Partner Jessica Parker has written an article for The Law Society Gazette on whether the confiscation regime needs reform in the context of a recent case study.
Part 2 of the Proceeds of Crime Act 2002 (POCA) represents the wisdom of the proverb that crime does not pay. However, the confiscation regime is deeply problematic. Prisoners describe the meeting at which the scheme is described to them as ‘being POCA-ed’, a verb to explain the Kafkaesque process whereby the court applies a series of legal presumptions and determines that the offender owes the state a sum that the offender invariably believes they are unable to pay.
Parker v Financial Conduct Authority and another  EWCA Crim 956 demonstrates how the confiscation regime can spread its tentacles into the lives of innocent victims. Lady Justice Andrews, delivering the Court of Appeal’s judgment, considered that this ‘unhappy state of affairs arose… through a combination of unusual circumstances’, but those familiar with the confiscation regime will understand that a similar error could easily be repeated. The underlying cause of the error in Parker was recently diagnosed by the Law Commission, which is currently examining the confiscation regime. Its consultation report commented that ‘the legal complexities may extend beyond the confiscation legislation itself. For example, the court may be required to consider legal and beneficial interests; lifting the corporate veil; trusts; contract law; insolvency and matrimonial property… insolvency and cross-border recognition… In some cases they may relate to tax law or the law of matrimonial property and ancillary relief’. Many lawyers practising in the criminal courts may consider themselves ‘POCA’ed’ when confronted with the prospect of grappling with these areas of law.
Mr Parker was an elderly widow who trusted Mr Moore with a number of investments, all of which failed. The investment which was the subject of the litigation was a property which Moore intended to develop. Shortly after the investment was made and the property purchased, Moore was convicted of a separate fraud following his prosecution by the FCA. In respect of that fraud, another investment scam, there were a number of separate victims (the FCA victims). Confiscation proceedings commenced and the FCA applied for an order that the sums recovered through confiscation be applied to the FCA victims by compensation order.
The FCA argued that Moore’s assets included a share in the property in which Parker had invested. The FCA’s case was that Parker was simply owed a debt by Moore and that Parker did not own any part of the property. An unsecured debtor does not have priority over the confiscation regime; if the defendant’s assets are exhausted by a confiscation order, the debtor will not be repaid (SFO v Lexi Holdings plc  EWCA Crim 1443). Parker argued that he had an equitable stake in the property, therefore a proprietary interest. A proprietary interest is not affected by the confiscation regime. The issue was therefore whether Parker had such a proprietary interest and therefore a right to a share in the property in question, or whether Parker was simply an unsecured debtor, and the value of his investment lost.
Having considered the legal arguments about the nature of Parker’s interest, in a short judgment, the trial judge concluded that Parker did not have a proprietary interest in the property. The trial judge determined that the property belonged only to Mr and Mrs Moore (because in this case Mrs Moore also had an interest in the property) and therefore Mr Moore’s share was recoverable and could be confiscated. Parker appealed but there were various delays before the application was heard. Meanwhile the property in question was sold and the proceeds were paid to the FCA victims.
The Court of Appeal allowed Parker’s appeal. They found that the trial judge had erred in interpreting the evidence concerning Parker’s equitable interest in the property. Having accepted the oral evidence that Parker and Moore had intended that Parker acquire an interest in the property, the correct interpretation of these facts was that the property was held by Moore (and his wife) in a common interest constructive trust for Parker. In a statement that will no doubt have left the trial judge and the lawyers in the Crown court wincing, Lady Justice Andrews observed that this was a ‘classic example of a constructive trust’.
What went wrong in Parker’s case? The answer is rooted in some of the same problems that led the Home Office to invite the Law Commission to consider the confiscation regime. The problems the Home Office identified included ‘the irregular compensation of victims in confiscation proceedings; the frequent imposition of unrealistic confiscation orders… the complexity of the relevant legislative provisions and related case law’. Taking first, the complexity of the law, it is true that there have often been divergent and surprising decisions on very similar facts, for example when considering the family home. A careful analysis of the legal and equitable interests is required in each case, an analysis which does not necessarily form part of the day-to-day experience of criminal lawyers.
The second problem is that the objective of Part 2 of the POCA regime is to deprive criminals of the benefit of their crime. Where the implementation of this objective is inconsistent with a third party’s rights, including in this case the rights of a victim, there are no overarching principles to which the court can defer to achieve justice. Victims whose cases fall outside the indictment, perhaps because they would have been harder to prove, are not eligible for compensation.
Whatever reform the commission proposes will come too late to undo the financial disaster that befell Parker. Until the law or procedure is reformed, both criminal lawyers and judges in the Crown court will have to tread carefully and seek specialist advice when confronted with confiscation cases which throw up these unfamiliar issues.
This article was originally published in The Law Society Gazette which can be accessed here