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Hidden Assets in Confiscation Proceedings
This article focuses solely on hidden assets in confiscation proceedings. For more information about the Proceeds of Crime Act and asset recovery, and the legal services we provide in relation to these, visit our dedicated page here.
The topic of hidden assets is a major issue for many clients who first ask us for assistance at various stages of confiscation proceedings. Those proceedings might be in accordance with the Criminal Justice Act 1988 or the Proceeds of Crime Act 2002 but I am often approached by defendants when the prosecution believe (or the court has determined) that the defendant has hidden assets. The defendant will almost always say – I don’t have hidden assets, no matter what the prosecution says and I can’t afford to pay a confiscation order including hidden assets. Can you do something about it?
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. The basic position in confiscation proceedings is this:
It is for the defendant to prove that he/she is worth less than the figure representing ‘criminal benefit’. I do not comment in depth upon the meaning of ‘criminal benefit’ in this article but once the prosecution bring sufficient evidence of hidden assets, it is for the defendant to prove on the balance of probabilities that he/she does not have hidden assets. Defendants often complain that the prosecution sometimes make wild assertions about the existence of hidden assets in order to inflate the confiscation order and produce a second prison sentence by effectively obliging the defendant to serve the sentence set in default of payment. There have been many cases where hidden assets arguments have dissolved upon being properly challenged but the prosecution is in a comfortable position where a reasonable degree of evidence exists. If this is sufficient to shift the burden of proof onto the defendant, dealing with the issue needs careful consideration. There is no secret to dealing with a hidden assets argument. The need for clarity and good documentary evidence underpins all of the preparation.
1. Providing a statement of means
At the start of the confiscation timetable, the court will usually direct the defendant to provide a statement of means, unless the assets are obvious to the prosecution or they already have a statement of means because of related restraint proceedings.
The importance of the means statement is often underestimated. Defendants will sometimes try to hide the existence of a vehicle, bank account, property or other asset and sometimes they are successful. However, many defendants decide not to disclose because they are simply unaware of the powers available to the Crown to obtain that information. Investigating officers can often make financial enquiries without the defendant even knowing about it. The consequences of failing to disclose assets can amount to a contempt of court and it also invites a hidden assets argument. In short, it can damage or even destroy a defendant’s credibility across a range of issues in the case.
Solicitors should therefore obtain instructions using a comprehensive questionnaire which addresses each of the issues covered by S18 Proceeds of Crime Act 2002. This will include references to real property (in the UK and abroad), bank accounts, cash, vehicles, significant debts owed to the defendant and other financial issues. Providing good quality answers to those questions is the first step in avoiding a hidden assets argument.
What if an asset is jointly owned? It still needs to be disclosed but the joint ownership should be highlighted because the prosecution need to be aware of just how easy or difficult it is going to be to realise that asset.This can affect the asset’s value and 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 and is beyond the scope of this article but suffice it to say that their role is more important at the enforcement stage.
2. Where has the asset gone?
Once the investigating officer has considered the statement of means, the Crown will allege a certain level of criminal benefit and the proposed amount of realisable assets. The existence, ownership and value of some assets might be obvious, but a court will often decide that a defendant has hidden assets where an item clearly existed and has subsequently disappeared without a satisfactory explanation. A defendant will often say – e.g.” I sold the car to someone who used to work at the garage but I don’t have his number anymore”. If that is the extent of the defence evidence, the prosecution will ask the court to find that the defendant has not discharged the burden of proof in demonstrating that he no longer owns or controls the asset.
It is, therefore, important to provide as much detail as possible, particularly where cash is concerned. This might include statements from individuals who can support the defendant’s version of events and documentary evidence showing why it was necessary to use cash as opposed to an electronic transfer.
3. Explaining the expenditure
A fundamental part of confiscation proceedings involves explaining a defendant’s ‘expenditure’. For example, in the context of hidden assets, a defendant needs to show that if money was withdrawn from a bank account, it (a) went towards purchasing an asset which can be identified and valued or (b) was used to pay an identifiable bill. Many confiscation orders contain hidden asset elements because a defendant has not sufficiently explained domestic/commercial liabilities or the debits from the relevant bank account. 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.
What if a transaction does not have documentary evidence or the defendant cannot remember what the transaction was about? This arises particularly when I represent corporate defendants who operate partly on a cash basis. Construction companies, haulage firms, cash and carry and fast food outlets are prime candidates. The answer usually lies in the accounting records. In other words, a general reconciliation between the cash payments and the firm’s cash liabilities is sometimes the best anyone can do. In those circumstances, it may be possible to argue that the defendant has done as much as possible to explain the transaction. Arguing that an injustice would arise if the court found against the defendant is not straightforward but the court usually responds well to a defendant who has used his best endeavours to provide the evidence.
4. Boomerang assets
Although these assets are not strictly ‘hidden’, the prosecution will sometimes argue that a defendant has tried to place an asset in someone else’s name at the point of purchase or temporarily transfer the asset to someone else in anticipation of proceedings so as to frustrate the confiscation process. This can be as simple as arguing that a vehicle belongs to a spouse but some of these transactions can be very complex. I have been involved in cases where the defendant’s assets were documented in someone else’s name, outside the UK in many different investment products and trust funds. Attributing each element to the defendant can be a mammoth task but investigating officers are becoming more skilled at obtaining international assistance and producing audit trails back to a defendant. It is sometimes said that investigating officers become particularly zealous when the asset is worth a lot of money, even if the link between the asset and the defendant is fairly tenuous. This brings us back to the burden of proof. The officer does not need to produce a complete, watertight audit trail. Some of an officer’s submissions in terms of ownership are sometimes surprisingly general. The officer only needs to produce sufficient evidence to place the burden upon the defendant. Although the defendant ‘only’ needs to convince the court on the balance of probabilities that the asset belongs to someone else, it is better to avoid the need for the argument in the first place. Even if the defendant is telling the truth, any litigation carries a risk of an adverse decision. It is therefore important to clearly identify the way in which the asset was purchased and this may mean obtaining expert accountancy evidence.
5. Can the court decide that hidden assets exist but still make an order in a sum less than the benefit figure?
5. Can the court decide that hidden assets exist but still make an order in a sum less than the benefit figure?
A defendant can be absolutely stunned when a court makes an order in something like the following terms:-
- Criminal Benefit = £ 1,000,000.00
- Identified Assets = £ 100,000.00
- Hidden Assets = Unknown
- Confiscation order = £ 1,000,000.00
Putting it another way, if a judge decides that the defendant has hidden assets, does this automatically mean that the defendant has not satisfied the court on the balance of probabilities that he is worth less than the benefit figure? If so, is the judge bound to make a confiscation order in a sum equivalent to the benefit figure or can he arrive at a figure which is somewhere between the benefit figure and the value of identified assets?
This was raised in the Court of Appeal case - R. v. Leroy McIntosh and Michael Marsden  EWCA Crim 1501. The appeal concerns the correct approach a court should adopt to determine realisable amounts and, in particular, the proper interpretation of dicta in Telli v Revenue and Customs Prosecution Office 2 Cr App R (S.) 48, in the light of R v May  1 AC 1028 and Glaves v Crown Prosecution Service  EWCA Civ 69.
The criminal benefit in the case was agreed to be £3,668,990.00.The appeals concerned the proper approach the court should take where a defendant is found not to have told the truth about his realisable assets. The appellants argued that the judge failed correctly to apply the provisions of s.71(6) of the 1988 Criminal Justice Act. The defendants submitted that they had no realisable assets. The judge disbelieved both of them. The judge regarded his finding that the appellants had hidden assets as compelling him to make a confiscation order in the full sum of the benefit figure. He, therefore, made a confiscation order in the sum of £3,668,990.00. The defendants appealed, arguing that even though a court may reject a defendant's evidence that he has no assets or only some assets, the court is not bound to make an order in the full amount of the benefit.
""Subject to subsection (1C) above the sum which an order made by a court under this section requires an offender to pay shall be equal to –
(a) the benefit in respect of which it is made; or
(b) the amount APPEARING to the court to be the amount that might be realised at the time the order is made,
whichever is the less.""
This provision requires the court to assess what amount appears to the court to be realisable. The burden of proving that the amount that might be realised is less than the benefit rests on the defendant. Investigation officers usually raise the case of Barwick  1 Cr App R (S) 129,,for authority that the nature and value of his assets are essentially within a defendant's personal knowledge. However, officers don’t often emphasise the fact that although the judge in Barwick disbelieved the defendant, he nevertheless concluded that his realisable assets were less than the amount of the full benefit figure (""doing as broad a justice in this case as I feel able to do”). The Court of Appeal upheld the factual conclusions of the judge and thus his acceptance that the realisable assets were less than the full amount of the benefit, notwithstanding that the defendant's evidence hid the truth.
In May, Lord Bingham said that it would be unjust to imprison a defendant for failure to pay a sum he cannot pay (paragraph 35). But Lord Bingham stressed the need to focus on the statutory regime. Accordingly, although he acknowledged Lord Steyn's reference in R v Revzi  2 Cr App R 2 to the need for ""standing back and deciding whether there is or might be a risk of serious injustice"", that approach could only be adopted within the confines of the statute itself (paragraph 43). Lord Bingham made it clear that the injustice in ordering a defendant to pay more than he was able was recognised by and catered for in the provisions of the statute itself:
""It has also been recognised that it would be unjust to imprison a defendant for failure to pay a sum which he cannot pay. Thus, provision has been made for assessing the means available to a defendant and, if that yields a figure smaller than that of his aggregate benefit, making a confiscation order in the former, not the latter, sum."" (May, paragraph 35)
Accordingly, there is no room outside the statute for any residual discretion in the court to relieve a defendant who has failed to prove that his assets are less than the full amount of the benefit. Mr Farrell QC, on behalf of McIntosh, argued that the court should always bear in mind the injustice of ordering a defendant to pay more than his resources permitted. He drew attention to Lord Steyn's dicta in Revzi (cited above) and Toulson LJ's emphasis, in Alan Glaves v Crown Prosecution Service on the need for justice and proportion (paragraph 56). Toulson LJ drew on Pill LJ's reminder in Re O'Donoghue  EWCA Civ 1800, that, however uncooperative or dishonest a defendant may be, the court must retain a sense of justice and proportion.
However, that approach can only be deployed within the statutory scheme. The court must strive to achieve justice and proportionality within the confines of the statutory scheme. The court must answer the statutory question posed by s. 71(6), namely, whether it appears to the court that the realisable amount is less than the amount of the benefit.
This can lead to a situation where, if a defendant fails to satisfy a court of the value of that realisable property then the court is bound to make a confiscation order in the full benefit figure. A defendant should not, if the statutory scheme is properly followed, be able to avoid an order recovering the full benefit figure unless he identifies the realisable property he holds. If he refuses to do so then the court has no option but to make an order in the full amount. In other words, if a defendant cannot satisfy a court that the total value of all his realisable property is less than the value of the proceeds of his drug trafficking, the court should not issue any certificate pursuant to s.5(3). This is of significance to defendants who agree a confiscation order including an element of hidden assets and then seek a certificate of inadequacy in relation to those hidden assets when they are about to embark upon their default sentence.
Does all of this mean that, in any case where a defendant has been found to have lied and diminished or hidden the true value of his assets, the court is bound to make an order in the full amount of the benefit?
No. In the light of Glaves and May there is no principle that a court is BOUND to reject a defendant's case that his realisable assets are less than the full amount of the benefit, merely because it concludes that the defendant has not revealed their true extent or value, or has not participated in any revelation at all. The court must answer the statutory question in s.71(6) in a just and proportionate way. The court may conclude that a defendant's realisable assets are less than the full value of the benefit on the basis of the facts as a whole. A defendant who is found not to have told the truth or who has declined to give truthful disclosure will inevitably find it difficult to discharge the burden imposed upon him, but it may not be impossible for him to do so. Other sources of evidence, apart from the defendant himself and a view of the case as a whole, may persuade a court that the assets available to the defendant are less than the full value of the benefit.
In the McIintosh and Marsden appeal, the appellants asserted that the judge's view was that he was bound to make an order in the full amount of the agreed benefit once he had rejected the appellants' case that they had no realisable assets. The appellants focussed on the following passages. In Marsden's case the judge quoted paragraphs 10 and 11 in Telli and said:
""In my judgment it follows that once the benefit under the 1988 Act is established if a defendant refuses or fails to identify all his realisable assets or fails to satisfy the court on the balance of probabilities that he has no hidden assets the court has to make a confiscation order for the full value of the benefit.""
The judge said that McIntosh's case should be read in conjunction with his judgment in Marsden and concluded:
""The consequences of my findings are that I am not satisfied on 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 in accordance with the judgment in Telli v RCPO, the only order I can make is confiscation in the sum of £3,688,980."" (our emphasis).
Two weeks earlier, the same judge had made a confiscation order in the case of a fellow conspirator, Moen. He found that the defendant had lied about his assets and that the full value of the benefit to Moen was £2,013,495 but nevertheless made an order in the much lower sum of £96,429. He said:-
""While he has not been frank and honest about what assets he does and should have, even the Crown do not suggest that he would have sums anything near that and despite what is said in Telli it would be wholly wrong for me to make an order in that sum.""
Consequently, it must always be recognised 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 an untruthful and unreliable or even non-existent source of the nature and extent of his current assets.
McIntosh argued both at the confiscation hearing and on appeal that the amount of the agreed benefit was far higher than the reward he received from his participation in the conspiracy and that any assessment of the amount of his available assets must, on any fair and proportionate view, have been far less. Accordingly, even if the judge rejected his case that he had no assets available, the amount ordered should have been substantially less than the agreed full value of the benefit.
The Court of Appeal rejected this submission and referred to the judge’s detailed comments on the facts. Those facts formed the basis for the reasonable finding that his realisable assets did not appear to be less than the full value of the benefit. Having made the factual findings the judge set out, the confiscation order was the only order the judge could make. McIntosh's appeal was rejected.
In Marsden's case, the judge found that the value of the defendant’s assets outside the UK was totally unknown. This was a crucial finding. Once the judge had reached that conclusion, there was no basis on which he could conclude that the value of Marsden's realisable property was less than the value of his benefit. The Court of Appeal decided that neither justice nor a sense of proportion demanded that the judge should conclude that assets abroad, the extent and value of which were unknown, should be assumed to be of lower value than the full value of his benefit. Marsden’s appeal was also dismissed.
In summary, it is up to the defendant to prove that he is worth less than the sum representing criminal benefit and the court can make an order in an amount less than the benefit figure, even if a defendant’s evidence is disbelieved. However, the defendant will 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. The best way to persuade the court is to properly disclose the existence of assets and what has happened to assets the defendant no longer owns or controls. Providing documentary evidence and showing best endeavours are very important. The cases of McIntosh and Marsden show that appealing in the absence of those elements is likely to be very difficult indeed.
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Business Crime, Regulation & Driving Offences