Confiscation Order imposed under wrong regime overturned

Today the Court of Appeal quashed a confiscation order made erroneously against our client under the Proceeds of Crime Act 2002 and replaced it with a much smaller order under the Criminal Justice Act 1988.

We did not act at the Crown Court trial where our client was convicted of conspiracy to defraud with three others. On 21st February 2014 the Court of Appeal allowed an appeal against the confiscation order on the grounds that the Crown Court proceeded under the wrong confiscation regime. The indictment charge the conspiracy as running from 1st March 2003, some three weeks before POCA came into force. The confiscation proceedings should therefore have been run under s71 CJA 1988. The Court adjourned the appeal for further argument having ruled that there was no bar for substitution of an order under the CJA .

The benefit figure was therefore limited to that which was obtained from the relevant criminal conduct, i.e the conduct comprising the offence of which he had been convicted. Our client was a 50% shareholder with his wife who was not charged with any offences. The company in effect placed contracts for telecom systems and accessories with trade, educational and other customers. There was a leasing agreement with a third party and our client’s company received commission from that company for placing the lease with them. Neither the company nor the Appellant received payments under the leases but commission which was shared with the relevant salesman.

The Court found that the benefit was received by the company on behalf of our client and the salesmen. The customer obtained their leased equipment but not on such favourable terms as they had believed would be the case. In today’s adjourned hearing of the appeal, the court had to ascertain if our client had benefited and if so by how much.

The Crown conceded that:

• the company was not incorporated as a front for fraudulent activity;
• the fraudulent trading amounted to 1.5% of the turnover of the company in the indictment period;
• the company received no payment on any of the leases but its income came by way of payments of commission from the leasing company;
• those commissions were part of the trading income of company; and
• the benefit obtained by the Appellant unless the company were treated as his “alter ego”, was represented by his salary and dividend receipts.

The Crown identified gross commissions received by the company in relation to the fraudulent activity as being approximately £235,000 from which deductions had to be made.

As the company was not a “vehicle for fraud” nor created with that specific purpose in mind, the objective of the court was to identified what the Appellant’s benefit was personally. The company received the benefit of the fraud by some of its employees including the Managing Director. However, the Appellant could not be treated as the recipient of the commission.
Following R v Sale the benefit to the Appellant might arguably have been reflected as the gross profit from the dishonest trading and the increase in value of the company as a result of that trading but adjusted for his 50% interest. At no stage had the prosecution sought to identify benefit in this way.

In the original Crown Court confiscation hearing, benefit was treated as the full payment made to the leasing company on all the fraudulently obtained leases. This could not stand as the payments under the lease were never obtained by either the company or the Appellant. Latterly the Crown sought to argue that the benefit was the commission or the proportion of it retained by the company after payment to salesmen. This sum was about £117000.

The Court did not regard these receipts as the equivalent of benefit received by the Appellant. In the circumstances of this case, the only route is what was argued on behalf of the Appellant, namely a 1.5% proportion of his salary and dividends received by him in the relevant period. It was unlikely that the company had any enhanced value attributable to the fraud given the tiny percentage of its total turnover that the fraudulent activity represented.

T benefit figure was set at £7902.80 and although the Court suspected that the Appellant’s actual benefit exceeded this sum, there was no evidence or information on which it could make a different conclusion on the balance of probabilities.

The Court quashed the order of the Crown Court and found a benefit of £7902.80 and as it was not disputed that the available assets exceeded that amount, made a confiscation order in that sum.

This case is important in that it confirms that the start date of the conspiracy period is important in terms of which confiscation regime is to be used regardless of when the actual fraudulent acts took place within that period. This will become of less relevance as time goes on. It also establishes that the Court has the power to substitute an order under a different confiscation regime for one erroneous made under another regime. Finally there are interesting points made about situations such as this where it is not appropriate to lift the corporate veil in confiscation proceedings.

Our client was represented by Steven Bird and by Richard Furlong of Counsel from Carmelite Chambers both under legal aid.

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