It’s Payback Time
It sounds like a perfectly reasonable idea, taking money from criminal’s ill-gotten gains, recovering their proceeds of crime. Under the Proceeds of Crime Act 2002 (POCA) provisions were enacted to make this possible.
Under POCA, the range of available ways to pursue criminal funds include:
- Confiscation orders against convicted individuals (requiring payment to the State based upon the benefit obtained from their crimes),
- Civil recovery of proceeds of crime from unconvicted individuals,
- Taxation of profits generated from crime,
- UK anti-money laundering legislation,
- Powers of investigation into suspected proceeds of crime offences, and
- International co-operation by UK law enforcement agencies against money laundering.
But what of the innocent parties involved, often in a matrimonial context, the spouse of the criminal who may own a property with them jointly? They can become the victim themselves and have their home and assets at risk through no fault of their own.
In 2012/13, there were 680,000 convictions some of which had a financial crime element. 6,392 Confiscation Orders were made. The system was reportedly prone to delays though, and apparently some defendants issued sham divorces in an attempt to transfer their assets away and to their former spouse.
What happens in matrimonial cases?
The first stage in the process of recovery is that of the making of a ‘Confiscation Order’ against the perpetrator of the crime. This amounts to a personal order against the criminal, and not a proprietary one. It means that for confiscation order proceedings, the third party – here the spouse – knows nothing of the application and is not given a right of reply.
This might seem contrary to the principles of fairness, but it is an order obliging the defendant to pay a fixed sum and as such it does not affect a third party’s interests. It may come to pass that the defendant says that assets are not available to them because they are owned by their spouse, but that does not change the amount the defendant is being ordered to pay.
The second stage is that of enforcement – the ‘Enforcement Receivership’ stage. It is now that any interested third party will become involved. Here, if the spouse’s realisable property is at risk, the court must decide what property can be used to meet the fixed sum payable under the Confiscation Order.
Proceeds of Crime Act 2002 v. MCA 1973
It is here that the overlap between the two jurisdictions, that of the POCA process and that of the Matrimonial Causes Act 1973 can come into play, and often conflict.
Recoverable amount and Realisable Property
There is a distinction between the ‘recoverable amount’ and the ‘realisable property’. The former is defined by POCA (section 83) as, ‘the amount the defendant is required to pay under the confiscation order’. The latter is ‘any free property held by the defendant, or by the recipient of a tainted gift.’
The POCA enforcement process deals with the realisable property, i.e. the free property owned by the defendant.
What of the spouse’s interest?
But what if the spouse of the defendant has an interest in the realisable property aswell as the criminal? Only at this stage does the spouse have the right to be heard. But how does the court exercise its powers?
Where there are concurrent POCA and MCA applications, the courts will deal with those cases according to principles laid down by Schiemann J in HM Customs and Excise & ANR v MCA & ANR, A v A  EWCA Civ 1039:
- Neither MCA nor PoCA takes priority over the other, and parity between the statutes prevents injustice ;
- It is not axiomatic that enforcing a confiscation order is more in the public interest than making a property adjustment order ; and
- Both statutes confer a discretion, the exercise of which depends on the facts of the individual case .
How is the court’s discretion exercised?
The cases are very fact-specific but some core principles have emerged from the various authorities. Therefore when deciding whether to make a property adjustment order the following (may) be relevant – (a non-exhaustive list):
- The Court should be careful to ensure that the applicant is genuinely innocent and the injustice real (A, [76-79], per Schiemann LJ);
- Whether the applicant had knowledge of the defendant’s criminal activities (A,  [47-48], per Schiemann LJ);
- Whether the property was purchased with the proceeds of crime or is tainted (A,  [47-48], per Schiemann LJ);
- Whether the property was preserved by the defendant’s criminal conduct (Stodgell,  per Hughes LJ):
- Where assets are tainted with the proceeds of crime and subject to confiscation, in most cases they should not ordinarily be distributed, as a matter of public justice and policy; but the court is not deprived of jurisdiction to make such distribution, and circumstances may exist where such order is justified (Richards, per Thorpe LJ ).
The leading cases:
We have set out the leading cases, which can all be found by clicking the links (where available) as follows:
- HM Customs and Excise & ANR v MCA & ANR, A v A  EWCA Civ 1039
- CPS v Richards & Richards  EWCA Civ 849
- H v CPS  EWHC 1291 (Admin)
- Stodgell v Stodgell  EWCA Civ 243
As is so often the way, there is no clear answer to the conflicting and competing aspects of POCA confiscation cases and MCA matrimonial financial remedy applications. Whilst at first blush it seems unfair that a spouse cannot be involved when a confiscation order is made, that spouse can have their say at its enforcement stage – which can include being given an opportunity to be heard on aspects dealt with in the confiscation process.
It is also interesting to consider the relevance of the confiscation proceedings in the context of the MCA 1973 S.25 factors, namely ‘conduct’ which must surely be a point to be made at the earliest opportunity in the financial remedy case for the offended spouse.
The area is a complex and challenging one – not least when considering the conflicting jurisdictions and case management issues which abound when two sets of proceedings are ongoing simultaneously. But that’s maybe for another post!
For more details on this or any other family law matter, please do not hesitate to contact James or Frank. Paradigm Family Law offers a free initial consultation and our fixed fee solutions cover financial proceedings from start to finish. You can call us on 0845 6020422 or email us to [email protected]. You can also follow us on twitter and LinkedIn and Facebook for the latest news and views on family law.