Mark Jenner & Co Limited – Forensic Accounting Services

As I regularly see a dozen or more new confiscation proceedings every year as a forensic accountant appointed on behalf of the criminal defence team, I can’t fail but to notice the lack of consistency with the Crown’s approach in dealing with a defendant’s home or investment properties.

When the Crown’s accredited investigator sees a property or two within the estate they immediately apply the assumptions available to them under the Proceeds of Crime Act 2002 which allows the said assets to be deemed criminal property – unless good reason can be shown that they are not.

Therefore, I will see a number of things within the Section 16 Statement of Information that attempt to bring the property into the benefit estimate.

• The full current market value of the property.
• The purchase price of the property.
• The value of any mortgage obtained when buying the property.
• Any further advances taken out against the value of the property.
• Rental income in respect of the investment.
• The sales proceeds of the property.
• On some occasions a spouse’s share is included, other times it is not.

All of these sums of money might be appropriate in certain cases. However, it is often the case that a simple current value for the property is used regardless of the circumstances. Even worse, several of these different methods for placing value on a property can be taken together thus providing a source of benefit strands for the Crown’s favourite tool in confiscations – double counting!  I have also seen a full “Zoopla” valuation used, using selling prices for similar properties in the street dating back to 2006 well before the property crash!

My first step when approaching a property is to compare its acquisition date to the relevant date, i.e. six years before proceedings were commenced against the defendant in the predicate matter.  If it was purchased outright before this time then the property has no bearing on the benefit calculations, though it may be treated as an available asset for realisation in due course.

If the property was purchased before the relevant date with a mortgage then this potentially complicates matters. Then I will consider two issues separately:

• I will calculate the equity owned at the relevant date as this must be kept out of the benefit.
• Then I will look at the increase in equity since the relevant date, and determine the proportion of this that has been funded using legitimate funds and the amount that may have been funded by the proceeds of crime.

Thus I will attempt to produce a value for the equity held in a property that could potentially have been funded by criminal activities.  It is often the case after the property crash in 2008 than many properties are in negative equity, or at least have lost value since a typical relevant date for current matters (presently around 2003 to 2005).  This can mean that there is little or no criminal property held by the defendant.

Another favourite approach by the Crown’s investigator is to accuse the defendant of obtaining a mortgage fraudulently.  Then they will often simply bring in the full market value of the property again as a result.  The basis for such an allegation, which will never be tested by a jury, is that the declared income on the mortgage application form has been inflated.  Unfortunately, this was industry practice leading up to the credit problems which commenced around 2008.

Notwithstanding the fact that usually any fraud was being committed by the mortgage broker and not the defendant, my approach to dealing with such a case would be to consider whether or not the mortgage represented a transfer of funds to the defendant.  Normally, a mortgage is advanced directly from the lender, via the solicitors to the seller. The buyer never holds the funds and given that the lender holds security over that part of the equity represented by the loan, will only ever receive the benefit of the equity relating to his deposit and any subsequent increase in value.

Therefore, I would consider a mortgage advance typically not to be a transfer of criminal property, and focus on the source of deposit and repayment funds, together with the value of any increase in equity since purchase (or the relevant date).

Every property case has been different in my experience, and cannot just be treated as current market value.  I have had properties purchased outright prior to the relevant date included as benefit, properties inherited with all taxes paid legitimately, and cases where the purchase price, subsequent sale price and the separate value of the loan have all been added into the benefit mix  – triple counting ! Therefore, any estimate of benefit that includes a property or two must be properly scrutinised before the inevitable negotiations between prosecution and defence counsel begins.

These days confiscation cases seem to outnumber the predicate fraud cases that Mark Jenner & Co assists with.  They are self funding for the authorities who will not be cutting back on this area – even if they are forced to make financial cutbacks elsewhere.  According to the CPS, targets for confiscations will increase to some £1 billion – revenue which will be split between those with a vested interest – e.g. the police, CPS and the courts.

HOW CAN MARK JENNER & CO HELP?

To address the balance, the defence must be prepared for more POCA cases and high quality forensic accounting services should form a key part of the team.  More cases being brought may threaten the quality of the Crown’s financial statements and the defence must be ready to counter with their own financial expertise.

If the pressure on public funding continues to increase this will mean additional challenges for all parties of the defence team.  As forensic accountants specialising in fraud matters we are finding that confiscation and money laundering assignments seem to be filling much of our time.  In order to maintain the very high quality of response required and continue to be a valuable and readily available part of the defence team we are continuing to develop our approach to confiscations with funding constraints in mind.  Mark Jenner & Co was established to work within the increasing constraints of public funding while providing a very high proportion (sometimes all) of the work being undertaken by the expert – to provide defence responses that are robust and can be supported when it boils down to the inevitable negotiations between prosecution and criminal defence teams.

Our approach to confiscations

The recent legislation has never been crystal clear and its application seems to be evolving all the time. Such a dynamic framework means that a measured application of common sense very often prevails in many courts.  The prosecution seem to be getting more consistent with the preparation of their S16 statements latterly but even they admit they still adopt a rather “scattergun” approach.  This allows us to work through the underlying assumptions supporting the components of the benefit figure together with the amounts themselves with somewhat more finesse resulting in a critique that addresses a number of areas:

Arithmetical accuracy

Identifying arithmetic errors will result in the Crown making adjustments without much comment – but major blunders can result in cases being substantially watered down or dropped.

Double counting

As a result of the Crown’s rather blunt approach there is often substantial double and even triple counting that goes unnoticed in its financial cases resulting in benefit figures that are overstated.  This can result from a failure to identify inter-bank account transactions or reversals or, more alarmingly, failing to include all records that can be used to identify sources of funds and so eliminate unknown receipts within the benefit figure.

Legitimate sources of income

If the Crown is assuming a criminal lifestyle then the defence must prove the legitimacy of any funds that have been received.  This often requires tracing income through many different sets of bank account statements and recreating business activity from often incomplete accounting records.

False Assumptions

Every fraud is different introducing novel issues and different approaches are required. However, confiscations generally follow similar themes – components of benefit and realisable assets.  Our experience with generally recurring issues means we approach each case with a high level of efficiency that allows us to continue to undertake this work on a highly competitive basis.

For example we may question how much merit there was in our focusing on the defendant being a minor beneficiary in a fraud by directing our work to the business of others.  In R – v – May joint and several liability was decided for co-conspirators.  Instead, we might ask if it would be better if there was any way the financial activity of the defendant could be presented as simply being courier or custodian activities, as decided in R – v – Allpress?

Our view of these and other issues is that an application of common sense is required based on a general understanding of confiscation rulings.  We find counsel often appreciates our financial input early on to assist with his legal strategy.

We assisted in a confiscation following the case of a landlord who had built up a size-able property portfolio worth some £25 million.  He was caught assisting the illegal entry of asylum seekers into the UK and obtaining around £200,000 benefit on their behalf, which he kept towards their food and keep.  As a pillar of the local community, he immediately pleaded guilty and was sentenced to around 4 years in prison.

Then came the confiscation.  Of course the Crown wanted the whole £25 million for lifestyle offences.  Our report took the view that the defendant’s benefit was based on the £200,000 from particular criminal conduct and that the isolated illegality did not represent a criminal lifestyle. The Crown continued to press for lifestyle sanctions and began to introduce the idea of tax evasion – getting their own expert accountant to attempt to quantify how much tax had been evaded over some 30 years.

Eventually the lifestyle assumptions were quashed, but the prosecution argued that because illegal funds had been paid into the bank and mixed with several millions of other transactions – all funds had become tainted.  I recall the Judge’s response – “so you are saying if I stole £1 on Monday – then won £1 million on the lottery the next day and put both sums in the bank – I would lose the lot?” Prosecution counsel muttered “yes my lord” .   However, the Judge made a confiscation order equal to the sum we had proposed, commenting on our common sense approach in his summing up.  Following the recent decision in R – v – Waya the issues surrounding proportionality and the use of mixed funds have become much clearer.

Getting the benefit as low as possible

The benefit order stays with a defendant for the rest of his life, yet we have seen defence teams more focused on doing a deal with the Crown in relation to the realisable assets figure.  We aim to reduce the benefit figure as far as possible and even where a bigger figure than the agreed settlement remains, try to leave areas of doubt or disagreement within our reports should there be further recoveries pursued in the future.

Applying a bigger proportion of expert time

We prefer to increase our efficiency through the utilisation of our extensive confiscation experience rather than reducing the amount of input by the expert delegating large proportions of any assignment to junior staff.

By Mark Jenner BSc MA CFE FCA– Mark has been a forensic accountant for over 16 years specialising in fraud and money laundering for most of that time. He heads up a dedicated fraud advisory service line focusing on expert witness assignments and fraud investigation. Regularly attending court to give oral evidence, his portfolio includes criminal fraud prosecutions, proceeds of crime and money laundering offences, corporate enquiries (including insolvency investigations) and asset tracing assignments.

Mark can be contacted at: mail@mark-jenner.com