Part 2 of the Proceeds of Crime Act 2002 (‘POCA’) does not tend to pique the general public’s interest, except to the extent that it represents the wisdom of the proverb that crime does not pay. However, the confiscation regime it creates is wrought with issues in which the general public would be very interested if they ever found themselves at the wrong end of it. Prisoners describe the meeting at which the confiscation scheme is described to them as ‘being POCA-ed’, a verb that means: the discovery that if they have not kept careful records of their income and outgoings (remarkably few have), they risk being unable to explain to the Court why they no longer have access to the funds from which they benefited. If they cannot pay the confiscation order, interest racks up at a rate of 8%, (if they were hiding their assets, they better have invested them well) and the debt then can be enforced through default sentences that can be far longer than those they received for their crimes. The trial process may have taken months, but the enforcement hearing for the confiscation order only takes hours; the district judge can be satisfied that it is correct to activate the default sentence because the defendant has usually been convicted of an offence of dishonesty and the sentencing remarks from the trial judge invariably describe them unflatteringly. So far, so remote from the general public. The confiscation regime only seems to affect those convicted of acquisitive crime.
Parker v FCA and another is a case which demonstrates how the confiscation regime can spread its tentacles into the lives of innocent victims. At first instance, the matter was decided by an experienced trial judge, assisted by experienced Counsel, but by the time their error was acknowledged by the Court of Appeal, it was too late to remedy. 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. Their 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. … They may be of 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 was also vulnerable because of chronic illness. His relationship with Mr Moore started in 2009 when Mr Moore encouraged him to invest in a land banking scheme and then in wine. In each case Mr Parker lost his investment. Sadly, Mr Parker continued to trust Mr Moore. He was persuaded to make a further investment into one of Mr Moore’s companies and then to switch this investment into a property that Mr Moore intended to develop. Shortly after the investment was made and the property purchased, Mr 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 Mr Moore’s assets included a share in the property in which Mr Parker had invested. The FCA’s case was that Mr Parker was simply owed a debt by Mr Moore and that Mr 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). In contrast, a third party who has a proprietary interest in an asset will recover their interest, which is excluded from the amount available to be recovered from the defendant through the confiscation order. A proprietary interest is not affected by the confiscation regime. The issue in this case was therefore whether Mr Parker had such a proprietary interest and therefore a right to a share in the property in question, or whether Mr Parker was simply an unsecured debtor, and the value of his investment lost.
Mr Parker took advantage of a provision introduced into the confiscation regime by the Serious Crime Act 2015, section 10A of POCA, which gave him the opportunity to apply to the Crown Court at the confiscation hearing to argue that he held an equitable stake in the property, or rather, that the property was not Mr Moore’s recoverable property. Such a finding would put the property out of reach of the confiscation regime and see its value returned to Mr Parker.
Having considered the legal arguments about the nature of Mr Parker’s interest, in a short judgment, the trial judge concluded that Mr Parker did not have a proprietary interest in the property. Firstly, his interest was poorly recorded (in fact only recorded after Mr Moore’s conviction). Secondly, his money had been mixed with the FCA Victims’ money when it was first advanced to Mr Moore. Thirdly, Mr Parker had consented to the proposal that his money be spent on the property. Having rejected Mr Parker’s application for these reasons, 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 50% was recoverable and could be included in the amount to be confiscated from Mr Moore and then applied as compensation to the FCA Victims.
Mr Parker appealed but his application to appeal was rejected by the single judge. News of the rejection did not reach his solicitors until his appeal was out of time (through no fault of his own). He renewed his application. Meanwhile, there was no mechanism to pause the distribution of confiscated sums while an order is being appealed. The property in question was sold and the proceeds were passed to the Magistrates Court who paid the sums to the FCA Victims.
The Court of Appeal gave permission for the appeal out of time and following an examination of the history of the proceedings they allowed the appeal. They found that the trial judge had erred in interpreting the evidence concerning Mr Parker’s equitable interest in the property. The Court of Appeal held that having accepted the oral evidence that Mr Parker and Mr Moore had intended that Mr Parker acquire an interest in the property, the correct interpretation of the facts was that the property was held by Mr Moore (and his wife) in a common interest constructive trust for Mr 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.” Nonetheless, there was nothing to be done to remedy the error, since Mr Moore’s assets had been exhausted and the Court had decided that it would be wrong for him to recover the monies from the FCA Victims.
What went wrong in Mr Parker’s case?
The answer to this question 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, some spouses or partners who have been held to know that the property in question was acquired through crime have been found to have a proprietary interest (Gibson v Revenue and Customs Prosecution Office). In contrast, some spouses or partners who had no idea about their partner’s offending, such as Mrs Hayes, wife of the LIBOR rigger, Tom Hayes, do not. 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.
In the case of Parker, Lady Justice Andrews expressed concern about “the fairness of the requirement that issues concerning the beneficial entitlement to property in the context of confiscation proceedings under POCA should always be determined in the Crown Court, instead of there being at least an option to transfer the more complex cases into the business and property courts. Were this to happen, there would be a greater chance of the judge having relevant expertise, and of the judge having the benefit of the assistance of experienced specialist counsel. An alternative would be for a specialist judge to sit in the Crown Court to hear such cases.” Indeed, these are exactly the options that the Law Commission is considering. One of Lady Justice Andrews’ colleagues on the Court of Appeal panel was a former property litigator turned circuit judge and so was ideally placed to identify the ‘classic example of a constructive trust’.
The second problem that confronted Mr Parker 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. Mr Parker’s predicament is not rare. When confronted by a prolific fraudster, invariably a prosecutor has to be selective and will choose the strongest case to prosecute. A victim is only eligible for compensation where the offender has been convicted of (or otherwise admits) the offence causing loss to that victim. Other victims whose cases fall outside the indictment, perhaps because they would have been harder to prove, are not eligible for compensation.
Whatever reform the Law Commission proposes will come too late to undo the financial disaster that befell Mr 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.
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