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Competing claims: confiscation proceedings, third parties and financial relief in family proceedings

News / / London

There will be occasions when Family law and Criminal law overlap. However, there will often be clashes and competing interests in the arena of confiscation proceedings and the determination of available assets.

Whilst the overriding objective in the Family Courts is fairness in making proper financial provision for a spouse and children, the confiscation regime in the Crown Court is focused on public policy considerations and depriving a convicted defendant of the proceeds of their crime, even where that may lead to apparent unfairness to a third party.

Confiscation proceedings

The law relating to confiscation proceedings under the Proceeds of Crime Act 2002 (POCA) is complex and often considered draconian.

In R v Rezvi [1] and R v Benjafield and others [2], the House of Lords described the legitimate aims of the POCA regime as:

  • To punish convicted offenders;
  • To deter the commission of further offences; and
  • To reduce the profits available to fund further enterprises.

The endnote in the case of R v May [3] clearly sets out the intention of the POCA legislation and a three stage test for Crown Courts to consider:

1) The legislation is intended to deprive Defendant of the benefit they have gained from relevant criminal conduct, whether or not they have retained such benefit, within the limits of their available means. It does not provide for confiscation in the sense understood by schoolchildren and others, but nor does it operate by way of fine. The benefit gained is the total value of the property or advantage obtained, not the Defendant's net profit after deduction of expenses or any amounts payable to co-conspirators.
2) The Court should proceed by asking the three questions:
(i) Has the Defendant (D) benefited from relevant criminal conduct?
(ii) If so, what is the value of the benefit D has so obtained?
(iii) What sum is recoverable from D?

The amount of the benefit can be subject to “uplift” or inflation. The burden of proof at this stage is for the prosecution to prove on the balance of probabilities that the defendant has benefitted from their criminal conduct in the amount asserted. The final stage of the test is: what amount is available? The burden shifts onto the defendant to prove, again on the balance of probabilities, whether such assets are available and if they can be realised to satisfy a confiscation order.

A defendant must provide clear and cogent evidence to rebut the prosecution assertions as to the benefit and available assets.

“Benefit” is defined as the value of the property obtained by them or in connection with their criminal conduct. Having assessed the benefit figure, the Court will identify the “available amount”; what assets are available to the defendant at the time the order is made that can be realised to pay the benefit figure? The available amount can include assets that are entirely legitimate and untainted by criminal conduct.

The burden is on the defendant to demonstrate that they do not have sufficient assets to pay the benefit figure. If the Court accepts that a defendant has insufficient assets to pay the benefit figure, a confiscation order will be made in the sum of the lower, available amount.

A confiscation order must be paid within three months, but the time for payment can be extended to six months. Interest accrues at the rate of 8% per annum on any unpaid order. When the confiscation order is made, the Court will fix a period of imprisonment in default of payment. The term that may be set as a default sentence is dependent on the amount ordered to be paid under the confiscation order. For orders in excess of £1 million, the Court can impose a default sentence of 14 years' imprisonment. The prospect of a further term of imprisonment as well as interest accruing is designed as both a deterrent and an incentive to pay.

The Home Office Asset Recovery Incentivisation Scheme (ARIS) was launched in 2006. The objective of ARIS is to provide operational partners with incentives to pursue asset recovery as a contribution to the overall aims of cutting crime and delivering justice. As well as compensating the victims of the crime, net receipts from confiscated assets are shared between HM Treasury, investigators, prosecuting authorities and HM Courts and Tribunals Service. Eligible net receipts are split three ways:

  • Investigation: 18.75%
  • Prosecution: 18.75%
  • Enforcement: 12.5%

This is seen as a by-product of the legitimate aims of confiscation. Any confiscation order made must be proportionate in accordance with Article 1 Protocol 1 (A1P1) of the European Convention on Human Rights [4].

How then do the stated aims of the POCA regime sit with those who hold an interest in assets together with a defendant and particularly in the context of financial relief in Family proceedings? Is there a disconnect with the proportionality principle of confiscation orders and the balancing exercise and fairness advanced in the Family Courts?

Third party determinations – Section 10A POCA

The Serious Crime Act 2015 introduced s10A POCA. This allows the Court to determine the extent of the interest of a third party in property held by a defendant that is likely to be realised or otherwise used to satisfy a confiscation order.  More often than not, the third party will be a spouse, partner or family member. The Court must give a person who they think is, or may be holding an interest in that property, a reasonable opportunity to make representations as to the extent of their interest.

To make a determination under s10A POCA, the Court may order an interested third party to provide information specified in the order before a specified date. Where that person fails without reasonable excuse to comply with the order, the Court may draw such inferences as it believes appropriate [5].

The prosecution may accept that the third party interest is legitimate and the Court may treat that acceptance as conclusive [6].

The explanatory notes to the Serious Crime Act 2015 made it clear that the Crown Court should only make a determination as to the extent of third-party interests in ‘relatively straight-forward cases’ and ‘without too much difficulty’.

In straight-forward cases where a husband and wife are joint tenants of a property and are not contemplating divorce proceedings, Section 10A POCA can be used to enable the Crown Court to find that the wife holds a 50% equitable interest in the property. Section 10A(3) POCA makes it clear that any determination made pursuant to s10A POCA is then binding for the purposes of any subsequent application for the appointment of an Enforcement Receiver in which the Court might have to determine the respective interests in a property. 

In R v Reynolds [7], the Court of Appeal did not consider the confiscation order to be disproportionate even though it required the defendant to sell her family home which she owned jointly with her husband. Her husband did not make representations pursuant to s10A POCA and failed to protect his interest in his home.

The case of R v Forte [8] sets out the key principles and procedure to be followed under applications pursuant to s10A POCA. The Court held that where the prosecution intends to prove that a defendant has a beneficial interest in property and another holds or may hold an interest in that property, the burden and standard to be applied is the civil standard. Where matrimonial property is concerned, the Court is entitled to look to the evidence and draw such inferences as they see fit to determine whether beneficial interest should follow legal title. Such evidence can include sham divorce proceedings and the use of property for a joint purpose.

In this case, the asset was the matrimonial home, which was registered in the wife’s sole name, and she asserted sole beneficial ownership. The defendant and his wife were divorced but there was no application or order for financial relief. The prosecution’s case was that the divorce proceedings were a sham, designed to protect his assets. No defence evidence was given to rebut such an assertion. The Court of Appeal upheld the Crown Court’s decision and found that, given it was matrimonial property and the sham nature of the divorce, the wife held the property on trust for the defendant and that therefore he held a 50% interest in the property that was available for confiscation. The beneficial interest was not held in the same way as the legal title.

In the Family Courts, there are the established principles that contribution to a marriage can be made in both financial and non-financial terms [9]. This is not the case in confiscation proceedings, and the approach of the Crown Courts seems contrary to such principles.

Tainted gifts

The POCA regime is designed to ensure a defendant does not evade confiscation by simply transferring assets to a third party for no consideration or at an under value. A finding that property has been gifted to a third party as a “tainted gift” within confiscation proceedings means that the Court can include the value of that gift within a calculation of a defendant’s available amount that then forms the basis of a confiscation order. 

R v Hayes [10] is a notable case in considering the question of tainted gifts within a marital context and non-financial contributions. The husband was convicted of conspiracy to defraud. He owned a house jointly with his wife, for which he had solely contributed to the purchase price. He then transferred his own interest in the home to his wife so that she was the sole owner of the property. In the Family Court, the wife would be considered to have a fair and legitimate interest in the home.

In the confiscation proceedings, the Court considered whether the interest obtained by the wife, when she contributed nothing to the purchase price, was a tainted gift. It was argued on her behalf that her non-financial contribution as a wife and mother amounted to valuable consideration.  In giving the judgment of the Court of Appeal, Davis LJ considered in detail cases of this type. He stated that consideration must have a value that is capable of being assessed in monetary terms, and that there must be a nexus between the consideration and the gift. He concluded that the familial service provided by the wife was incapable of monetary assessment and that, therefore, the gift was tainted. 

Which claim should be dealt with first?

The Courts have considered whether a claim under the Matrimonial Causes Act 1973 (MCA) should take priority so that provision can be made for an innocent spouse in divorce proceedings or whether POCA empowers the state to intervene to use proceeds to settle a confiscation order. Neither claim, either for financial remedies or confiscation orders, takes priority under POCA. The Courts have found that an appropriate balance should be struck between public policy considerations (confiscating the proceeds of crime) and making proper financial provision for a spouse.

The CPS or other prosecuting authorities can seek to intervene early in Family proceedings to ensure that any assets are preserved for confiscation, particularly where there is suspicion that the divorce petition is a sham and has been submitted as a means to avoid the effects of confiscation.

The innocent spouse?

When competing claims arise, non-complicity in the offence is the starting point for an order in favour of the spouse of the defendant. In Crown Prosecution Service v Richards [11], the wife had known about the husband's drug dealing activities since the beginning. All the family assets were therefore tainted and susceptible to confiscation.

Whilst non-complicity is a necessary condition for the wife to succeed in a financial remedy claim, where that competes with a confiscation order, it may not be a sufficient condition of itself. The Court will look at all of the circumstances.

The emphasis of the POCA regime remains on the defendant and the deprivation of assets, even where that may lead to apparent unfairness to a third party. There remains a disconnect between the stated legitimate aims of POCA, the A1P1 principle and the approach of the Family Courts.

It is imperative for a third party to obtain legal advice and engage at an early stage with the prosecutor to provide appropriate evidence in an effort to prove an interest in the property.

If you have any questions about the content in this article or would like to discuss further, please do not hesitate to reach out to Colette Kelly.
This article, authored by Colette Kelly, Partner, was co-authored by Alice Rowse, Trainee Solicitor.

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Sources:

[3]R v May [2008] UKHL 28

[4]R v Waya [2012] UKSC 51

[5]Section 18A (2)-(4), POCA

[6]Section 18A (6) POCA

[7]R v Reynolds [2017] EWCA Crim 57

[8]R v Forte [2020] EWCA Crim 1455

[9]White v White [2000] UKHL 54

[10]R v Hayes [2018] EWCA Crim 682

Colette Kelly

Colette Kelly Partner, Criminal and Regulatory Solicitor