POCA Part 5

2nd March 2022 Business Crime

Overview of POCA Part 5

The Proceeds of Crime Act 2002 (POCA) contains the legislative scheme for recovery of criminal assets. This article will focus on Part 5 of the Act which covers the civil recovery of assets, allowing recovery where no criminal conviction has been possible. It aims to illustrate the key distinction between civil and criminal recovery as well as set out the process for how a claim can be challenged and resolved.

Who can bring a claim?

Under the Act the relevant enforcement authority may bring a claim. These are the Director of Public Prosecutions, the Director of the Serious Fraud Office, The Financial Conduct Authority, HMRC and the Director of the National Crime Agency.

“Unlawful conduct”

Chapter 1, Part 5 of POCA introduces the concept of “unlawful conduct” and includes any conduct that is considered unlawful under the criminal law. Part 5 allows for the civil recovery of property obtained by such means. This was added to in 2017 with s241A, in which property obtained from conduct that constitutes a “Gross human rights abuse or violation” could also be recovered.

Of particular importance when considering the reach of this act against your property is the concept of dual criminality. If the conduct has been undertaken outside of the UK, it requires the conduct to be contrary to criminal law under that jurisdiction as well as being unlawful if committed within the UK. S241A has removed the need for dual criminality if conduct meets the strict criteria that constitutes a “gross human rights abuse or violation”.

The use of “unlawful conduct” as a concept within civil recovery can be explained by the distinction between criminal and civil proceedings. Following on from the case of R v Innospec Limited [2010], civil recovery should only be an option after a prosecution has failed or, if a case is not suitable for prosecution. This is due to the fact that the standard of proof in civil proceedings is lower, namely, that on the balance of probabilities property can be deemed to be the result of unlawful conduct. This is significantly lower than the standard of proof being beyond reasonable doubt under criminal law. It is this key distinction that makes a claim under Part 5 of POCA so dangerous and why it is recommended advice is sought immediately.

“Property”

Before moving onto the different types of claim under Part 5, it is worth considering the definition of property and thus what assets can be targeted. The definition given in s316(4) of the Act is understandably as broad as possible: “all property wherever it is and includes money, all forms of real or personal property and intangible property”.

This definition was amended to cover all property, wherever it is globally after the Supreme Court case of Perry v SOCA [2013]. Likewise, in DPP v Briedis [2021] cryptocurrency was held to fall under the definition of intangible property demonstrating the Court’s willingness to apply the broad definition of property to contemporary circumstances.

Recoverable property

To put it simply, any property obtained through unlawful conduct, as previously explained, is “recoverable property”. Furthermore, property is allowed to be ‘followed’ under s304 of the Act. This allows the authorities to follow and obtain property that has been disposed of or passed to someone else. However, under the exception in s308(1) it cannot be followed into the hands of a purchaser who acts in good faith and for value, where that person acts without notice that the property was recoverable property; essentially protecting innocent parties.

Associated property

Finally, “associated property” is property that is not itself recoverable but can include any interest in the property and interests of other owners when the property is a tenancy in common or part of a larger part of property. To quickly summarise, if assets are argued to be the proceeds of unlawful conduct and defined as recoverable or associated property, it is highly likely the relevant authority will seek their forfeiture.

Type of claim

The authorities have a number of Orders at their disposal. In 2017 under the Criminal Financial Act, the authorities were handed new powers subject to proceedings in the Magistrates Court. These are becoming increasingly popular due to the lower threshold they impose but crucially have not displaced proceedings in the High Court.

Civil Recovery Orders

Previously, most Civil Recovery Orders would be made in the High Court. Whilst the Criminal Financial Act 2017 changed this to offer an increase in the alternative, recovery order claims will still be made in the High Court. The claim can be made against anyone who the authorities believe holds recoverable property. This claim must be served in the form of a notice.

PFO Overview

As part of the civil recovery order, the authorities will likely apply to the High Court for a Property Freezing Order. The Order will specify the property it applies to and prohibit its owner from dealing with it. It can be made without notice, if it is not practicable to do so, and the authorities need only believe there is a good arguable case the property affected is recoverable or associated to apply. The good news is that these Orders can be varied or set side under s245B and certain property can be excluded under s245C. In order to do this, acting quickly and decisively with specialist legal advice is a necessity.

Interim Receiving Orders

Under s246 the authorities can apply for an Interim Receiving Order for the detention, custody or preservation of property. This is designed to cover assets that may otherwise have been disposed of and again, these Orders can be varied or see property excluded when it is not recoverable.

Civil recovery orders conclusion

After the relevant order has been issued and the property detained, the High Court will decide whether the property is recoverable. If the authorities are successful, the property may be forfeited. It is worth remembering that not all cases go to trial with the authorities welcoming a settlement outside of Court. An example of this was the settlement reached in SFO v Julio Faerman in which over £1 million was recovered by the SFO before the conclusion of the claim in Court.

Recovery of cash in summary proceedings

The first of the three types of property that can be seized through an Order of the Magistrates Court is cash. Authorities are allowed to search for cash if there are reasonable grounds for suspecting it is recoverable property. Again, these grounds will be considered on the civil standard of proof, so the authorities need only suspect on the balance of probabilities that the cash is recoverable property. Additionally, if they suspect the property will be used for lawful conduct, again on the balance of probabilities, they are allowed to seize it. The minimum amount required for seizure will be specified within the Order.

The cash may be initially detained for 48 hours but this can be extended by Order of the Magistrates Court. Under s297, you can apply to have the cash or part of it, released whilst it is detained if the Court believes there are not reasonable grounds for detention.

If a release is unsuccessful or not applicable the authorities will move onto forfeiture proceedings. The authorities must give notice of forfeiture and be satisfied the cash is recoverable property or intended for unlawful use. The burden of proof is on the applicant as per Muneka v Commissioner for Customs and Excise. An application to set aside the forfeiture must be made within 30 days and will result in consideration by the Magistrates Court of the authorities’ arguments. 

Recovery of listed assets

Recovery of listed assets follows a similar process to cash but with some noticeable differences. Listed assets include: precious metals, precious stones, watches, artistic works, face-value vouchers and postage stamps. They can be seized if an officer is legally on the premises and has reasonable grounds for suspecting there is a “seizable listed asset” there. A “seizable listed asset” is one that falls into the categories listed above and is recoverable property or intended for use in unlawful conduct. The authorities should seek prior approval before seizure unless it is not practicable to do so. The asset should have a minimum value of over £1000.

Once the asset has been seized, it may be detained for an initial 6 hours. After a senior officer approves of the reasonable grounds for seizure this may be extended to 42 hours. These are strict guidelines that should have been adhered to. During this period the authorities must apply to the Magistrates Court for further detention. They will have to be satisfied the above thresholds, albeit low, are met. If they are not satisfied, the assets should be released.

A forfeiture application will be made to the Magistrates Court if they are satisfied the requirements have been met. An appeal against this must be made within 30 days.

Forfeiture of money held in certain accounts

The final type of property recoverable is that of money held in certain accounts. In order to seize this an Account Freezing Order will be issued. Find out more about AFO's here.

After an AFO has been successfully granted an Account Forfeiture Notice will be issued. The money may be forfeited if the Magistrate’s Court is satisfied that the money is recoverable property or intended for use in unlawful conduct. The notice must state the amount which is to be forfeited and must specify a period for objecting. This period must be at least 30 days and an objection can be made by anyone, not just the target of the Order. The objection must be a written notice sent to the specified address; in practise this will be undertaken a legal representative. An objection must be made otherwise the money will be forfeited.

Once an objection has been made an application to set aside the forfeiture can be made. Only the recipient of the AFN may apply to the Magistrate’s Court and the application must be made no later than 30 days after the objection period has ended. The quick and consecutive nature of these deadlines means it is imperative legal advice is sought and obtained quickly if you are the subject of such proceedings. 

Negotiation/settlement points

Much like the Civil Recovery Orders involving PFOs and Interim Recovery Orders, negotiation and discussion with the authorities is commonplace and settlements can be reached right up to a trial date. Shortly before the forfeiture hearing of National Crime Agency v Suleyman Javadov and Izzat Khanim Javadova a settlement was reached with the NCA. The NCA had been pursuing £6.4 million that was frozen in accounts. The NCA were arguing the money had been transferred into Britain unlawfully via the Azerbaijani “laundromat”. As a result of the settlement, the NCA received £4 million from the forfeited accounts however the settlement did not amount to an admission or finding of wrongdoing by either of the defendants. Whilst these measures require a relatively low threshold in comparison to their draconian nature, the authorities’ past willingness to settle presents an alternative option to litigation.

If you or someone that you know is subject to proceedings under Part 5 of POCA 2002, robust legal representation from the earliest stage is essential. For further information about the comprehensive service our lawyers can offer if you are concerned about such proceedings, contact our specialist lawyers on 0345 241 5305​​​​, or contact the authors directly.

Evan Wright is a partner in our Business Crime and Regulation department and his extensive experience in asset recovery pre-dates the Proceeds of Crime Act. He can be contacted at evan.wright@jmw.co.uk

James Young is a paralegal in the Business Crime and Regulation Department,. He can be contacted at james.young@jmw.co.uk

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Evan Wright is a Partner located in Manchester in our Business Crime & Regulation department

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