Confiscation proceedings follow a criminal conviction for a number of different crimes. Anybody making money from illegal activities is likely to commit a qualifying offence. Such offences are those where the benefit from the crimes trigger a £5,000 threshold or alternatively have any involvement with drugs, human or arms trafficking, money laundering, terrorism, pimping, blackmail or intellectual property theft.
The confiscation regime is not intended as an additional punishment, but simply a mechanism to recover the criminal wealth that has been stolen. However, the prosecutors seem to have ignored this and apply the confiscation framework zealously, a situation that is probably encouraged by targets and various Home Office incentivisation schemes that allow prosecutors, courts and investigators to receive a proportion of the recovered funds to assist their budgets.
Such monitory incentivisation is offensive, and flies in the face of the principles of criminal justice. As expert accountants assisting the court, we forensic accountants are not allowed to receive such remuneration based on outcome. This is to preserve our independence and ensure we do not err away from a non-partisan standpoint. Surely the same principal should apply to the whole criminal justice framework, given that even the defence lawyers are normally paid according to fixed schedules of remuneration?
So faced with a S16 Statement of Information following a conviction, the defendant and his or her criminal lawyers must challenge the often inflated levels of criminal benefit and associated hopeful estimates of available assets, particularly if “hidden assets” are being alleged. The unpicking of the S16 Statement is the work of the forensic accountant, who may have to present his report as an expert accounting witness to the Criminal Court in due course.
Responding to the S16 Statement of Information in confiscation matters involves looking separately at three different areas being considered by the Crown:
1. Particular Criminal Benefit
The amount of money that has been stolen, the value of drugs that have been imported or the quantity of money that has been laundered, forms the particular criminal benefit. It is the extent of the crime that has been prosecuted. Very often the amount has been established at the predicate trial and sometimes the defendant has even pleaded guilty on the basis of a certain established sum. The Crown may have made an adjustment using the retail price index (RPIJ) to reflect the time that has passed since the crime was committed, and other than checking the calculations of this there is often very little for the forensic accountant do add.
Although particular criminal benefit is normally more straight forward to assess in most cases, it has been subject to testing circumstances when the Crown attempts to recover disproportionate amounts from any source that they can. For example, take the case of R – v – Waya – it took the Supreme Court to settle this matter that in the end set legal precedents – precedents that were being merrily applied years earlier by expert accountants who were simply using a measure of common sense. Mr Waya had been sentenced to 80 hours community service for a mortgage fraud. A reasonable punishment given that he had paid the mortgage back on time. However, the ensuing confiscation proceedings now demanded that he repay £1.54 million, the currant total value of the property he had bought with the mortgage. It took the full extent of the appeal process, and an army of lawyers, to eventually establish the proportion of the increase in value of the property obtained as a result of the mortgage, £392,400, was the extent of the benefit. It was, effectively, how much better off Mr Way had become as a result of committing his crime.
2. Lifestyle Criminal Benefit
Whereas particular criminal benefit is more readily associated with the value of assets that were actually stolen, lifestyle criminal benefit arises because a criminal can be assumed to have a lifestyle funded by further crime – not necessarily the crime for which he has been convicted.
Therefore, the Crown can take a hard look at the defendant’s financial affairs to see if anything there appears to be the result of criminal activity. It will look at deposits into a bank account that cannot be explained. It will look at assets owned or evidence of payments made that could have been the expenditure of criminal funds.
The problem for the convicted criminal is that the Crown does not need to prove that the benefit has come from criminal enterprise. The tables have now been turned, and once convicted of some qualifying offence, the defendant must now prove where all his wealth has come from.
In practice, this can be quite difficult as it is rare for anybody to keep complete records of all their business and personal finances. Remember, the Crown can investigate a person’s affairs dating back to six years before the date of first charge, sometimes longer in cases where the crime was continuous (like benefit fraud) and not everyone keeps records this long – if they keep them at all. This forms the Relevant Period in which lifestyle assumptions can be applied.
As forensic accountants we are tasked with examining the financial transactions and assets acquired in order to explain the source of funds used to fund the particular lifestyle. Obvious sources of income such as regular wages or bank loans can confirm the legitimacy of some of the items of alleged benefit, but where cash has been used, the job becomes harder. Cash has no audit trail and therefore somebody who favours cash will have a harder time explaining their finances. Cash can be pooled, mixed and hoarded and so any cash withdrawn is unlikely to match cash deposited or payments made.
Buy to let property investments are very popular, and rents are often paid in cash. The forensic task here is to establish not only when and how a property was acquired, but also how the rental income was used to either fund the mortgage or support the lifestyle of the defendant. It was confirmed in R – v – Waya that the acquisition of a mortgage itself was not a financial benefit (as the funds do not normally pass through the hands of the borrower and the loan is matched by an equal liability to the lender) and this must be taken into account when considering how much was actually being acquired within the Relevant Period.
3. The Forensic Accounting Treatment of Available Assets
The third significant area to be addressed within the S16 Statement of Information by the forensic accountant is where the Crown is seeking an amount to recover from the defendant. Often this is a case of adding together bank balances along with the value of any property owned – not something a forensic accountant will be closely involved with.
However, if the circumstances are right, the Crown can suggest that the Defendant has hidden, or given away his wealth to keep it from being confiscated. If this is accepted by the Court, it can increase the amount that the defendant is ordered to pay to more than he actually has in his possession.
Where the defendant has given money or assets away, these tainted gifts must be returned to settle the confiscation order. Where hidden assets have been accepted by the Court, these must be recovered and paid over to the Crown.
The problem is that the Crown does not have to prove that hidden assets exist, just that it is reasonable to assume that they might. For example, if regular large round sum withdrawals are being made from the bank account, particularly in cash, to destinations that cannot be confirmed as legitimate expenditure, it can be assumed that the defendant is stashing money away. It is the forensic accountant’s job to examine the Defendant’s overall finances to see how the money might have been utilized or whether it actually does represent some hidden investment. This is where the forensic accountant is often tasked with “proving a negative” by attempting to show that something does not exist. It is very easy to fritter money away, less so to prove where it has gone!
Default Sentences
If a defendant can not, or will not, pay a confiscation order, the Court will likely impose a default prison sentence. These sentences are intentionally very harsh, and they have been recently increased so that the threshold for receiving five or more years additional prison time is now only the failure to pay £10,000.
This is not an area that involves the expert forensic accountant, but it does highlight the importance of building a strong case for a proportionate confiscation order and a benefit figure that reflects the proven criminality.
General Approach to Forensic Accounting Work on Criminal Defence Cases
There is a common belief among general practitioner forensic accountants that every criminal defence case must be approached in the same way. First all the bank statements are transposed into spreadsheets on a line by line basis, then these are cross referenced with the Crown’s own analysis allowing arithmetical errors and double counting to be identified. Every page of the Crown’s evidence bundle is examined in detail and all numerical data extracted, also into spreadsheets. Only then will the Crown’s case summary (the S16 Statement of Information in a confiscation) be interrogated on a paragraph by paragraph basis.
This approach is sometimes necessary, and properly done can be very expensive. Many forensic accountants get round this by utilising the services of very junior staff, who undertake repetitive work cheaply. However, it is our view that at least a large proportion of work on any forensic assignment involving an expert witness report should be carried out by the expert himself (or herself). Even when there is a substantial quantity of repetitive analysis or document examination to be done, the more involved the expert is, the better his opinions will be concerning the financial activity. Of course some work can be delegated, and indeed it is sensible to do so, not only to constrain costs but in order to obtain second opinions and confirm strands of the forensic investigation strategy. At Mark Jenner & Co Limited we feel that all expert assignments should be “expert led”.
Much of our work is carried out at short notice, and we believe we have gained a reputation for working closely with criminal defence lawyers in turning round high quality reports quickly when necessary. Of course, so we can manage our caseload, we also welcome assignments where we are instructed well in advance and are able to obtain a 4 to 8 week window in which to carry out the work. Many assignments do stretch out over a period of weeks, as it is often necessary to raise issues and ask questions, often leading to obtaining additional documents or information which can take time.
We accept forensic accounting assignments for criminal defence cases from all around the UK. We are regular attendees at the various London and other city Crown Courts, but also regional courts as well. Although most interaction with the defence team prior to a trial or hearing is conducted by phone, email or Skype these days, lawyers always know that we can attend a conference at their offices or counsel’s chambers at short notice and without adding any travel costs to the normally constrained publicly funded budget.