Source: http://www.accountingevidence.com/blog/tag/uk/
Timestamp: 2019-04-26 02:04:38+00:00

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How should a forensic accountant approach a confiscation case? Should he (or she) focus on the benefit and available amount asserted in the prosecutor’s s16 PoCA 2002 statement – or consider the wider aspects of the proceedings? Should he study the bright crescent, or the whole of the moon?
The s16 statement may have been written by a financial investigator who has been involved in the case before and during the trial and who will bring to his s16 statement his knowledge of the circumstances of the case, the indictment and the judge’s sentencing remarks. That can mean that the benefit in the s16 statement fairly and properly reflects the situation of the convicted defendant.
However, in my experience this is often not the case, particularly where there has been more than one defendant convicted at trial. Sometimes the author of the s16 statement adopts a one-size-fits-all approach to the confiscation – going overboard with ‘cut and paste’ to speed up the production of multiple s16 statements.
But confiscation is very much focused on each single defendant.
The forensic accountant who is provided only with the s16 statement and its appendices, may be (at that stage) unaware of important features of the specific charges of which this defendant was convicted and relevant details of his unique role in the offending.
Obtaining copies of the indictment and perhaps the judge’s sentencing remarks, or the prosecution opening, may provide information of key relevance to benefit which is not to be found in the s16 statement.
So a little digging by the forensic accountant may bear fruit.
This is particularly so in conspiracy cases where the s16 statement may blithely treat all convicted defendants as having jointly obtained the full benefit derived from the conspiracy. But did the evidence at trial support that view? The judge’s sentencing remarks may throw some light on this, perhaps indicating a more limited role for a particular defendant involving a more restricted benefit for him.
Another fertile area of challenge surrounds convictions for offences such as “being knowingly concerned in the fraudulent evasion of tax”. This is an example of an area in which there may be a disconnect between the criminal conduct and the benefit derived from it.
Consider the case of a company director who deliberately submits false VAT returns for his company to enable it to retain or obtain the funds it needs to continue a legitimate trade. The director may be quite properly convicted of the offence. In these circumstances the s16 statement is likely to assert that he has benefited to the extent of the tax evaded. But has he? Undoubtedly the initial beneficiary will have been the company rather than the director.
Whether, and to what extent, the director has himself obtained a benefit demands careful investigation, it is by no means a foregone conclusion.
There are many more examples in which establishing the benefit obtained by a particular defendant demands a wider consideration of the circumstances of the case and the essential principles of confiscation law and practice.
Ideally these issues will have been identified and addressed by the defendant’s legal team and set out in detailed instructions to the forensic accountant.
But in practice this is often not the case for one reason or another.
Importantly the issue of whether a defendant has a ‘criminal lifestyle’ – triggering the draconian statutory assumptions – may depend upon whether he has obtained from his offending a total benefit of at least £5,000 (in England and Wales).
So not only may the benefit derived from the defendant’s ‘particular criminal conduct’ be important in itself, it may be the key to establishing – or not – a much larger benefit figure.
The danger of focusing only on the s16 statement is that the forensic accountant may fail to appreciate the importance of relevant matters which are not referred to within that statement.
A recent Court of Appeal decision on a s22 PoCA 2002 variation gives some food for thought.
The nub of the case presented to the Court concerned the Crown Court judge’s interventions in the cross-examination of a defence witness. On appeal it was suggested that the judge had gone too far and had effectively become a second prosecution counsel.
But for me the more interesting issues lay elsewhere.
The defendant’s history was not in dispute. He had twice been the subject of a confiscation order under PoCA 2002.
On 24 August 2007 Carl O’Flaherty and another person were in a vehicle stopped by police. The vehicle was searched and 20 small bags and one large bag of cannabis were found. Mr O’Flaherty’s home was searched and cash contaminated with cannabis was found there. The defendant pleaded guilty to possession of the cannabis in the vehicle with intent to supply.
On 1 November 2010 a confiscation order was made. The benefit figure was £30,350.20 and the defendant’s available amount at that time was found to be £5,135.00. He was ordered to pay £5,135.00. This was paid in full.
Subsequently in February 2011 it was discovered that Mr O’Flaherty and others had loaded cash onto a Thomas Cook Cash Passport Account throughout 2010 and 2011 in order to launder money. On 18 January 2013 he was convicted of conspiracy to convert, transfer and remove from England and Wales criminal property.
On 20 December 2013 Mr O’Flaherty was made the subject of a confiscation order comprising benefit of £27,556.06 and available amount of £871.51. This led to a confiscation order for £871.51. This was paid in part. At the time of the s22 hearing £120.00 remained outstanding.
In 2016 the Crown identified a residential property held in Mr O’Flaherty’s name. A restraint order was obtained and an application was made for variation under s22 PoCA 2002.
At a hearing on 5 December 2016 the Crown argued that Mr O’Flaherty held a 100% equitable interest in the residential property, which had an agreed value of £65,000, and sought variation of both confiscation orders to require payment of additional amounts and provide new default sentences.
Mr O’Flaherty’s case was that he owed money to his employer, Mr Usta, which should be deducted from the equity in the property in arriving at his available amount. Mr O’Flaherty had intended to purchase the property for £43,000 with a mortgage from Santander, but Santander pulled out after their surveyor had inspected the property.
Mr O’Flaherty then approached his employer who lent him £30,000 on the understanding that he would be repaid £40,000 after six months (when Mr O’Flaherty expected to have sold the property for £65,000). There was no written loan agreement or legal charge document.
In the event the property sale did not go through as planned after the restraint order had been obtained.
Mr Usta and Mr O’Flaherty both provided written witness statements and gave oral evidence at the s22 hearing.
It appears that no documentary evidence was put before the Crown Court to confirm the original involvement of Santander, the payment of £30,000 from Mr Usta to the defendant, or the defendant’s employment with Mr Usta (of which apparently HMRC had no record). Nothing had been filed at the Land Registry concerning Mr Usta’s interest in the property.
The Crown Court judge accepted the prosecution’s submissions, rejected the evidence of the defendant and Mr Usta, and varied both confiscation orders as requested by the Crown.
Mr O’Flaherty appealed, R v O’Flaherty  EWCA Crim 2828.
The issue raised at the appeal concerned the judge’s treatment of Mr Usta at the hearing.
When examined in chief Mr Usta had simply confirmed his written statement, setting out that he had lent the defendant £30,000 and expected £40,000 in return, to be true.
The Crown indicated it had no questions for Mr Usta in cross-examination.
Unusually, the judge then asked Mr Usta a series of questions. The judge was polite, but sceptical. He asked for clarification of the terms of the loan, why there had been no agreement in writing and no involvement of a solicitor. The judge also enquired about the lack of evidence of the defendant being employed by Mr Usta and the extent to which Mr Usta was aware of the defendant’s criminal record.
On appeal it was submitted that the judge had acted improperly in challenging the witness on issues which could have been raised by the Crown in cross examination but had not.
The Court of Appeal dismissed Mr O’Flaherty’s appeal (except to the extent that the s22 order was amended to correct a figure which both sides agreed to have been incorrect in the original order).
The Crown Court judge was entitled to efficiently and courteously seek clarification of the defendant’s case and to raise matters with Mr Usta which cried out for challenge.
The Court of Appeal found that the Crown Court judge had exercised considerable self-restraint and simply obtained from Mr Usta confirmation as to what his case was.
The judge’s questions related to matters referred to by Mr Usta in his witness statement. Had Mr Usta been properly questioned by the prosecution no intervention would have been needed from the judge. At the end of the judge’s questions he asked counsel for the defendant whether he had questions by way of re-examination and counsel did so. There was therefore no apparent or real unfairness or bias in the proceedings.
Let’s deal with a couple of obvious points first.
The defence case rested upon the assertion of certain facts, the most fundamental of which was that Mr Usta had lent £30,000 to the defendant – but not even the most basic documentary evidence (the bank statements of the defendant and Mr Usta showing the loan being made) were produced to the court.
A Crown Court deals every day with criminals who tell lies when it suits them. So supporting evidence is vital. All the more so when what is being asserted appears unusual. Whatever relevant documents which could be found should have been produced to the court (in advance of the hearing).
Secondly, to be effective the defendant had to show that he had less than a 100% interest in the property because Mr Usta also had an interest in it. But it seems that all that was being asserted was that the defendant owed a significant sum of money to Mr Usta. That, on its own, would not have reduced the defendant’s ‘available amount’ for confiscation purposes (but the agreement of a loan secured on the property would have done).
It is settled law that at a confiscation hearing the burden is on the defendant to satisfy the court, on the balance of probabilities, that his available amount is less than his benefit.
But what is the position on an application for a variation under s22?
The Court of Appeal held that “The burden of proof was the balance of probabilities and lay with [Mr O’Flaherty]”.
But what does this mean? I would suggest that what the Court of Appeal meant here was that the Crown had produced evidence sufficient to satisfy the court that the defendant now appeared to have an ‘available amount’ which exceeded the ‘relevant amount’ referred to in s22(8) – which in this case was the ‘available amount’ shown in the original confiscation order. In that way the Crown had appeared to satisfy the ‘trigger condition’ of s22(4).
That having already been done, the burden of proof was then on the defendant to rebut that or to satisfy the court concerning the amount which it would be ‘just’ to order him to pay (which would normally be based on his current ‘available amount’) to enable the court to vary (or to decline to vary) the confiscation order.
The more interesting issue, to me at least, concerns the lack of attention to s8 PoCA 2002 by both the Crown Court (on more than one occasion) and the Court of Appeal.
Looking back at Mr O’Flaherty’s history we can see that the offences of which he was convicted in 2010 (possession of a controlled drug with intent to supply) and 2013 (conspiracy to convert, etc criminal property) were both Schedule 2 ‘criminal lifestyle’ offences.
Section 8 spells out how the court should deal with a defendant who is, for a second time, subject to ‘criminal lifestyle’ confiscation.
In effect the benefit found in the later confiscation order must include the benefit found in the earlier confiscation order, with a deduction for the amount which the defendant has previously been ordered to pay under that first confiscation order (to avoid double counting).
When making the new confiscation order the court also must not recognise any other alleged benefit obtained by the defendant prior to the date of the earlier confiscation order, see R v Chahal & Chahal  EWCA Crim 101.
So in 2013 when making the new confiscation order the Crown Court should have proceeded in the following way. Firstly, it should have identified all the benefit obtained by the defendant after 1 November 2010 (the date of the first confiscation order).
That would include both the benefit of his particular criminal conduct obtained after that day and the assumed benefit in relation to, for example, property transferred to the defendant after 1 November 2010. In effect the ‘relevant day’ for the purposes of the s10 PoCA 2002 assumptions would be 1 November 2010, see s10(9).
In respect of benefit obtained by the defendant on or before 1 November 2010 the Crown Court would be obliged, when making the new order, to accept the benefit figure of £30,350.20 in the earlier order as being a correct statement of ALL the benefit obtained by this defendant from his criminal conduct up to that date.
This £30,350.20 should have been included as benefit within the second confiscation order, but subject to a deduction of £5,135.00 (which is the amount which the defendant had been ordered to pay under the original order).
So there would be £25,215.20 to include in Mr O’Flaherty’s benefit as his total benefit obtained up to 1 November 2010, and this should have been included in the benefit figure in the 2013 confiscation order.
The original order would then in effect cease to operate (except in respect of any action to enforce collection of the £5,135.00 previously ordered to be paid).
If subsequently the Crown wished to proceed under s22 it would do so only under the second confiscation order (as the unpaid benefit under the first order would be included within the benefit figure in the second order).
It seems clear that the Crown Court when making the second order in 2013 failed to do this.
When in 2016 the Crown Court considered the s22 application it could, in my view at least, have been argued that in consequence of s8 the 2013 order must be viewed as including ALL the benefit obtained by Mr O’Flaherty up to 20 December 2013. On that basis it would not be open to the Crown Court to entertain any application under s22 in respect of the first confiscation order.
However there is nothing to suggest that this argument was put at that time or that the Crown Court’s attention was drawn to s8 on this occasion either.
Again when the s22 variation was appealed s8 could have been discussed. But there is nothing in the Court of Appeal judgment to suggest that s8 was referred to in legal submissions or oral argument before the Court.
Perhaps if it had been the outcome would have been different.
As things have turned out it is difficult to conclude that Mr O’Flaherty has suffered any major injustice. It might be more accurate to suggest that he has failed to gain the advantage of a peculiarity in confiscation law.
As an aside, it would have been open to the prosecution in 2013, before the second confiscation order was made, to have made an application to the Crown Court under s21 PoCA 2002 to have the benefit figure in the 1 November 2010 confiscation order increased to reflect new information (concerning the money laundering offending which apparently occurred throughout 2010) which had come to light.
Had that been done then the benefit to be included within the second order would have been able to fully reflect Mr O’Flaherty’s benefit obtained up to 1 November 2010.
In my view that would have been the proper way to deal with Mr O’Flaherty’s case.
Allegations of tainted gifts can cause serious problems for a defendant in confiscation proceedings. But what are those problems and how is a ‘tainted gift’ valued? In this second article on tainted gifts I explore these issues.
I have considered what is meant by a tainted gift in an earlier blog post.
Valuing a tainted gift is not entirely straightforward. The starting point is that value means ‘market value’, s79 PoCA 2002. It is reasonable to suggest that ‘market value’ means the open market value as between a willing buyer and a willing seller, each of whom is fully informed about the asset.
But the statute goes on to deal specifically with the value of tainted gifts, s81. This says that the value of the tainted gift at the “material time” is the GREATER of (i) the value at the time of the gift (adjusted to take account of later changes in the value of money), or (ii) the value at the “material time”.
The expression “material time” is not defined in s81, but is used in s80 to mean the time when the court makes its decision (in other words the time at which the confiscation order is made or varied). The only sensible interpretation is that “material time” has the same meaning in s81.
So let’s consider a couple of examples. Suppose a defendant has made a tainted gift of a new car to his wife, some years ago. At the time he purchased the car for £25,000. That is the market value of the car when the gift was made. Today the car, which the wife still has, is worth £15,000. Then the value of the tainted gift is £25,000 (uplifted for inflation) because that is the greater of the two values.
Take another example, some years ago a defendant bought a house for £300,000 and gave it to his son. That is the market value of the house when the gift was made. Today the house, which the son still has, is worth £400,000. Then the value of the tainted gift is £400,000 because that is the greater of the two values (assuming that when the £300,000 is uplifted for inflation it does not exceed £400,000).
What about assets which go up and down in value, like shares in a listed company? Only two values matter for this purpose – the value at the time the gift is made and the value at the ‘material time’. The court should ignore the value at other times.
What if the gift has now become worthless? Case law tells us that even where the asset gifted no longer has any value the tainted gift will have value if the asset gifted had a value when the gift was made, see R v Johnson  EWCA Crim 10. This again is because the greater value is the one to be adopted by the court.
But what if the recipient of the gift no longer has it, or has only part of it? In this case s81 provides that the court should value any asset which the recipient has which directly or indirectly represents the asset gifted to him. If he has part of the asset, then what the court will value will be the part which he has plus any other asset which he has which directly or indirectly represents the other part.
Suppose a defendant has a valuable collection of rare postage stamps, which he gives to his daughter. She keeps some of the stamps, sells some for £10,000 and swaps some of the stamps for some from another collector. The court will need to know (i) the value of the collection at the time of the gift (uplifted for inflation since the date of the gift), and (ii) the current value of the stamps from the original collection which the daughter still has, plus £10,000 (uplifted for inflation since the date of the sale) for the stamps she sold, plus the current value of the stamps she received from the swaps. The value of the tainted gift will be the greater of (i) or (ii).
Finally let us consider the situation in which the defendant has gifted an asset to someone but there is simply no information before the court as to what has become of that asset since the gift. In this case the court cannot say whether the recipient still has the asset, or any part of it, or any other asset which represents it. In such a case it appears that the court should simply value the gift at the time it was made (and uplift that for inflation), see R v Box  EWCA Crim 542 at paragraph .
It is beyond doubt that the value of a tainted gift must be added into the defendant’s ‘available amount’, s9. So the tainted gift increases the defendant’s ‘available amount’ and this may have the effect of increasing the amount the defendant is ordered to pay under the confiscation order.
This will be the case whether or not the defendant is in a position to recover the value of the gift from the recipient, as is underlined in the case of Johnson – to which reference has already been made.
In relation to the court’s power to appoint a receiver, s83 provides that property held by the recipient of a tainted gift is ‘realisable property’ which means that the court can appoint a receiver under s50 with the powers over the recipient’s property set out in s51. These may include power to sell assets belonging to the recipient in order to recover for the court the value of the tainted gift, to assist in satisfying the confiscation order.
Whether the making of a confiscation order with such drastic consequences would be ‘disproportionate’ in the sense referred to in s6(5) will depend upon the facts of the individual case. However such an order would not typically be regarded as disproportionate (even where it would cause hardship) because the main purpose of the legislation is to recover the value of the benefit of the convicted defendant’s criminal conduct and the order would be directed toward that aim.
In these circumstances it would not be necessary for a receiver to identify particular assets of the recipient which were, or represented, the assets gifted by the defendant as all the recipient’s assets are ‘realisable property’.
Where a court was satisfied that the ‘available amount’, including the tainted gift, was truly irrecoverable it may be appropriate for the court to set a lower default sentence, see Johnson at paragraph 31(iii).
The effect of a tainted gift on benefit is less clear cut.
Where the defendant has purchased an asset, such as an item of jewellery, and made a gift of that asset then the purchase cost will be ‘expenditure incurred by the defendant’ which may be caught by the expenditure assumption of s10(4). Where the defendant has a ‘criminal lifestyle’ that will lead to an increase in benefit unless the assumption can be rebutted by evidence or the court considers that there would be a serious risk of injustice if the assumption were made. But that is a consequence of purchasing the asset – not a consequence of gifting it.
What about the situation in which a gift is made but no expenditure is incurred by the defendant? This was the situation in the Johnson case referred to above. In that case the defendant had gifted a house which was subject to a mortgage. The defendant considered the house to be worth £140,000 but transferred it to her daughter for only £120,000. She therefore had made a gift of £20,000. The defendant had a ‘criminal lifestyle’ and the gift was made after the ‘relevant day’.
The gift was therefore a tainted gift. But the property had originally been purchased many years earlier for £69,000. The tainted gift comprised part of the appreciation in value of the house. There was no expenditure incurred by the defendant in connection with making this gift.
However it appears that the Crown Court considered that this gift had the effect of increasing both the defendant’s ‘available amount’ and her benefit. The defendant appealed in connection with the increase in her ‘available amount’. The appeal was dismissed.
This suggests that where the prosecution can show that the defendant would not have been able to make the tainted gift if he had not been benefiting from a ‘criminal lifestyle’ the value of the tainted gift may become an element in benefit.
I have to say that I have been unable to find any basis for that in the wording of the legislation. It might also be suggested that, as the Johnson appeal concerned ‘available amount’ rather than benefit, this comment was obiter dictum.
I have not been able to find any other case law, or any statute law, directly on this point. This may be a matter that the courts will revisit at some point in the future.
In other circumstances it would appear that the making of a tainted gift does not, of itself, generate any benefit for the purposes of confiscation. There is no direct reference to a ‘tainted gift’ in the ‘criminal lifestyle’ assumptions of s10 or any other section dealing with the quantification of the benefit obtained by a defendant.
Allegations of tainted gifts can cause serious problems for a defendant in confiscation proceedings. But what exactly is a ‘tainted gift’?
In confiscation proceedings the word gift has a wider meaning than in everyday life. A defendant is treated as making a gift if he transfers an asset to another person and receives either nothing for it or receives in return something whose value is significantly less than the value of that asset, s78 PoCA 2002.
So, for example, if I transfer £100 to you and receive nothing in return, I have made a gift to you. But I can also make a gift to you if I transfer to you a car worth £20,000 and you pay me only £10,000 for it.
The statute does not contain a complete definition of a “gift”, it only indicates that, for example, a “gift” includes a transfer of an asset at a significant undervalue.
However case law suggests that for there to be a gift there must be (i) transfer of legal and beneficial ownership in an asset, (ii) acceptance of the gift by the donee, (iii) no intention on the part of the donor that the asset should be returned to him, and (iv) that the transfer be either without consideration or at a significant undervalue, see Re Somaia  EWHC 2554 (QB) at para .
So, for example, if a defendant owns a car and changes the registered owner to someone else (such as his wife or a friend) but continues to use the car as his own, then it could be argued that there has been no gift as the defendant is still in reality the owner of the car. To put this in more formal words, there may have been a transfer of legal ownership but no transfer of beneficial ownership.
Similarly with a property, the legal title shown at the Land Registry does not necessarily indicate the beneficial ownership of the property.
If the defendant retains beneficial ownership of an asset then there has been no gift of that asset by him. The same will be true if the defendant transfers an asset to someone to simply look after it for a while and return it to him later, or where the defendant transfers the asset to someone to hold it on trust for him. In these cases the defendant is to be regarded as still owning the asset in question.
What is a tainted gift?
First of all, a tainted gift must be a gift by the defendant. Once that is established, whether the gift is a tainted gift will in most cases depend solely on the date on which the gift was made. The nature and provenance of the asset which is gifted is irrelevant in most cases.
The rules are slightly different depending upon whether the defendant has a criminal lifestyle or not.
If the defendant does not have a criminal lifestyle, then a gift by him will be a tainted gift if, and only if, it is a gift made by him on or after the date on which the offence was committed. If the offence was committed on more than one day, or there is more than one offence, then the earliest day is used, see s77(4) to (7).
So, for example, consider the case of Peter being sentenced for thefts from his employer which occurred from 5 October 2016 to 9 January 2017. Peter does not have a criminal lifestyle. The earliest day is 5 October 2016 and any gift by Peter on or after that day will be a tainted gift. But any gift made by him before 5 October 2016 is not a tainted gift.
If the defendant does have a criminal lifestyle, then a gift by him will be a tainted gift in one of two circumstances.
Firstly, a gift will be a tainted gift if it was made on or after the ‘relevant day’. Here the ‘relevant day’ is the first day of the period of six years which ends on the day on which the proceedings were commenced against the defendant which have resulted in conviction for an offence which has triggered the confiscation, see s77(2) and (9). If there are two or more days, then the earliest one is the ‘relevant day’.
So, for example, consider the case of Jane being sentenced for concealing or converting criminal property which she did on 15 November 2016. She has no previous convictions. Jane does have a criminal lifestyle (because her offence is a Schedule 2 offence). She was charged with the offence on 8 September 2017, which is the day the proceedings against her commenced. So the ‘relevant day’ in her case is 9 September 2011. Any gift by Jane on or after 9 September 2011 is a tainted gift. Any gift made by her before 9 September 2011 is not a tainted gift.
But where a defendant has a criminal lifestyle there is an additional rule. A gift is also tainted if it was made by the defendant at any time and was of property (a) which was obtained by the defendant as a result of or in connection with his general criminal conduct, or (b) which (in whole or part and whether directly or indirectly) represented in the defendant’s hands property obtained by him as a result of or in connection with his general criminal conduct, see s77(3).
This will rarely be applicable. It can occur however if a long time elapses between the commission of an offence and the defendant being charged or where a defendant has previous convictions in previous proceedings (because these convictions will form part of his general criminal conduct, see s76(2)).
So, for example, consider the case of Trevor being sentenced for tax evasion from 6 April 2008 to 5 April 2015 from which he has obtained a benefit of £23,500. Trevor does have a criminal lifestyle (because his offence was committed over a period of at least six months and he has obtained a benefit of at least £5,000). He was charged with the offence on 27 June 2017, which is the day the proceedings against him commenced. So the ‘relevant day’ in his case is 28 June 2011. Any gift by Trevor on or after 28 June 2011 is a tainted gift. But in addition any earlier gift of an asset which is, or is derived from, benefit of his offending (which as we know commenced prior to 28 June 2011) will also be a tainted gift.
This situation, where the defendant has a criminal lifestyle and his offence, or an earlier offence, occurred or commenced before the ‘relevant day’, is the only circumstance in which the nature and provenance of the asset which is gifted may be relevant to whether there has been a tainted gift.
It is clear that one spouse may make a gift to the other and, in appropriate circumstances, a gift to a spouse is a tainted gift. But does that mean that day to day sharing of money between spouses can be treated as the making of tainted gifts?
In practice it does not appear that, for example, a husband is regarded as making a gift when his salary is paid into a joint bank account with his wife.
It might be argued that legally there is no gift as, in this example, the husband is free to withdraw all the money in the account himself and so there is an expectation of a return of any ‘gift’.
A more likely explanation may be that prosecutors typically regard this as simply a feature of day to day domestic financial realities for many couples, rather than as examples of gifts being made from one spouse to another.
But what about more substantial and non-recurring gifts?
The case of R v Hayes  EWCA Crim 682 concerned a married couple and the home in which they lived. They married in September 2010. Prior to their marriage both had had successful careers and well paid employments in Japan. The husband’s employment came to an end just prior to their wedding. The couple returned to the UK and the wife became pregnant, giving birth in October 2011. It appears that neither of them were earning on their return to the UK.
In September 2011 they purchased a property. The husband funded the entire purchase cost of £1.2m from his own resources, there was no mortgage. But ownership of the property was placed in their joint names.
The husband and wife lived in the property. The wife was a full time housewife and mother until returning to work in May 2013. Until that time the husband paid all the household expenses and regular outgoings.
In July 2013 the husband transferred his half share in the matrimonial home to the wife for £250,000. He was by that time incurring significant legal fees dealing with a criminal investigation into his conduct between 2006 and 2010. He had been formally charged in June 2013.
His wife took out a mortgage to enable her to pay him the £250,000.
In October 2016 the property was sold for £1.6m.
The husband was ultimately convicted and was subject to confiscation on the basis that he had a criminal lifestyle. The relevant day was in June 2007.
The issue arose as to whether he had made tainted gifts to his wife (a) on the purchase of the property in September 2011, and (b) on the sale of his half-share to her for £250,000 in July 2013.
Undoubtedly these events occurred after the ‘relevant day’ – the issue was whether these events were ‘gifts’.
The prosecution did not suggest that any additional gift arose from the husband paying all the household expenses and regular outgoings.
The husband pointed out that his wife had provided unpaid services as a wife and mother and argued that these should be valued and taken into account in determining whether he had made any gifts to her in relation to the ownership of the matrimonial home.
The court held that the husband had made tainted gifts to his wife on both occasions and that, for the purposes of confiscation, no monetary value could be placed on her services as a wife and mother in this case.
The court emphasised that each case is different and that the court needs to undertake an objective and evidence based approach to assertions concerning contributions. Where the consideration which is asserted to have been provided by the recipient of the property is not in the form of a direct financial contribution, then it is necessary to examine the evidence rigorously and closely to see if the asserted consideration is capable of being assessed as consideration of value and (if it is) to what extent. Any consideration which is asserted to have been provided must be capable of being ascribed a value in monetary terms and must be attributable to the transaction in question.
What are the consequences of a tainted gift?
The valuation of a tainted gift (both when the gift is made and subsequently) and the consequences of a tainted gift in confiscation proceedings are considered in a further blog article Tainted gifts – valuation and consequences.
Trading standards officers these days deal with a wide range of offences. Years ago trading standards work centred on checking that retailers were using correct weights and measures. That is still an element of the work, but trading standards officers today also deal with scams, frauds, dishonest overcharging, trade mark and intellectual property offences and transgressions of the Consumer Protection from Unfair Trading Regulations 2008 and other legislation.
The essence of trading standards work is the protection of consumers. So it is not surprising that in criminal prosecutions trading standards departments will focus on the loss to the consumer. That includes losses which the offender intended but failed, for one reason or another, to bring about.
For sentencing purposes it is unquestionably correct for the court to have regard to both the actual and the intended losses to consumers.
But a different approach is required in confiscation.
It should not be overlooked that the principal objective of confiscation is to deprive a wrongdoer of the financial benefit obtained by him from his criminal conduct. Self-evidently benefit which the convicted defendant had intended to obtain but did not, cannot be the subject of a confiscation order.
But equally importantly, the focus of a confiscation order is on the benefit obtained by the convicted defendant – not on the loss suffered by the consumer. As it was put succinctly in the case of R v Reynolds & Others  EWCA Crim 1455 at para [58(vi)] “the amount lost by the loser is generally irrelevant”.
But how is the benefit to be established for the purposes of the confiscation provisions of the Proceeds of Crime Act 2002?
The first step has to be the correct identification of the convicted defendant. This is particularly important where there is more than one defendant (where it is necessary to determine if each element of benefit was obtained singly by one defendant or jointly by more than one) and where a limited company is involved (where it may be necessary to consider whether the corporate veil should be pierced or to differentiate between benefit obtained by the company and benefit obtained by a director or employee).
This may involve careful consideration of matters of fact and issues of law.
Of course when there is more than one convicted defendant quite separate s16 statements are required for each defendant.
The next step is careful consideration of the precise offence(s) of which the defendant has been convicted and – if possible ‘criminal lifestyle’ is in issue – the period of time over which each offence occurred, and the number of offences of which this defendant has been convicted.
It is sometimes the case that a defendant will be prosecuted for a number of individual offences but the trading standards officers regard these specific charges as merely representative of a more widely operated illegal method of business.
In assessing the benefit of ‘particular criminal conduct’ the court will have regard only to matters which have been the subject of a charge which has resulted in conviction (and other offences taken into consideration in sentencing).
Where the offences do not appear in Schedule 2 PoCA 2002 and the aggregate benefit obtained by a convicted defendant is less than £5,000 (in England and Wales) then that defendant will not be deemed to have a ‘criminal lifestyle’ and the statutory assumptions of s10 cannot be employed.
When quantifying the benefit obtained by a convicted defendant it may, depending upon the circumstances, be appropriate to use the amount of the his profits (i.e. net proceeds), permitting him to deduct the expenses incurred in supplying the goods or services in question.
It may also be necessary to reduce the amount of benefit in respect of VAT charged to the consumers and any amounts refunded to them.
For all these reasons the benefit obtained by the convicted defendant may be very much less than the losses suffered by consumers as a result of the criminal conduct in which he engaged, or even the amount referred to by the judge when sentencing him.
So what are the key points to remember?
For the prosecution, great care needs to be taken at the charging stage regarding who to charge (and, for example, whether to charge a limited company as well as charging a director), what offence(s) to charge, and how many charges to bring.
For the defence, it is important to challenge the s16 statement appropriately having regard to applicable statute and case law and the relevant facts.
In many trading standards cases it will be useful for the defence to instruct a forensic accountant to critically review the prosecution s16 statement.
It is perhaps surprising and a little troubling to find in 2018 the UK Supreme Court split 3 – 2 on the application of confiscation legislation which is 15 years old.
The issue was a simple one – but its resolution involved consideration of some fundamental principles of statutory interpretation.
There were two defendants, who were husband and wife, R v McCool (Northern Ireland)  UKSC 23. Each of them had pleaded guilty to four offences in connection with false applications made for state benefits. In each case one offence occurred prior to 24 March 2003, and the other three after that date.
When it came to confiscation the prosecution wished to proceed under Proceeds of Crime Act 2002 rather than Criminal Justice Act 1988 confiscation provisions – but should they be permitted to do so?
That was the issue the Supreme Court was tasked to determine.
The Proceeds of Crime Act 2002 confiscation provisions apply to offences committed after 23 March 2003, by virtue of the Proceeds of Crime Act 2002 (Commencement No 5, Transitional Provisions, Savings and Amendment) Order 2003.
The prosecution had sought to disregard for each defendant the offence committed before 24 March 2003, relying in each case on the benefit from only the three later offences.
The prosecution did not seek to invoke the ‘criminal lifestyle’ assumptions against the defendants.
One might ask why the prosecution did not wish to proceed under Criminal Justice Act 1988 provisions, which could have allowed the s72AA statutory assumptions to be invoked. The answer is not spelled out in the judgment but it is clear that, in any event, each defendant’s ‘available amount’ was less than his or her ‘benefit’. So the statutory assumptions under CJA 1988 would not have produced any useful result in practice.
On the other hand, the CJA 1988 legislation has no provision similar to s22 PoCA 2002, which provides for the upward variation of a confiscation order in later years when a defendant has an increased ‘available amount’.
It may have been the potential for a future s22 application which attracted the prosecution to the PoCA 2002 confiscation provisions (even though this involved a reduction in ‘benefit’ because in each case any ‘benefit’ arising under the earliest offence could not be recognised at all under PoCA 2002).
Although this was a Northern Ireland case very similar legislation applies in England and Wales, so the decision of the Supreme Court is equally relevant in that jurisdiction.
The transitional provisions provide that “Section 6 of the Act (making of confiscation order) shall not have effect where the offence, or any of the offences, mentioned in section 6(2) was committed before 24th March 2003″ (but with the substitution of s156, the equivalent section, in Northern Ireland).
(c) he is committed to the Crown Court in respect of an offence or offences under section 70 below (committal with a view to a confiscation order being considered)”.
The Northern Ireland legislation is similar, but with (b) omitted.
Here the two defendants had been committed to Crown Court with a view to a confiscation order being considered.
Lord Kerr’s view was that it would be “a wholly anomalous result” if this legislation were interpreted to mean that where a defendant had been convicted, in the same proceedings, of offences committed both before and after 24 March 2003 all of those offences had to be dealt with under the earlier confiscation statutes.
In Lord Kerr’s opinion, it was Parliament’s intention that all offences committed after 23 March 2003 which could generate confiscation orders under the Act should be dealt with under PoCA 2002.
“It cannot have been intended that a swathe of post-2003 offences should be removed from the Act’s purview simply because the defendant was convicted of an associated offence before the relevant date”, he said.
Since the courts will generally seek to find an interpretation of legislation which does not produce an anomalous or absurd result, and which gives effect to Parliament’s intention, subsection (2) must be interpreted as referring to the “offence or offences” to which PoCA 2002 applied. That is the “offence or offences” committed after 23 March 2003.
It follows that the “offence or offences mentioned” in subsection (2) were all committed after 23 March 2003.
On that basis the defendants’ offences committed before 24 March 2003 could be ignored and confiscation could proceed under PoCA 2002 as sought by the prosecution – relying only upon those offences committed after 23 March 2003.
Lord Hughes and Lady Black arrived at the same conclusion as Lord Kerr.
“If the appellants’ contention were correct, and the earlier confiscation regime has to be applied wherever there is a single pre-commencement offence on the indictment (or before the magistrates) even if it is not relied on for confiscation, it would follow that that rule would have to apply even if the pre-commencement offence could never, even arguably, have generated a benefit, and thus could never, even arguably, have had the slightest relevance to the issue of confiscation,” said Lord Hughes.
Because this outcome “might well be termed absurd” this could not be the appropriate interpretation of the legislation.
Since three of the five judges had reached this conclusion the prosecution’s approach had prevailed.
The dissenting minority, Lord Reed and Lord Mance, disagreed with the majority about the intention of Parliament and did not agree that it would be “absurd” for the earlier confiscation legislation to have been required to apply where one or more offences dealt with in the same proceedings had been committed before 24 March 2003.
They considered that the words in the legislation should be given their natural meaning and that the interpretation placed on the words by the majority was “strained beyond breaking point”.
“It seems to me to be much more likely that the drafter of the transitional provisions intended to bring all the offences in any set of proceedings into one statutory confiscation scheme or the other. Then, at least, no offences would fall outside all confiscation regimes”, said Lord Reed.
The prosecution won the day and it is now undeniable that the prosecution may opt, in confiscation proceedings, to entirely disregard offences committed before 24 March 2003 in order to proceed under PoCA 2002.
It is also true that none of the Supreme Court justices considered it appropriate in this case to “read into” the legislation additional words in order to give a clear and unambiguous meaning to that legislation.
However the sharp differences in opinion in these judgments underline the dangers of seeking to divine the intentions of Parliament – and the complexities of the law around confiscation.
Pamela Darroux was from 2 November 2002 until 1 April 2014 employed as a manager by a charity known as the Sunridge Court Housing Association. She was a trusted and senior employee, managing the residential care home for elderly people operated by the Housing Association in Golders Green. She had responsibility for the general running of the home. Her responsibilities extended to the pay-roll of all employed staff, including herself.
She was contracted to work from Monday to Friday, between 9 am and 5 pm. It was an agreed term that when she did overtime, or covered for other members of staff, she was entitled to claim additional payment. She was also entitled to claim payment in lieu of holiday not taken.
It seems that her the practice throughout the period of her employment was to fill in the relevant claim forms by hand.
Once the relevant claims were approved the forms would be sent on a monthly basis to a company called PCS Limited, who, in effect, provided pay-roll services. It appears that on receipt of the relevant forms PCS would make the necessary computations for each employee; arrange for the appropriate deductions, with a view to accounting to the Revenue, in respect of PAYE and National Insurance contributions; prepare and send to each employee, the relevant monthly Pay Advice (which would include recording payment for hours worked in excess of the basic contracted amount); and arrange for the payment by bank transfer to each such employee accordingly.
The sums in question would then be paid out of the Housing Association’s account via BACS and the corresponding amount would then appear as a credit in each individual employee’s designated bank account.
In 2013 the Housing Association was subject to an inspection by the Care Quality Commission, which reported shortcomings in its administration.
The Executive Director of the Housing Association ordered an audit of the financial position, including payroll payments. The upshot of this was a claim by the Housing Association that Ms Darroux had defrauded the charity by submitting falsely inflated overtime / on call claims and claims in lieu of holiday entitlement for herself. The total amount said to be involved was quantified at £49,465 for the period between January 2011 and February 2014.
Ms Darroux was arrested, interviewed and ultimately charged with nine counts of theft contrary to s1 Theft Act 1968 in that she “stole monies belonging to Sunridge Court Housing Association”.
At the conclusion of her trial in the Crown Court on 15 June 2016 the jury found Ms Darroux guilty on six of the counts on the indictment. On those counts on which the jury convicted they had, on the invitation of the judge, returned special verdicts setting out the amounts they had found to be dishonestly taken (these were rather less than had been alleged by the prosecution).
Ms Darroux was sentenced to 16 months imprisonment. She appealed.
In the Court of Appeal her counsel argued that, on the facts and circumstances of this case, counts of theft were unsustainable.
Counsel necessarily accepted that, by their verdicts, the jury had found Ms Darroux to be dishonest in respect of the counts on which she was convicted, but submitted that there were no acts constituting the appropriation of property belonging to another.
Counsel accepted that the facts alleged would bring this case within the ambit of s2 of the Fraud Act 2006; but not within the ambit of s1 Theft Act 1968.
The Court of Appeal concluded “with no enthusiasm” that these convictions must be quashed, Darroux v The Crown  EWCA Crim 1009.
The dishonest actions of Ms Darroux were not “theft” as defined in law. What had happened was that the Housing Association’s bank balance (a debt due from the bank to the Housing Association) had fallen and Ms Darroux’s bank balance (a debt due to her from her bank) had increased.
But these were two different assets. Ms Darroux had not therefore appropriated property from the Housing Association. This was a point dealt with by the courts long ago in R v Preddy  UKHL 13.
What is more, the bank transfer had been made by PCS, not by Ms Darroux. Ms Darroux had not assumed the rights of the Housing Association to its bank balance – those rights had been exercised by PCS.
The Court of Appeal held that it would be wrong to distort the meaning of the statutory language in order to overcome the difficulties thrown up by a wrong charging decision. The remedy in such a case is to formulate the appropriate charges in the first place.
The Appeal Court was not prepared to substitute a conviction under s2 Fraud Act 2016.
Perhaps surprisingly no one appears to have drawn the attention of the Court of Appeal to the offence of false accounting contrary to s17 Theft Act 1968 – which seems to perfectly cover the facts of this case. That section applies “Where a person dishonestly, with a view to gain for himself or another or with intent to cause loss to another . . . falsifies any account or any record or document made or required for any accounting purpose”.
The lesson to be learned is that it is important – for both prosecution and defence – to have careful regard to the legal ingredients of the offence on the indictment. A ‘technical’ error in selecting the correct offence to charge may result in a dishonest defendant going free.
The revisiting of old confiscation orders by prosecutors under section 22 Proceeds of Crime Act 2002 is becoming more frequent but as yet few variations made under s22 have been appealed.
In stark contrast to the position when a confiscation order is first made, on a s22 revision the court – in other words the judge – has discretion concerning what variation to make to the original confiscation order and even whether to refuse to make any variation at all.
Section 22 is headed “Order made: reconsideration of available amount”.
Section 22 PoCA 2002 empowers the Crown Court to vary an existing confiscation order made under s6 of the Act. In effect it allows the prosecution to apply to the court for a further payment to be required from the defendant under an existing confiscation order where his available amount has increased since the original order was made.
We are considering the position of a defendant who was made subject to a confiscation order, perhaps some years ago, and the court ruled then that he had a figure of benefit which was higher than his available amount. At that time the court would not have ordered him to pay the full amount of his benefit. Instead the amount he was then ordered to pay would have been restricted to his available amount at that time. The figures of the defendant’s benefit, available amount and the amount he was ordered to pay should all be spelled out in the original confiscation order.
Under s22 the prosecutor returns to court and asks it to consider the available amount which the defendant has now and to order him to pay a further amount now towards his total benefit.
But the court is required under s22(4) to do what “it believes is just”. In the case of Padda v R  EWCA 2330 the Court of Appeal noted, at para  that it is entirely appropriate on a s22 application for the court to bear in mind any “consideration which might properly be thought to affect the justice of the case”.
At the same time the court must have regard to the underlying policy behind confiscation – that offenders should be stripped of the benefit of their offending.
So could there ever be a case where the court would simply refuse the prosecution’s application to order the defendant to pay a further amount?
Ian Mundy had been convicted in Cardiff Crown Court in 2008 of drugs offences (involving cocaine and cannabis) and money laundering. He had been subject to confiscation with a benefit of £172,365 and an available amount of £9,275. He was ordered to pay £9,275 and did so by 19 March 2009.
There was therefore an excess benefit of £163,090 which Mr Mundy had never been ordered to pay.
In 2016 or 2017 it came to the attention of prosecutors that the property owned by Mr Mundy (which had a negative equity in 2008) now had a positive value. In addition Mr Mundy now had a car, a van and two motorcycles and had over £8,000 in bank accounts. He seemed an ideal candidate for a s22 application.
A restraint order was obtained on 21 February 2017 and a s22 application was lodged on 26 May 2017. The Crown sought a further payment of £29,791. Mr Mundy disputed the Crown’s valuation of his assets and, following exchanges of documents, the Crown reduced its figure to £22,061. Mr Mundy put the figure at only £2,561 arguing, amongst other things, that the monies in the bank accounts were to pay for various items and to support his family. He said the motorcycles had little value and were his hobby; the van was used for work; the car was jointly owned with a third party and the value placed on the property was excessive.
The Court of Appeal heard the case in January 2018, R v Mundy  EWCA Crim 105.
On appeal the court noted that what was “just” required a consideration of what was “just” for the prosecution as well as for the defendant. The court noted that the judge in the Crown Court had expressly referred to the public interest in confiscating the proceeds of crime.
But the Court of Appeal went on to conclude that the Crown Court judge had a discretion to refuse to vary the order and that on the facts it was properly open to him to do so in Mr Mundy’s case. The court dismissed the prosecution’s appeal.
It follows that – at least for now – Mr Mundy is not required to pay anything further under the confiscation order.
What is meant by “dishonesty” in English criminal law? When considering the meaning of dishonesty the criminal courts of England and Wales until now often referred to a case decided last century. Recently in the case of Ivey v Genting Casinos (UK) Ltd (t/a Crockfords)  UKSC 67 (25 October 2017) the UK Supreme Court reconsidered the meaning of dishonesty – and came to some new conclusions.
“In determining whether the prosecution has proved that the defendant was acting dishonestly, a jury must first of all decide whether according to the ordinary standards of reasonable and honest people what was done was dishonest. If it was not dishonest by those standards, that is the end of the matter and the prosecution fails.
So until October 2017 criminal courts operated on the basis that not only must the conduct of the defendant be dishonest by the ordinary standards of reasonable and honest people (the objective test) but the defendant himself must have realised that he was acting dishonestly by that standard (the subjective test).
What was implied in Ghosh, was that a defendant was entitled to say, “I did not know that anybody would regard what I was doing as dishonest” and if he was believed he should be acquitted of dishonesty (as the subjective test was not satisfied).
But the Supreme Court has now criticised that approach, saying that “It has the unintended effect that the more warped the defendant’s standards of honesty are, the less likely it is that he will be convicted of dishonest behaviour”.
The new judgment means that it is still necessary for the jury in the Crown Court or the magistrates in the Magistrates’ Court to reach conclusions about the actual state of mind of the defendant – but only insofar as this relates to the defendant’s state of knowledge or belief as to the facts. The Supreme Court has now said that criminal courts should no longer ask themselves whether the defendant himself realised that he was acting in a way which ordinary people would consider to be dishonest.
So instead of the Ghosh test, when dishonesty is in question the court must first ascertain (subjectively) the actual state of the individual’s knowledge or belief as to the facts. The question is not whether that belief is reasonable – the question is whether it is genuinely held. Once his actual state of mind as to knowledge or belief as to the facts is established, the question whether his conduct was honest or dishonest is to be determined by the jury or magistrates by applying the (objective) standards of ordinary decent people.
There is no longer any requirement that the defendant must appreciate that what he has done is, by those standards, dishonest.
One consequence of this is that the definition of “dishonesty” is now consistent between criminal and civil law in England and Wales.
Suppose a person is newly arrived in England and he has come from a country in which all public transport is free. He gets on a bus in London and on arriving at his destination gets off without paying. He is charged under s3 Theft Act 1978 with dishonestly making off without payment. But was he dishonest?
The issue is ‘Did he genuinely believe that no payment was required?’. If he did then he has not been dishonest and should be acquitted. If, on the other hand, he did know that payment was required then he was dishonest by not paying.
But this issue concerns the defendant’s belief about the relevant facts – the issue is not about his understanding of what constitutes “dishonesty”. That is the change in the law as a result of the Supreme Court’s ruling in October 2017.
Is the defendant’s state of mind irrelevant?
So is it now totally irrelevant that the defendant wrongly believed that what he was doing was acceptable behaviour? Well, not entirely. A defendant’s deluded belief that he was not acting dishonestly (for example because he hoped one day to repay money which he was stealing and spending) will not now result in his acquittal. But it could be put forward in mitigation on sentencing that he had no intention to cause harm to his unfortunate victim.
The final wording of the new Money Laundering Regulations 2017 was published on 22 June 2017. To give them their full title The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 came into force on 26 June 2017. The reality is however that the new Regulations will take a year or two to be fully effective.
The Regulations run to over 100 pages. I cannot describe them fully in a blog such as this, but I will mention a few points of interest. These regulations replace the Money Laundering Regulations 2007 (as amended) and The Transfer of Funds (Information on the Payer) Regulations 2007. Many of the provisions of the 2017 Regulations simply continue requirements of the 2007 ones. But there are some changes of emphasis and important new requirements too. The new Regulations also implement in UK law the requirements of the EU Fourth Money Laundering Directive.
The new Regulations set out a hierarchy of risk assessments. The UK government, in particular HM Treasury and Home Office, are required by regulation 16 to make arrangements before 26 June 2018 for a risk assessment to be undertaken to identify, assess, understand and mitigate the risks of money laundering and terrorist financing affecting the United Kingdom.
Then under regulation 17 each of the various supervisory bodies must identify and assess the international and domestic risks of money laundering and terrorist financing to which those relevant persons for which it is the supervisory authority (“its own sector”) are subject. The supervisory body must take into account the risk assessment from HM Treasury and Home Office.
Finally under regulation 18 each ‘relevant person’ (businesses in the regulated sector) must take appropriate steps to identify and assess the risks of money laundering and terrorist financing to which its own business is subject.
In carrying out that risk assessment a relevant person must take into account information made available to it by its supervisory authority and its own risk factors. Those will include risk factors relating to its customers, the countries or geographic areas in which it operates, its products or services, its transactions and its delivery channels.
The new Regulations are much more prescriptive about the written policies, controls and procedures required. Regulation 19 in particular spells out these requirements.
(iii) the steps taken to communicate those policies, controls and procedures, or any changes to them, within the relevant person’s business.
(b) approved by its senior management.
(e) the monitoring and management of compliance with, and the internal communication of, such policies, controls and procedures.
(ii) the extent of the risk that the agent may be used for money laundering or terrorist financing.
(b) issued by any other supervisory authority or appropriate body and approved by the Treasury.
This regulation effectively requires each business in the regulated sector to draw up new written statements of policies, controls and procedures.
It was expected that the monetary lower limit for cash transactions would be reduced from €15,000. That has indeed happened and the new limit is €10,000. This means that when a firm or sole trader who by way of business trades in goods (including an auctioneer dealing in goods) receives, in respect of any transaction, a payment or payments in cash of at least 10,000 euros (or equivalent) in total he is acting as a ‘high value dealer’ and is subject to the Regulations. As previously, this applies whether the transaction is executed in a single operation or in several operations which appear to be linked.
But Regulation 14 makes two other changes for High Valuer Dealers. Now these Regulations apply where such a trader makes such a payment as well as when he receives one.
Also the regulation specifies that a payment does not cease to be a “payment in cash” for these purposes if cash is paid by or on behalf of the person making the payment to a person other than the other party to the transaction for the benefit of the other party, or into a bank account for the benefit of the other party to the transaction.
An important change for estate agents is that by Regulation 4 an estate agent is to be treated as entering into a business relationship with a purchaser (as well as with a seller) at the point when the purchaser’s offer is accepted by the seller.
This means that at that stage the estate agent will have to complete customer due diligence on the purchaser of a property. That was not previously required where the estate agent had been instructed by the seller.
This provision may help to address concerns about overseas buyers using tainted funds to purchase properties in the UK.
A new definition of ‘politically exposed persons’ in Regulation 35 means that a UK senior politician entrusted with prominent public functions would also now be regarded as a PEP. As a result additional anti-money laundering precautions are necessary when dealing with him or with a family member or close associate of his.
The Regulations effectively will prevent a person who has been convicted of a ‘relevant offence’ from being a beneficial owner, officer or manager of a firm or a sole practitioner in specified types of business within the regulated sector. This is achieved by Regulation 26 using a rather circuitous mechanism.
The regulation requires beneficial owners, officers and managers of a firm and sole practitioners to be approved by their supervisory body (before 26 June 2018) if the firm is an accountant, tax adviser, auditor, insolvency practitioner, legal professional, estate agent or high value dealer. But the supervisory body is required to approve anyone who applies to it unless the applicant has been convicted of a ‘relevant offence’. If a person is inadvertently approved who has a conviction for a ‘relevant offence’ their approval is invalid (and a valid approval becomes invalid when an approved person is newly convicted).
There is a list of ‘relevant offences’ in Schedule 3 to the Regulations. These include “any offence which has deception or dishonesty as one of its components” as well as a long list of specified offences, including offences under the Data Protection Act 1998 and Perjury Act 1911, for example. Unsurprisingly, tax and money laundering offences are included in the list.
One ramification of this will be that for an accountant, for example, being convicted of a ‘relevant offence’ could effectively end his career.
It is not clear, to me at least, whether this will affect persons who have old offences which would be regarded for most purposes as ‘spent’ under the Rehabilitation of Offenders Act 1974.
The Money Laundering Regulations 2017 make significant changes to the law which will affect every business in the regulated sector.

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