Mark Jenner & Co – Forensic Accounting Services

Confiscation Proceedings and POCA indictments within fraud cases impact a large proportion of the work carried out at Mark Jenner & Co. We see case after case involving anything from a few £1000 being stolen from the DWP to confiscations following major organised attempts to defraud government agencies of £millions.  However, in all cases the initial amount of benefit and hopeful level of realisable assets figure usually bear no relation to the severity of the crime committed, and in most cases after lengthy and expensive proceedings the Crown accepts much more modest terms…

There is no doubt of the commitment of the present Conservative and previous Labour Governments to the Proceeds of Crime Act 2002 and its intended use to cripple organised and career criminals. Criminal lifestyle (no obvious income) cannot always be linked easily to a specific offence – however the recent legislation moves the burden of proving innocence firmly over to the criminals. It has been applied in the field now for a number of years and is becoming a routine process in many cases.

Sometime the process is so routine that prosecutors do not bother to prepare a comprehensive Section 16 Statement, using the freedom they have to make certain assumptions to the extreme! However, this does often lead to a robust defence that can result in more lenient orders for sums being confiscated.

The Section 16 Statements are statements of information that provide the reasons, but not necessarily all the evidence, for applying criminal lifestyle assumptions to the source of a defendant’s assets. The Statement will set out the level of criminal benefit based both on the specific crimes that have been committed and also on the assumptions that other activities are also criminal (i.e. the defendant has a criminal lifestyle). The Statement may also indicate the assets that the defendant owns to satisfy any confiscation order and even give an indication, again not necessarily with evidence, of any assets thought to be hidden away.

With such a broad remit for indicating what is benefit and what may be available as realisable assets to satisfy the order it is clear that the prosecutors are simply setting out some of the information they have in relation to the defendant. This is on the basis that they are hopefully covering the level of the actual criminal activity and challenging the defendant to explain everything else. In effect they are often seeking to do just enough to ensure that the defendant loses all he currently owns.

This approach does happen in practice. Unfortunately, although it may deliver draconian but deserved justice for some, it creates a somewhat unfair situation for some other defendants. For example take the case where a defendant has been convicted of trafficking drugs, has not kept details of any financial transactions and in all likelihood has not paid any tax on any legitimate work he has been undertaking as a cover for his drug dealing. If only one or two of the defendant’s bank accounts are analyzed and demonstrate adequate transactions to ensure the ensuing confiscation order is large enough, then the defendant will lose everything and no doubt the prosecution (and indeed the rest of us as well) will accept that justice has been served.

However, compare the last case to another, where a businessman has been caught defrauding his employer by substantially inflating his corporate expense account for a number of months running, by several £1000s. He is caught, convicted and must serve a prison sentence as punishment for theft. Of course he will also have to pay back the money through subsequent confiscation proceedings. If he is technically deemed to have a criminal lifestyle because he has stolen more than £5,000 over a six month period, the prosecutor will have the opportunity to throw the book at him, preparing a Section 16 Statement that will seek recovery of not only the money that he stole, but everything he owns and has ever transacted – going back 6 years from the time of arrest or charge. When all the receipts into the bank accounts over 6 years are totted up, this “benefit from general criminal conduct” can reach huge sums. The scale of such an assumed level of benefit, if awarded against the defendant as a confiscation order, can never be paid back. The unfortunate defendant would have to serve a default sentence having more years added to his original penalty.

Of course it is possible to defend such a situation. The defendant’s legal team would realise that whereas it would be necessary to repay the level of money stolen, it would be somewhat unfair to have to repay income earned legitimately over recent years. This is what an uncontested confiscation order would involve in such a case. Therefore, the defence must show to a civil standard of proof that his income (other than the actual proceeds of crime) was from legitimate sources.

This is where the defence forensic accountant would be called in. He will examine the Section 16 Statement together with all the defendant’s financial evidence (such as bank statements, business records etc) and demonstrate the legitimate nature of the income. This usually means that he must go further than the prosecutor because he will need to undertake a comprehensive review of everything – it is up to the defence to demonstrate the legitimacy of income or assets. To do this may mean examining accounts that the prosecutor has not bothered with, to show the source of all transfers for example.

The big problem arises because the public funding of such cases is under threat. The public sector is having its budgets cut drastically by the Government in an attempt to redress the fiscal measures put in place to counter the pressure on banks over the past year or so. As an example the Legal Services Commission is losing a big part of its annual operating budget. It is reducing its spend on expert witnesses, including the forensic accountants, by a disproportionately large amount – 20% was initially swiped of the annual bill with promises of even more cuts. This is around £20 million less being spent on defence experts in the coming year.

The mechanics for doing this were proposed in a consultation paper regarding levels of experts’ fees. It is proposed that a forensic accountant would be paid between £47 to £100 per hour with the upper rate unlikely to be ever paid. For those that think that £100 per hour is a lot, remember this is the total cost – out of which must be paid pension, sickness, disbursements and the high cost of running a business. To put the rate into comparison, my work for my Masters Degree in Fraud Management showed that the average cost of a forensic accountant and of a police officer or member of the Court (clerk/manager etc) or of the Criminal Prosecution Service were broadly comparable. In fact the real cost of putting an officer on the beat is a lot more than £100 per hour, let alone the cost of a detective in an economic crime unit.

If a well trained and experienced forensic accountant were to be paid £100 (assuming he or she can achieve this top rate) then they would be unable to remain in even a small firm of accountants as they would be unable to earn enough to fund their firm’s overheads. There is evidence that the Legal Services Commission sees the solution as forcing the forensic accounting services into the hands of retired practitioners and “one man bands” who can survive (albeit barely) on the rates that are proposed. In a previous consultation paper several years ago this very outcome was mooted as the way forward. At that time all that came out of the consultation perhaps was more determination by the public sector funding body to restrict and delay payments for experts.

The most recent news is that from 3 October 2011 a new payment framework for expert witnesses is to be implemented by the LSC. A London based firm may charge between £50 – £144 for its forensic staff:

£50 – general staff

£80 – accountant

£108 – manager

£144 – partner

The regional firms are not much different – being allowed rates of between £50 and £135.  At the end of the day, the payments will depend on the competitive tendering nature of the assignation of cases – but composite average rates of £100 seem to be what the LSC are expecting to pay experts on all but the biggest of cases.

Mark Jenner & Co provides specialist forensic accounting services to criminal defence lawyers throughout the UK.

In the UK, the interpretation of the Proceeds of Crime Act 2002 when using asset confiscation as a weapon in the criminal regulators’ arsenal of sanctions will continue to develop and solidify over time.  However, in recent years it seems that the courts, lawyers and regulators alike struggle to understand the spirit of the law.  On one hand the prosecutors seem to be applying the “lifestyle” assumptions with complete abandon whereas the court, while certainly not ignoring the law, on occasions comes up with common sense judgements when enforcing what many commentators have labelled as “Draconian” legislation.

What is criminal benefit and how much might be realised during confiscation is commonly disputed and was a notable issue in the recent R – v – May appeal during 2008.  The judge had originally reduced an individual’s benefit by the amount of monies recovered elsewhere in a fraudulent matter.  It was subsequently ruled that he had erred in doing this as he had been confusing realisable assets with benefit.

What is clear after this decision is that the benefit obtained from money laundering for the purpose of the Proceeds of Crime framework is not the profit (or commission earned) of carrying out the crime but the sum of the criminal property dealt with.  This means that if you facilitate the laundering of a million pounds for a friend for a £10,000 fee, your benefit will be assessed at the level of one million pounds. Put simply, it is the amount of criminal proceeds flowing through your hands.

The quantum of recovery can therefore be much more than the cash earned by doing the crime!  This is the case if a person is deemed to have a criminal lifestyle.  Then it is not just the value of the particular criminal conduct that has taken place that becomes the benefit, but the value of all assets owned and monies transacted during the previous six years.  So in theory, if you fail to pay a few parking tickets you stand to lose your house, car and life savings.

It is up to a defendant to prove that all monies passing through his or her bank account do not represent the proceeds of criminal activity.  This means that all income must be verified.  This is easy for an average employee whose main income will be a salary through the PAYE system with perhaps an occasional injection of funds from an identifiable source such as parental gift or lottery win.  It is not so easy for the person who has lived as a wheeler and dealer, often paying little or no tax and certainly keeping only minimal accounting records.  Explaining cash receipts into a bank account can be difficult and the Prosecution will always assume these to be benefit.  Furthermore, when assessing realisable assets all payments out of a bank account will be deemed to be dispersal of criminal proceeds as “hidden assets” unless the purchase can be identified clearly.  Identifying these transactions, which are often simply innocent household outgoings, can be difficult without a properly documented paper trail.

The system penalises those that do not live a conventional lifestyle, dealing in cash and therefore very often not paying appropriate taxes. It is a lesson for those that do deal in cash but otherwise keep their legal obligations up to date – to keep good records!