Hidden Assets

This video discusses the topic of hidden assets to assit those at various stages of Confiscation Proceedings in accordance with the Criminal Justice Act 1988 and Proceeds of Crime Act 2002.

Transcript

The topic of hidden assets is a major issue for many clients who first ask us for assistance at various stages of Confiscation Proceedings and those proceedings might be in accordance with the Criminal Justice Act 1988, it might be the Proceeds of Crime Act 2002, but we’re often approached by defendants when the prosecution believe or the court has already determined that hidden assets exist.

And a defendant will almost always say: I don’t have hidden assets, no matter what the prosecution says, I can’t afford to pay a prosecution, including paying a confiscation order, including hidden assets, can you do something about it.

Now the answer to that depends on the stage reached in the confiscation proceedings and what has happened before the defendant asks for advice. But understanding the burden of proof is critical and the basic position in confiscation proceedings is this: it is for the defendant to prove that he or she is worth less than the figure representing criminal benefit.

Now I don’t want to comment in detail about the meaning of criminal benefit here but once the prosecution brings the first of devidence of hidden assets, it’s then for the defendant to prove on the balance of probabilities that he or she does not have hidden assets. Now defendants often complain that the prosecution can sometimes make wild assertions about the existence of hidden assets in order to inflate the Confiscation Order and almost produce a second prison sentence by affectively obliging the defendant to serve the sentence set in default of payment.

There’ve been many cases where a hidden assets argument has dissolved upon being properly challenged, but the prosecution is in a comfortable position where reasonable degree of evidence exists, and if that is sufficient to shift the burden of proof onto the defendant, dealing with that issue needs to be very carefully considered.

So there’s no secret to dealing with hidden assets. It needs to be clear, there needs to be good documentary evidence, and that really underpins all of the preparation.

The first stage we would normally come to unless we’re instructed later down the line in the confiscation proceedings is the providing the statement of means, so at the start of a confiscation timetable the court will usually direct the defendant to produce a statement of means unless the assets are already obvious to the prosecution or they have a statement of means because of related restraint proceedings, but the importance of that statements of means is often underestimated. Defendants will sometimes try to hide the existence of vehicle, bank account, property or another asset and sometimes they’re successful, but many defendants decide not to disclose because they’re simply unaware of the powers available to the prosecution to obtain that information.

Investigating officers can often make financial enquires without the defendant even knowing about it and the consequences of failing to disclose assets can amount to contempt of court and it also invites a hidden assets argument, so in short it can damage or destroy a defendants credibility across a range of issues in the case.

So solicitors will usually try to obtain instructions using a comprehensive questionnaire that goes through each of the issues covered by as it sectioned obtained in the proceeds of the Crime Act 2002, that’s normally the legislation you’re dealing with and that will include references to real property in the UK, abroad cash bank accounts, vehicles, significant debts, other financial issues and providing good quality answers to those questions is the first step to avoiding a hidden assets argument.

 A question we often get: what if an asset is jointly owned. Still needs to be disclosed but the joint ownership should really be highlighted because the prosecution need to be aware of just how easy or difficult it is going to be to realise an asset. That can affect the asset’s value, many problems occur after a confiscation order has been made because a jointly owned asset has not been properly valued at the outset.

The status of a co-owner in confiscation proceedings is a tricky issue. I don’t propose to go into detail here, but it is more important in terms of intervention at the enforcement stage.

Once an investigating officer then has the statement of means, the prosecution will allege a certain level of criminal benefit and they will make some proposals about the level of realisable assets, the value of those assets in the statement of means.

The existence, ownership, value of some assets might be absolutely obvious but a court will often decide the defendant has hidden assets where an item clearly existed and has subsequently disappeared without any satisfactory explanation. So a defendant will often say for example: I sold a car to someone who used to work at the garage, I don’t have his number anymore. If that’s the extent of the evidence the prosecution will ask the court to find that the defendant simply hasn’t discharged the burden of proof in demonstrating that he no longer own or controls that asset.

So it’s very important to provide as much detail as possible, particularly where cash is concerned and this might include statements from individuals who can support the defendant’s version of events, documentary evidence showing why it was necessary to use cash as opposed to an electronic transfer, that kind of thing.  

Another important issue is explaining the expenditure, it’s a fundamental part of the assumptions in the Proceeds of Crime Act. For example in the context of hidden assets, a defendant needs to show that if the money was withdrawn from a bank account it for instance went towards purchasing an asset which can be identified or valued, or was used to for instance pay an identifiable bill. Many confiscation orders can take hidden asset elements because a defendant has not sufficiently explained domestic or commercial liabilities or the debits from a relevant bank account and documentary evidence is very important. And this part of the process is often the most laborious but each transaction a defendant explains is a reduction in the potential default sentence when it comes to hidden assets. It’s not just an artificial exercise, but what if the transaction doesn’t have the documentary evidence or the defendant cannot remember what the transaction was about. This arises particularly where I represent a corporate defendant who operates partly on a cash basis, construction companies, haulage firms, cash and carry, fast food outlets are prime candidates and the answer usually lies in the accounting records, in other words general reconciliation between the cash payments and the firms cash liabilities is sometimes the best anyone can do and in those circumstances it might be possible to argue that the defendant has done as much as possible to explain that transaction.

It’s not ideal but arguing that an injustice will arise if the court found against the defendant is not straight forward. The court usually responds to a defendant who has used their best endeavours to provide the evidence.

Another problem often sometimes called boomerang  assets. They’re not strictly hidden assets I’m describing but the prosecution will sometimes argue that the defendant has tried to place and asset in someone else’s name at the point of purchase, or temporarily transfer the asset artificially to someone else in anticipation of proceedings so as to frustrate the confiscation process. Now that can be as simple as arguing that a vehicle belongs to a spouse but some of these transactions can be very complex. I’ve been involved in cases where defendants asset were documented in someone else’s name outside the UK, many different investment products, trust funds, companies and attributing each element of the defendant can be a mammoth task, but investigating officers are becoming more skilled and they’re obtaining more cooperation from their partners abroad to bring that order trail back to a defendant.

It is sometimes said that officers are quite overzealous over an asset that is worth quite a lot of money, even if the link between that asset and the defendant is fairly tenuous. But that brings us back to the burden of proof; the officer doesn’t need to produce a complete watertight audit trail. Some of the officers’ submissions in terms of ownership are sometimes surprisingly general. The office only needs to produce sufficient evidence to place the burden on the defendant and although the defendant only needs to convince the court on the balance of probabilities that the asset belongs to someone else, it’s better to avoid the argument in the first place.

Even if the defendant is telling the truth, any litigation carries a risk of an adverse decision, so it’s very important to clearly identify the way in which the asset was purchased and that might mean obtaining expert accountancy evidence.

But what if the court considers that a hidden asset exists, can they still make an order in a sum that’s less than the benefit figure? A client can be absolutely stunned when a court makes an order of something like this: if a criminal benefit is one million pounds, their identified asset in terms of their house, vehicles, bank accounts, etc might be worth let’s say one hundred thousand pounds. Hidden assets unknown, confiscation order one million, not one hundred thousand pounds. A client will typically come and say: why on earth did this happen, what can you do about it?

So does it automatically mean that the defendant has not satisfied the court on the balance of probabilities that he’s worth less than the benefit figure, and if so is the judge bound to make a confiscation order in the sum equivalent to the benefit figure or can he arrive at a figure which is somewhere between the benefit figure and the value of the identifiable assets. That’s something that the court considered in the case of Leroy McIntosh and Michael Marsden in 2011 court of appeal case and that dealt with the way in which the courts should approach and determine realisable amounts. It dealt with a number of other cases – Tele vs. Revenue and Customs Prosecution Office, it reviewed some of the aspects of May House of Lords case in 2008, and then Glaves vs. The Crown Prosecution Service in 2011.

In the case of Leroy McIntosh and Marsden the benefit was agreed to be a little of three and a half million pounds and the appeal concern, the proper approach the courts should take where the defendant was found not to have told the truth about his realisable assets. The apellence argued that the judge failed correctly to apply the provisions of section seventy one of the 1988 Criminal Justice Act. The defendants said they had no realisable assets, the judge disbelieved both of them. The judge regarded his finding that the apellence  had hidden assets as compelling him to make a confiscation order in the full some of the benefit figure. So he made confiscation order in the sum of three and a half million, well over three and a half million pounds. The defendants appealed, argued that even though a court may reject a defendants evidence that he has no assets or only some assets, the court isn’t bound to make an order in the full amount of the benefit.

Now Section 71, or part of it, provides that subject to subsection 1C the sum which in order made by a court under the section requires an offender to pay, shall be equal to, the benefit in respect of which it is made or the amount, and this is the important word, appearing to the court to be the amount that might be realised at the time the order is made, whichever is the less. Sounds fairly complex but the provision requires the court to assess what amount appears to the court to be realisable and the burden of proving that the amount is less than the benefit figure is on the defendant.

Officers usually raise the case of Barwick 2001 Court of Appeal Case for the authority that the nature and value of the assets are essentially within the defendants’ personal knowledge so they’re the one who should know what to tell the court about the assets. However officers don’t often emphasise that the fact that although the judge in Barwick disbelieved the defendant, the judge nevertheless concluded that the realisable assets were less than the amount of the full benefit figure. I think the phrase the he used was doing as broad a justice in this case as I feel able to do. The Court of Appeal upheld the factual conclusions and his acceptance that the realisable assets were less than the full amount of the benefit, even though the defendant’s evidence hid the truth.

In the case of May it was Lord Bingham who said that it would be unjust to imprison the defendant for failing to pay a sum he cannot pay. That’s fine as far as it goes but he also stressed that that needs to focus on the statutory regime. So although he acknowledged what Lord Steen said in the case of Revsie the 2002 Court of Appeal case, you need to stand back and decide whether there is or there might be a risk of serious injustice. You can only do that within the statutory regime, within the confines of the statute itself, and Bingham made it clear that injustice in ordering a defendant to pay more than he was able to be recognised by, or catered for in the provisions of the statute itself.

It’s also been recognised that it would be unjust to imprison a defendant for failure to pay a sum which he cannot pay. Consequently the provisions been made for assessing the means available to a defendant and if that yields a smaller figure then the benefit, then making a confiscation order in the former not the latter sum is appropriate.

So there’s no real room outside the statute for any residual discretion for the court to relieve a defendant who‘s failed to approve his assets are less than the full amount of the benefit. But it needs to be deployed within the statutory scheme and the court has to really try and achieve justice and proportionality within the confines of that regime. And they need to go back to Section 71 whether it appears to the court that the realisable amount is less than the amount of the benefit.

Now that can lead to a situation where if a defendant fails to satisfy a court, the value of the realisable property, then the value of the realisable property is less than the benefit figure. Then the court is bound to make a Confiscation Order in the full benefit figure and the defendant should not, if he followed the statute, be able to avoid an order avoiding the full benefit unless he properly identifies the realisable asset he holds, and if he refuses to do so then the court has no option but to then to make the order in the full amount.

Now this is significant to defendants who agree Confiscation Orders including an element of hidden assets, and then they seek what’s referred to as a Certificate of Inadequacy or an application according to Section 23 of the proceeds of the Crime act 2002 in relation to those hidden assets when they’re about to embark on their default sentence, because often it’s completely inappropriate and Section 23 just doesn’t apply to that situation. An appeal very difficult may not apply to that situation but those are often instructions you get in those situations.

 So does all of this mean then that in any case where the defendant has been found to have lied and diminished or hidden the true value of his assets then the court is bound to make an order in the full amount of the benefit. Well no it doesn’t, because in light of the case of Glaves and May, there is not principal that a court is bound to reject a defendants case that his realisable assets are less than the full amount of the benefit, mainly because it concludes that the defendant hasn’t told the truth, you need to go back to Section 71 and ask the question. The court may conclude that a defendants realisable assets are less than the benefit on the basis of those facts as a whole.

A defendant who’s found to have not told the truth or has not been given proper disclosure is going to find it more difficult, but it may not be impossible for that defendant to do so. Other sources of evidence apart from the defendant himself, a view of the case as a whole may persuade the court that the assets available to the defendant are indeed less than the full benefit.

Now going back then to the McIntosh and Marsden appeal. The apellence asserted that the judges view was that he was bound to make an order in the full amount of the agreed benefit, once he’d rejected the apellence case that they had no realisable assets, and the apellence focused on a passage where the judge had quoted something from the case of Telly and he said: my judgement that follows that once the benefit under the 1988 Act is established, if the defendants refuses or fails to identify all of his realisable assets, or fails to satisfy the court under the balance of probabilities that he has no hidden assets, the court has to make a Confiscation Order for the full benefit figure.

Now the judge said that McIntosh’s case should be read in conjunction with his judgement in Marsden and concluded this. The consequences of my finding are that I am not satisfied under the balance of probabilities that Mr McIntosh has established that he has no assets with which to pay the criminal benefit attributed to him, and accordance with my judgement in Telly Vs. The REPO, the only order I can make is a Confiscation in the sum of, it was over three and a half million.

Now two weeks earlier the same judge made a Confiscation Order in the case of a fellow conspirator, a chap by the name of Mohan. No he found that the defendant had lied about his assets and the full value of the benefit to Mohan was a little over two million, but nevertheless he went on to make an order which was much lower than the sum of that benefit. The order was in the region of just under one hundred thousand pounds and the judge said whilst he’s not been frank an honest about what his assets were, even the Crown do not suggest that he would have sums anything like near that benefit figure and despite what he said in Tele it would be wholly wrong for the judge to make a complete order on that sum. 

So consequently one needs to recognise that a just and proportionate view of the facts as a whole may enable a defendant to satisfy the evidential burden, even when his own evidence proves to be untruthful or unreliable, or even non-existent of the nature and extent of his current assets.

So McIntosh argued, both at the confiscation hearing and on appeal that the amount of the agreed benefit was far higher than the award he had ever received for his participation in the conspiracy and that the assessment of the amount of his realisable assets must have been far less, and even if the judge had rejected his case, that he had no assets available, the amount ordered should have been substantially lower than the value of the benefit. The court of appeal rejected that and referred to the judges detailed comments on the facts. McIntosh’s appeal was rejected. Marsden’s case, the judge found the defendants assets outside the UK was totally unknown and that was crucial because one the judge had reached that there was no real basis on which he could conclude that the value of Marsden’s realisable property was less than the value of his benefit, and the court of appeal decided that neither justice nor sense of proportion demanded that the judge should conclude that assets abroad, the extent and value of which were unknown, should assumed to be of a lower value than the full benefit figure, and Marsden’s appeal was then dismissed as well.

SO in summary it’s up to the defendant to prove that he’s worth less than the sum representing criminal benefit and the court can make and order in the amount less than the benefit figure even if the defendants evidence is disbelieved however a defendant is going to find it more difficult to discharge that burden where the truthfulness of his account is called into question, or he declines to provide the information at all. And the best way to persuade the court is to properly disclose the existence of assets and what has happened to those assets the defendant either no longer owns or controls, and providing documentary evidence and showing best endeavours are very, very important and the cases of McIntosh and Marsden show that appealing and the absence of those elements is likely to be very difficult indeed.

Do that’s a fairly lengthy, fairly complex review of the kind of situations that people come across and the kind of advice that people ask for when they encounter hidden assets. I hope that’s been helpful, thank you very much.

Further reading

Hidden Assets in Confiscation Proceedings

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