Confiscation proceedings: profits, proportionality and the 'true benefit'

26th January 2018 Business Crime

A defendant who faces confiscation proceedings under the Proceeds of Crime Act 2002 ('POCA') will be faced with the question as to how the Court will ultimately calculate their benefit. When an individual is said to have obtained financial gain from their criminal conduct and subsequently face confiscation proceedings, will the court be sympathetic towards expenses, outgoings, costs, good and services sold and sums later offset or incurred by their business? Put simply, should the court, when determining a defendant's benefit figure, consider profits or turnover?

Proceeds of Crime Act 2002 a strict statutory framework

Section 76(4) of POCA is a prime example of the commonly described 'draconian' legislation; the Act defines criminal benefit with wide-ranging and all-consuming scope as 'obtaining property as a result of or, in connection with the conduct.' Further, by virtue of Section 76(7), 'benefit is the value of the property obtained". Reference to anything 'obtained' sets out a clear legislative intent, that anything acquired or secured by the defendant will be captured. The full value, whether it be property, vehicles, cash or jewellery will be caught and deemed a 'benefit', without allowing for consideration of how the property was obtained, whether exchanged for goods or services and without the opportunity for deducting expenses incurred in the business' operation.

A 'turnover interpretation' Rose, Goodwin and May

Cases that followed, in which courts were asked to consider whether benefit could be determined by reference to profits and questions of the 'expenses' of a defendant's business plainly uphold the strict approach of 'benefit figure' that was laid down by statute.

The case of CPS Nottinghamshire v Rose [2008] EWCA Crim 239, concerned a defendant profiting from criminal conduct in the context of obtaining property that had later been returned. Despite the fact that at the time of confiscation proceedings, property had been restored and arguably the defendant ultimately had no benefit, the court held that as the defendant (at some point) obtained the property, the market value of the property was the true benefit.

In R v Del Basso & Goodwin [2010] EWCA Crim 1119 the defendants were prosecuted for the operation of their business, a car park, without the requisite planning permission. The benefit figure from the offences was deemed to be £1,881,221.19, on calculation of all of the gross receipts of the business. It was submitted, on behalf of the defendants, at appeal that the 'true benefit' should reflect what they actually made as a business, offsetting the considerable costs that they incurred; the court was asked to apply an arguably more lenient and pragmatic approach. The Court of Appeal dismissed the appeal in finding that 'the benefit gained is the total value of the property or advantage obtained, not the defendant's net profit after deduction of expenses'. The court made it overwhelmingly clear that a defendant who operated a business in disregard of legal requirements, planning enforcement in the present case, would not be granted the privilege of being treated as a legitimate business.

It is clear that the judicial approach has historically been to uphold the strict legislative framework. Arguably in accordance with the intent of Parliament, it seems that courts have taken a consistently rigorous approach, that confiscation orders are to be made on the basis of the gross amounts obtained as a result of crime. As summarised in the similarly decided case of R v May [2008] 1 AC 1028, 'to embark upon an accounting exercise in which the defendant is entitled to set off the cost of committing his crime would be to treat his criminal enterprise as if it were a legitimate business.'

Application of the Act in such a manner has left very little room for defendants to advance arguments in relation to the eventual destination of property obtained through criminal conduct. The court has refused to consider whether property is obtained for seemingly worthwhile reasons, for the provision of legitimate goods and services; consideration of profit has been, in the eyes of the court, immaterial. The cases of Rose, Goodwin and May set a punitive and perhaps imbalanced landscape for defendants facing confiscation proceedings involving the operation of a business. There may, however, now be reason to believe that defendants seeking to advance the 'profit argument' are justified in doing so. A more recent judicial shift in interpretation has created the possibility of a defendant succeeding in contending that their benefit should be calculated by profits, as opposed to the entirety of property obtained.

Proportionality and profits Waya, Sale and Reynolds

It would appear that the landmark case of R v Waya [2012] UKSC 51, set the scene for the principle of proportionality influencing the court's interpretation of benefit obtained. Following more recent case law, profit may now be considered a true reflection of benefit. At least, courts are willing to delve deeper into consideration and calculations of profits. The Supreme Court in Waya when considering the question held that the court, in making a confiscation order 'may require a defendant to pay the whole of a sum which he has obtained by crime without enabling him to offset the expenses of the crime.' The Supreme Court notably gave credit and potentially preference to a strict interpretation of statute. However, in finding that such questions of profit, proportionality and the 'true benefit' would 'have to be resolved case by case as the need arises' the case paved the way for a more lenient and arguably common sense approach. As set out in Waya, the courts are now required to give 'careful consideration' as to whether a confiscation order beyond profit is proportionate; a significant shift and watering down of the traditional approach.

Indeed, the case of R v Sale [2014] EWCA Crim 1306 that followed shortly after Waya considered whether benefit should be represented by the profit earned by the company, as opposed to the total sum. In light of the Supreme Court decision in Waya it was found that the confiscation order had to grounded in proportionality. The Court of Appeal, in considering the financial benefit that the defendant had obtained, were prepared to make a confiscation order that took into account and offset the costs that Mr Sale incurred in performing (albeit illegally obtained) contracts. Applying the profits based approach the Court found the confiscation order based on turnover (£1.9 million) disproportionate, preferring to make an order in which the benefit figure represented profits (approximately £197,000). It is clear that embarking on a 'profit approach' in considering a defendant's benefit, makes for a radically different and more palatable outcome.

In the recent case of R v Reynolds the defendants were convicted of a number of offences; conspiracy to steal, conspiracy to commit fraud and conspiracy to convert criminal property in relation to the supply of goods to Leicester County Council. The court was asked to consider a number of questions in the confiscation proceedings that followed, including that of the true and correct definition of benefit. The initial approach in determining the confiscation order was that of the loss suffered by the complainant Council, as opposed to the well-established approach of weighing up the 'gain' or property obtained. The Judge felt such an approach was warranted on the basis that goods has been supplied to the Council, were of value, had been paid for by the complainant, who raised no complaint as to the quality of the goods. Albeit, the complainant had paid excessively for the goods supplied. Consequently, the defendant's gain and benefit was calculated by reference to the loss by the overpayment. It would appear that the Judge, in doing so, had in mind the principles embedded in Waya and later applied in Sale, namely, that he had "both the power and indeed the duty to ensure that when making an order for confiscation, that such order is not disproportionate". As such the resulting confiscation order went a step further than a 'profits approach', in assessing benefit as simply overpayments or the extent of the loss sustained. The prosecution appealed against the valuation of the benefit and overpayment approach taken, to which the Court of Appeal agreed, in concluding that there was 'no material capable of supporting the decision that the correct figure for the gain was the same figure as the loss sustained.'

Although the Court of Appeal rejected the suggestion that criminal gain was akin to overpayment for the goods, the court certainly left the gates open for 'profit based' benefit arguments to be advanced. The recent judgement confirmed the possibility that 'in some cases, for example, where legitimate goods or services are supplied but the business or transaction in question is otherwise tainted, it may be appropriate to make a confiscation order in the amount of the wrongdoer's profits.' The concessions made in Reynolds, dilute considerably the historically strict interpretation of 'benefit' and affirmed that benefit by reference to profits may be a more favourable approach.

The correct approach?

It is apparent that in a considerable number of POCA cases where the court was faced with determining the benefit figure of a 'criminal business or enterprise', turnover (the gross receipts obtained) would provide the calculation of the defendant's benefit. In such cases, the defendant's costs incurred whether associated expenses or the sale of the goods that the enterprise operates in, were disregarded.

It might be said, however, that the effect of recent decisions has been to raise serious questions as to the proportionality and rationale behind this approach, creating a more optimistic landscape for defendants who, having built up a business (albeit tainted in some manner) face confiscation proceedings. It is now apparent, following Waya, Sale and Reynolds that the court will, at least be prepared to consider the circumstances in which criminal benefit is obtained. Questions as to whether proper, quality goods and services have been provided, payment has been made and whether the defendant seemingly operates a legitimate business will be considered and have a significant baring upon a defendant's confiscation order. Whether such an approach to a defendant's 'true benefit' will continue shall remain to be seen; for now the door is certainly open for a profits based approach to the defendants benefit figure in confiscation proceedings.

If you are a company or individual who is facing confiscation proceedings and would like to discuss the implications, please contact the Business Crime and Regulation department on 0345 872 6666 to see if we can assist.

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Catherine O'Rourke is a Solicitor located in Manchester in our Business Crime & Regulation department

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