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PART 7
PROCEEDS OF CRIME ACT 2002
March 2010
9.133 The Proceeds of Crime Act 2002
The Proceeds of Crime Act 2002 came into force in stages on 30 December 2002, 13 January 2003, 24 February 2003 and 24 March 2003. It consolidated and strengthened the powers for the confiscation of the financial benefit that an offender has obtained from his/her criminal conduct.
A number of different agencies (such as the Police and HM Revenue and Customs (HMRC)) have power to bring proceedings to confiscate or recover property that has been obtained through unlawful activity, and the Serious Organised Crime Agency (SOCA) has responsibility for overseeing this process (see paragraph 9.134).
9.134 Serious Organised Crime Agency (SOCA)
SOCA provides assistance to other enforcement authorities, taking on cases only on a referral basis from HMRC, the Police and law enforcement authorities in accordance with agreed criteria.
SOCA also has the power to carry out general tax recovery functions in relation to a company or person if there are reasonable grounds to suspect that income arising or gain accruing to a company or person is a result of the company’s or person’s criminal conduct, or as a result of another’s criminal conduct [note 1]. More information on the work of SOCA can be found on its website, at www.soca.gov.uk
9.135 Contacting SOCA where insolvent may be subject to recovery or confiscation proceedings
The Official Receiver should contact SOCA or the relevant enforcement authority in any case where he/she has reason to believe that an order has been made or is about to be made under the Proceeds of Crime Act 2002 - for example, in cases where a criminal conviction has already been obtained against a company or a bankrupt, in cases where an interviewee has indicated that proceedings under the Proceeds of Crime Act 2002 are pending, or where the official receiver has reason to believe that this might be the case from other information available. SOCA can be contacted at:
Serious Organised Crime Agency
PO Box 8000
LONDON
SE11 5EN
Tel: 0370 496 7622
A restraint order is made by a Crown Court [note 2] to protect property during a criminal investigation or criminal proceedings where there is reason to believe that the person subject to investigation or the defendant, as the case may be, has benefited financially from the criminal conduct subject to the investigation or proceedings. A restraint order may be made at any time after a criminal investigation has been commenced, if there is reasonable cause to believe that the defendant has benefited from his/her criminal conduct.
9.137 Purpose and extent of restraint order
The intention of a restraint order is to prohibit any specified person from dealing with property until the court is able to make a confiscation order at the conclusion of proceedings (see paragraph 9.146). The order may describe specific items of property and/or may apply to all realisable property held by the specified person whether or not the property is described in the order, and to all realisable property transferred to the specified person after the order is made [note 3]. The order may make provision for exceptions such as an allowance for general living expenses, or funds to enable the continuation of a trade, business, profession or occupation [note 4].
The proceedings or investigation to which the person is subject may lead to the making of a confiscation order (see paragraph 9.146) in due course and the purpose of the restraint order is to protect property which may be required to be sold to satisfy the confiscation order in the interim. A restraint order may also be made where a confiscation order has been made (or applied for and not made), and new information has come to light, or if the person subject to the confiscation order (or previous application for a confiscation order) has absconded [note 5].
9.138 Appointment of a management receiver
The court may appoint a person (referred to as a management receiver) to manage property to which a restraint order applies [note 6]. The management receiver is given power in the order effecting his/her appointment to carry out certain acts to manage or otherwise deal with the property (including selling the property) [note 7].
9.139 Variation and discharge of a restraint order
A restraint order may be varied or discharged on application of the person who applied for the order, or the person affected by the order [note 8]. If the application for the order was on the grounds that criminal proceedings had commenced then the court must discharge the order when the proceedings are concluded [note 9] (note, though, that proceedings are not considered to be concluded until any related confiscation order is satisfied or discharged [note 10]). Similarly, if the order was made on the grounds that a criminal investigation has commenced, new information has come to light or the person has absconded, the court must discharge the order if criminal proceedings have not been started, or an application for a confiscation order has not been made, within a reasonable time [note 11].
9.140 Effect of bankruptcy on restraint order – where restraint order made first
If a restraint order is in force as at the date of the making of the bankruptcy order then any property subject to the restraint order (which may include all property owned by the person subject to the order whether mentioned in the order or not, depending on the terms of the order [note 12]) does not form part of the bankruptcy estate [note 13].
The statutory references to the interaction between bankruptcy and a restraint order all relate to the date on which the person was adjudged bankrupt [note 14] and no reference is made in relevant legislation to the effect of the presentation of a petition for bankruptcy (whether presented before or after the making of the restraint order). A bankruptcy is considered to have commenced with the day on which the bankruptcy order is made [note 15] and, therefore, it is considered that where a restraint order is made after the presentation of a petition for bankruptcy but before the making of the bankruptcy order, the restraint order would still take precedence.
9.141 Effect of bankruptcy on restraint order – where bankruptcy order made first
Where a bankruptcy order is already in force, a restraint order cannot be made in respect of property which already forms part of a bankrupt’s estate, nor can a management receiver be appointed over property comprised in the bankrupt’s estate, property which may be claimed as after-acquired property (see paragraph 31.8.1), or property or income due to the bankruptcy estate as a condition of discharge from bankruptcy [note 16].
9.142 Consequences of dealing in property subject to restraint order
Where a trustee or receiver and manager of a bankruptcy estate deals with property subject to a restraint order he/she has a defence against being found liable for any consequent losses or damages so long as he/she can show that he/she had reasonable grounds to believe that at the time of seizure/disposal he/she was entitled to seize or dispose of the property, and did not act negligently [note 17].
9.143 Effect on property of discharge of restraint order
Where a restraint order is discharged (see paragraph 9.139), and any related confiscation order (see paragraph 9.146) has been satisfied, any property excluded from the bankrupt’s estate as a result of the restraint order vests in the trustee as part of the bankrupt’s estate (after meeting the remuneration and expenses of the management receiver) [note 18].
9.144 Action to take where restraint order is, or may be, in force
Where the official receiver is aware, or suspects, that a restraint order is in force against the property of a bankrupt (typically, this will be where the official receiver has knowledge of ongoing criminal investigations or proceedings in respect of the bankrupt) he/she should inform the relevant prosecution agency or SOCA (see paragraph 9.134) of the making of the bankruptcy order and attempt to establish the current position regarding the restraint order and the appointment, or otherwise, of a management receiver. The relevant agency, SOCA or the management receiver (as appropriate) should be asked to note the official receiver’s interest in any property subject to the restraint order.
Where an interim receiver [note 19] (see Chapter 2) has been appointed in respect of the assets of a debtor, and any of the debtor’s property is made subject to a restraint order, the interim receiver loses his/her powers over that property whilst the restraint order is in force [note 20].
A confiscation order is an order that a convicted defendant pay a certain sum of money representing the defendant’s benefits from crime. It does not impose any restriction on the assets of the defendant, though assets required to be sold to satisfy the confiscation order may have already been made subject to a restraint order by the time of the making of the confiscation order (see paragraph 9.136). That restraint order will not normally be discharged (see paragraph 9.139) until the confiscation order is satisfied.
The purpose of a confiscation order is to deny a person the benefit of property derived from a general criminal lifestyle or as the result of particular criminal conduct. A confiscation order cannot be made unless the person has been convicted in the Crown Court, committed to the Crown Court for sentencing or committed to the Crown Court for consideration of a confiscation order (this would follow the person being convicted in the Magistrates Court and the prosecutor making a request for committal to the Crown Court for consideration of a confiscation order [note 21]).
9.147 Making of a confiscation order
The order may be made on the application of the prosecution or SOCA (see paragraph 9.134), or if the court believes it appropriate to make an order on its own motion [note 22]. Before making the order the court must consider whether the person has benefited from a criminal lifestyle [note 23] or if he/she has benefited from particular criminal conduct and, if so, the amount of that benefit [note 24]. The committing of certain offences will result automatically in the person being considered to have had a criminal lifestyle [note 25]. The court will consider matters such as proceedings intended or started by a victim of the person’s criminal conduct [note 26] and any representations made by the person [note 27] prior to making the order. Having taken these matters into account, the court will, if appropriate, make a confiscation order requiring the person to pay a certain amount (which may be a nominal figure if it is shown that the available amount is nil) but the order does not, as may be thought, require the surrender of a particular asset or assets [note 28].
9.148 Enforcement of confiscation orders
The method of enforcing a confiscation order is by payment being made by the person subject to the order, with set periods of imprisonment for those in default. If the defendant shows that he/she needs time to pay the amount ordered under the confiscation order the court may make an order allowing the payment to be made in a specified period. The specified period must start with the day on which the confiscation order is made and must not exceed six months [note 29].
When making a confiscation order the Crown Court must fix a term of imprisonment in default of payment of all or part of the amount ordered to be paid dependant on the amount due under the order. Where the confiscation order was made on the motion of the court or on the application of the prosecutor the order is considered to be a fine, and enforcement can be conducted under section 139 of the Powers of Criminal Courts (Sentencing) Act 2000 [note 30].
A defendant who serves a period of imprisonment in default of a confiscation order does not extinguish the confiscation order and the order continues to have effect for enforcement purposes.
9.149 Appointment of enforcement receiver
The Crown Court may appoint a receiver (known as an enforcement receiver) in respect of realisable property if the confiscation order is not satisfied [note 31]. The powers given to the receivers are wide-ranging to allow for the most effective recovery of the defendant’s assets in order to satisfy the confiscation order [note 32].
9.150 Effect of insolvency on confiscation order
Any obligation arising under a confiscation order is not a provable debt in insolvency proceedings [note 33], nor does discharge release a bankrupt from an obligation under a confiscation order [note 34].
There is nothing in the legislation to prevent the court making a confiscation order simply because a bankruptcy order has already been made in respect of the same individual. The court, though, is prevented from appointing an enforcement receiver (see paragraph 9.149) in respect of assets which are comprised in the bankrupt’s estate [note 35]. Where an enforcement receiver has already been appointed, the assets subject to the receivership do not form part of the bankruptcy estate [note 36]. However, the enforcement receiver is not allowed to use the powers given under the act against property comprised in the bankruptcy estate (i.e. assets not subject to the receivership or restraint order) [note 37] once a bankruptcy order is in force [note 38]. Any surplus proceeds remaining after the satisfaction of the order and related fees and expenses would vest as an asset in the bankruptcy estate [note 39].
9.151 Action to be taken where confiscation order is, or may be, in force
Where the official receiver is aware, or suspects, that a confiscation order is in force against a bankrupt (typically, this will be where the official receiver has knowledge of previous criminal proceedings in respect of the bankrupt) he/she should inform the relevant prosecution authority or SOCA (see paragraph 9.134) of the making of the bankruptcy order and attempt to establish the current position regarding the confiscation order and the appointment, or otherwise, of a receiver. The relevant prosecution authority, enforcement receiver or SOCA (as appropriate) should be asked to note the official receiver’s interest in any property subject to an order appointing the receiver.
In addition to the powers given in the Proceeds of Crime Act 2002 to restrain and confiscate property obtained in the course of criminal activity, there are also powers given to bring civil proceedings in the High Court to obtain a recovery order over property regardless of whether or not criminal proceedings are brought, or are successful [note 40].
In order for proceedings to be brought the person must have obtained property through unlawful conduct (the legislation is careful to avoid referring to “criminal” conduct as this may result in challenges under the Human Rights Act 1998) – this is known as recoverable property [note 41]. The person subject to the order may not necessarily be the person who engaged in the unlawful conduct – simply that he/she has obtained property as a result of the unlawful conduct [note 42].
There are provisions to exclude property from recovery where it was obtained in good faith, without knowledge that it was recoverable property (that is, without knowledge of the unlawful activity from which it originated) and for value [note 43]. A person who claims to be an innocent victim of theft may apply to the court for a declaration that certain property is not recoverable property as the property claimed belongs to him/her and was not recoverable property immediately before he/she was deprived of it [note 44].
9.153 Enforcement of a civil recovery order
The recovery order is enforced by the appointment of a trustee for civil recovery [note 45], whose duties and powers are similar to those of a trustee in bankruptcy [note 46].
9.154 Interim order obtained in advance of recovery order
The enforcement authority may apply for an interim receiving order prior to obtaining a civil recovery order, this having the effect of freezing the property and appointing an interim receiver [note 47]. The application for an interim receiving order can be made without notice (where, for example, notice may give opportunity for property to be put out of reach). The interim receiver is an officer of the court and his/her powers are derived from the order appointing him/her – which may be as broad or as narrow as the court considers appropriate [note 48].
9.155 Effect of insolvency on recovery order
Proceedings for a recovery order may not be taken or continued in respect of property which is an asset of a company in a voluntary liquidation or a voluntary arrangement [note 49], or an asset in a bankruptcy [note 50], unless the relevant court gives leave to do so [note 51]. The application for leave may be made without notice to prevent a potential respondent from having an opportunity to put property out of reach [note 52], though notice must still be given, where required, to the official receiver and insolvency practitioner [note 53].
Where there is adequate evidence to support the fact that the asset subject to the recovery order was obtained via an unlawful activity the official receiver should consider not opposing the application for leave to take action against the asset. In cases of doubt the advice of Technical Section should be sought.
9.156 Action to be taken where recovery order is, or may be, in force
Where the official receiver is aware, or suspects, that a recovery order is in force against a bankrupt (typically, this will be where the official receiver has knowledge of previous criminal proceedings in respect of the bankrupt) he/she should inform the relevant prosecution authority or SOCA (see paragraph 9.134) of the making of the bankruptcy order and attempt to establish the current position regarding the recovery order and the appointment, or otherwise, of a trustee or receiver. The relevant prosecution authority, receiver or SOCA (as appropriate) should be asked to note the official receiver’s interest in any property subject to the recovery order.
The Proceeds of Crime Act 2002 introduced the concept of what is known as a tainted gift. A tainted gift is defined as the transfer by a defendant of any property to another person for a consideration whose value is significantly less that the value of the property at the time of the transfer [note 54]. Any tainted gift made by the defendant to any person in the period beginning six years before the commencement of proceedings, or at any time out of the proceeds of crime, where the court has decided that the defendant has a criminal lifestyle is caught. In circumstances where the court has decided that the defendant did not have a criminal lifestyle, only gifts made since the commencement of the earliest offence are caught [note 55]. Tainted gifts made within the relevant time frames are considered to be property for the purpose of making or enforcing restraint or confiscation orders.
9.158 Effect of insolvency on tainted gifts
Where a company or a bankrupt has entered into a transaction at an under value [note 56], a preference [note 57] or a transaction to defraud creditors [note 58], which is also a tainted gift within the meaning of the Proceeds of Crime Act 2002 (see paragraph 9.157), no action may be taken by the liquidator or trustee to recover the value lost to the insolvency estate if the property in question is subject to a restraint order (see paragraph 9.136) or over which an enforcement receiver has been appointed (see paragraph 9.148) [note 59].
Any order made to recover the loss (for example, as a transaction at undervalue) to the insolvency estate after the discharge of a restraint order or the discharge of an order appointing a receiver must take into account any realisation of the property already made under the Proceeds of Crime Act 2002 [note 60]. The recipient of the preference or gift should not be made to pay more than the total value of the property in question.
9.159 Action to be taken in respect of a tainted gift
In cases where the official receiver has identified an antecedent recovery and is aware, or suspects, that a restraint or confiscation order is in force against a company or bankrupt (typically, this will be where the official receiver has knowledge of previous criminal proceedings in respect of a person connected with the company or, as the case may be, the bankrupt) he/she should inform the relevant prosecution authority or SOCA (see paragraph 9.134) or appointed receiver of the making of the insolvency order and attempt to establish the current position regarding the recovery of the tainted gift. SOCA, the receiver or the relevant prosecution authority (as appropriate) should be asked to note the official receiver’s interest in the matter.
A police officer, customs officer or accredited financial investigator has the power to seize cash (see paragraph 9.161) if he/she has reasonable grounds for suspecting the cash is recoverable property in respect of a recovery order (see paragraph 9.143) or is intended to be used in unlawful conduct [note 61].
For the purposes of the provision relating to the seizure (see paragraph 9.160) and detention (see paragraph 9.162) of cash, cash means [note 62] –
9.162 Detention of seized cash
The cash seized (see paragraph 9.160) may held for a period of 48 hours (not including weekends or bank holidays) but, thereafter, may only be held with an order of court – up to a period of two years) – if the court is satisfied that [note 63]:
9.163 Forfeiture of cash seized
The court may make an order that the whole or part of the cash is forfeited if it is satisfied that the cash or part of the cash is;
The cash is to be detained until these proceedings (including any appeal – which must be made within 30 days of the order for the forfeiture of the cash) are concluded [note 66].
The official receiver should not object to the making of a forfeiture order, but should ensure that all parties are aware that any funds due to be returned to the bankrupt are remitted to the bankruptcy estate.
9.164 Effect of a bankruptcy order on the detention of cash seized
Cash that has been detained (see paragraph 9.162) and which would otherwise be an asset in a bankruptcy estate cannot be subject to further detention (after the initial or extended period for detention has expired – see paragraph 9.162) without leave of court [note 67].
The official receiver should not object to such an extension being sought and obtained, but should ensure that all parties (including the court) are aware of his/her interest in the monies (see paragraphs 9.165 and 9.166).
9.165 Action to be taken where cash seized prior to making of bankruptcy order
Where cash has been seized prior to the making of the bankruptcy order, the official receiver should take steps to ensure that his/her interest in the cash is noted by the authority that has seized it.
The official receiver should also request that, on the expiry of any detention period (see paragraph 9.162), any monies not subject to forfeiture (see paragraph 9.163) or further detention (see paragraph 9.162) be remitted to the bankruptcy estate (see paragraph 9.168).
9.166 Action to be taken where cash seized after making of bankruptcy order and date of acquisition is unknown – or is known to be post-bankruptcy
Where cash has been seized after the making of the bankruptcy order, and the date that the bankrupt obtained the monies is unknown – or is know to be post-bankruptcy, the official receiver should claim the monies as after-acquired property (see Chapter 31.8), serving the relevant claim on the bankrupt and the authority that has detained the monies. This claim must be made within 42-days of the official receiver becoming aware of the existence of the monies (see paragraph 31.8.12).
Where it is not possible to serve the notice on the bankrupt within the relevant 42-day period (for example, where the seizing authority requests that this is not carried out due to the nature of their investigation), the official receiver should apply for an extension of the 42-day period (see paragraph 31.8.15).
The official receiver should also request of the seizing authority that, on the expiry of any detention period (see paragraph 9.162), any monies not subject to forfeiture (see paragraph 9.163) or further detention (see paragraph 9.162) be remitted to the bankruptcy estate (see paragraph 9.168).
9.167 Action to be taken where cash seized after making of bankruptcy order and date of acquisition is known to be pre-bankruptcy
Where cash has been seized after the making of the bankruptcy order, and the official receiver is aware that the funds were obtained prior to the making of the bankruptcy order, he/she should take steps to ensure that his/her interest in the cash is noted by the authority that has seized it.
The official receiver should also request that, on the expiry of any detention period (see paragraph 9.162), any monies not subject to forfeiture (see paragraph 9.163) or further detention (see paragraph 9.162) be remitted to the bankruptcy estate (see paragraph 9.168).
9.168 Remittance of detained funds to the bankruptcy estate
There is nothing in the Proceeds of Crime Act that requires that the authority that has seized the cash return it to any particular person, though it might be expected that normally they would seek to return it to the person from whom it was seized. The official receiver, in his/her capacity as trustee, should seek to persuade the relevant authority that any monies not forfeit (see paragraph 9.163) should be remitted to the bankruptcy estate as vesting assets (whether vesting in the bankruptcy estate normally or as after-acquired property).
9.169 Official receiver to seek direction of court where authority will not remit monies
Where the authority chooses not to remit the funds to the official receiver as trustee of the bankrupt’s estate (this is particularly likely where there is a third party also claiming an interest in the detained funds) the official receiver should seek the directions of the court [note 68] asking, in the first instance that the monies are remitted to the bankruptcy estate. Where the ownership of the monies is in dispute, the official receiver should request that the order provides for the monies to be held by the court pending further enquiries (by the official receiver) to establish ownership.
9.170 Alternative course of action where authority will not remit monies
As an alternative to seeking the directions of the court (see paragraph 9.169), it is possible for the official receiver, as trustee, (as “owner” of the monies) to make application under the Proceeds of Crime Act [note 69] for the monies to be released to him/her. The application may be made in advance of any intention of the authority to release the monies and such an order could be limited to those monies that are not subsequently forfeit (see paragraph 9.163). This type of application must be made before the magistrates’ court.
It is considered that the directions option is preferable as the court considering the matter will be more familiar with the insolvency process and the official receiver will be more familiar with the conventions of the court.
9.171 Third parties laying claim to the detained cash
In any case, the official receiver should not object to funds being returned to third parties where compelling evidence has been given that the cash belonged to that third party and had, at no time, belonged to the bankrupt.
Typically, an interested third party may be the person from whom the monies were stolen or otherwise illegally obtained.
9.172 Liquidator dealing with property subject to restraint or confiscation order
The liquidator (in a voluntary or compulsory liquidation) is unable to deal with any property subject to a restraint order (see paragraph 9.136) where the restraint order was made before the date of the passing of the resolution for winding up in a voluntary liquidation, or the date of the making of the winding-up order in a compulsory liquidation. Similarly, the liquidator is unable to deal with property over which a receiver has been appointed (see paragraphs 9.138 and 9.149) in connection with the enforcement of a confiscation order) [note 70].
9.173 Interaction of Proceeds of Crime Act 2002 proceedings and liquidation
Where a winding up order has been made the powers of the court and of any management or enforcement receiver are limited [note 71] (but, unlike in bankruptcy, not prohibited). In respect of dealing with property belonging to a company in liquidation, the receiver is not allowed to use powers so as to inhibit the liquidator from exercising his/her functions for the purposes of distributing property to the company’s creditors or prevent the payment out of any property or expenses (including liquidator’s expenses) properly incurred in respect of the property [note 72].
9.174 Limited Liability Partnerships
The provisions as to the confiscation, recovery, tainted gifts and winding up also apply to limited liability partnerships capable of being wound up under the Insolvency Act 1986 as if they were companies [note 73].