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.

Hidden assets are a major issue for many clients who ask us for assistance with confiscation proceedings in accordance with the Criminal Justice Act 1988 or the Proceeds of Crime Act 2002 (POCA). The expert proceeds of crime solicitors at JMW are often approached by defendants when the prosecution believes (or the court has determined) that the defendant has hidden assets. The defendant almost always says, "I don’t have hidden assets and can’t afford to pay a confiscation order that includes hidden assets. Can you do something about it?"

The answer to that depends on which stage the confiscation proceedings have reached and what happened before the defendant asked for advice, but understanding the burden of proof is critical. The basic position in confiscation proceedings is that the defendant must prove that they are worth less than the figure representing ‘criminal benefit’. I do not comment in depth upon the meaning of ‘criminal benefit’ in this article or the factors that can affect the criminal benefit figure.

Once the prosecution brings sufficient evidence of hidden assets, it is for the defendant to prove on the balance of probabilities that they do not have hidden assets. Defendants often complain that the prosecution has made wild assertions about the existence of hidden assets to inflate the confiscation order. This may result in 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.

However, 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, the issue needs careful consideration. There is no secret to dealing with a hidden assets argument - clarity and good documentary evidence underpin all of the preparation.

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 may try to hide the existence of a vehicle, bank account, property or other asset and sometimes are successful. Many defendants decide not to disclose because they are unaware that the Crown has powers to obtain that information. Investigating officers can make financial enquiries without the defendant even knowing about it. 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 section 18 of the 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.
If an asset is jointly owned, it still needs to be disclosed but the joint ownership should be highlighted - the prosecution needs to be aware of how difficult it might 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.  You can read an article on third party interest applications for more information in our blog post, Navigating Confiscation Proceedings: How Third Parties Can Protect Their Assets.

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 a proposed amount of realisable assets. The existence, ownership and value of some assets might be obvious, but a court may decide that a defendant has hidden assets if an item that clearly existed has subsequently disappeared without a satisfactory explanation. If the defendant cannot prove that the asset was sold for market value or otherwise disposed of, the prosecution will ask the court to find that the defendant has not discharged the burden of proof in demonstrating that they no longer own or control 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.

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.

Some corporate defendants who operate partly on a cash basis - such as construction companies, haulage firms, cash and carry and fast food outlets - face difficulties producing documentary evidence or remembering what a transaction was about. 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, you may 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 evidence of expenditure incurred.

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, or much more 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 financial investigators 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 tenuous. This returns us to the burden of proof. The officer does not need to produce a complete, watertight audit trail. Some officers' submissions in terms of ownership are 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 important to clearly identify the way in which the asset was purchased and this may mean obtaining expert evidence from a forensic accountant.

Can the Court Decide That Hidden Assets Exist But Still Make an Order in a Sum Less Than the Benefit Figure?

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 they are 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 the judge arrive at a figure which is somewhere between the benefit figure and the value of identified assets? For example, making an order like so:

• Criminal benefit = £ 1,000,000.00
• Identified assets = £ 100,000.00
• Hidden assets = Unknown
• Confiscation order = £ 1,000,000.00

This was raised in the Court of Appeal case R. v. Leroy McIntosh and Michael Marsden [2011] EWCA Crim 1501, which concerns the correct approach a court should adopt to determine realisable amounts, including where a defendant is found not to have told the truth about his realisable assets.

The criminal benefit in the case was agreed to be £3,668,990.00. The appellants argued that the judge failed correctly to apply the provisions of s.71(6) of the Criminal Justice Act 1988. 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.

S.71(6) provides:

"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 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 [2001] 1 Cr App R (S) 129, for authority that the nature and value of their 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. 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.

Does the Statute Have Provisions to Deal with Hidden Assets in This Way?

In R v May [2008] 1 AC 1028, Lord Bingham said that it would be unjust to imprison a defendant for failure to pay a sum he cannot pay, and 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.

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. While the court must retain a sense of justice and proportion, no matter how uncooperative or dishonest a defendant may be, that approach can only be deployed within 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 important 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 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 revealed them 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.

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.

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, and appealing in the absence of those elements is likely to be very difficult indeed.