inspection, nevertheless, in a similar vein to our comments concerning compliance mechanisms for confiscation settlements, we believe that CRU should ensure that its settlement guidance is being followed by a system of regular review.
177. Due to the complex nature of POCA processes good communication between parties both within their own organisations and with partners is essential. In this section we have highlighted the process areas where mainstreaming could bring about greater awareness of the Act, its powers and the information required to exercise these powers to best effect. We have also described a number of measures that we believe can help to bring this about so that each organisation knows and understands the challenges and requirements of the other in relation to this Act.
Recommendation 2. That the Serious Organised Crime Taskforce broaden its focus in relation to proceeds of crime and develop a Scottish Proceeds of Crime Strategy in order to co-ordinate action among partner criminal justice agencies including but not limited to ACPOS and COPFS. In particular the Strategy should focus upon:
b) establishing a proactive rather than reactive approach to financial intelligence gathering and investigation in relation to all relevant crime.
Recommendation 4. That the current processes used in both policing and COPFS are reviewed to ensure their effectiveness in all aspects of POCA work (as more fully detailed in the suggested action points below) and, that COPFS and ACPOS assure themselves that these activities are taking place through their normal performance management regimes.
Suggestion 1. That the ACPOS- POCA champion:
d) liaise with the regulated sector, in conjunction with the Serious Organised Crime Agency ( SOCA), in order to improve the quantity and quality of Suspicious Activity Reports ( SARs) produced in Scotland; and
e) ensure that proactive opportunities related to SARs are fully exploited.
Suggestion 2. In reviewing current processes, forces should:
b) develop plans to increase capability and capacity at divisional level assisted by the ACPOS- POCA champion; and
c) ensure effective monitoring of any post-confiscation change in the financial circumstances of criminals.
Suggestion 3. That the COPFS champion:
b) in relation to mainstreaming arrangements regarding POCA, review case marking guidelines, and training and development opportunities.
In reviewing existing processes, COPFS should:
a) ensure that effective communication exists between internal departments and units, and with law enforcement and criminal justice agencies, including review/feedback arrangements; and
b) ensure that robust systems are in place to monitor compliance with settlement guidance.