Butterworths Journal of International Banking and Financial Law January 2013 47

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Christopher Badger of 23 Essex Street reviews the latest financial crime developments

Financial Crime Update

R v Waya – Proportionality in confiscation proceedings

Criminal courts have, for some time now, been concerned about the lack of discretion available in confiscation proceedings. The provisions have, rightly, repeatedly been described as “draconian”. They were certainly never designed to be fair. The consequence has been to see an increase in abuse of process applications concerning confiscation proceedings, particularly in a regulatory context. R v del Basso [2011] 1 Cr App R (S) 41 is a recent example of the limitation of such arguments where the defendant attempted to connect the making of a confiscation order with the actual economic or environmental harm caused by the offending behaviour. The simple fact is that no such relationship exists. Confiscation is aimed at depriving offenders of the benefits of their criminal offending, whether or not they have retained those benefits, within the limits of their available means. It is not connected to “harm” caused by one or more criminal offences.

Although previous enactments concentrated heavily on professional criminals engaged in serious crime, the Proceeds of Crime Act 2002 (POCA) is not limited in its focus. It is a statute framed in broad terms with a certain amount of “overkill”1, including the loose causal test in s 76(4) (“as a result of or in connection with the conduct”) and the puzzling definition in s 84(2)(b) (“property is obtained by a person if he obtains an interest in it”), which could potentially result in a confiscation order being made in virtually every criminal case appearing before a Court.

R v Waya [2012] UKSC 51 is the Supreme Court’s verdict on the application of the confiscation regime. The question raised for the court was whether the application of POCA’s rules for the calculation of benefit may, in some circumstances, give rise to a contravention of rights under the European Convention on Human Rights. The court invited submissions on four questions:�� Whether POCA is capable of operating in a manner which is

oppressive and/or an abuse of process;�� If so, whether the court ought to give any (and if so what) guidance on

when that might occur;�� What ought to be the approach to property gained by the defendant

but fully restored to the true owner;�� What ought to be the approach to a dishonestly-obtained loan which

had been fully repaid.In addressing those questions, the Court concentrated on the

application of Art 1 of the First Protocol to the European Convention,

by virtue of the Human Rights Act 1998 (HRA), to confiscation proceedings. It reads:“Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law. The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.”

The Supreme Court stated that it was clear law that Art 1 to the First Protocol imports, via the rule of fair balance, the requirement that there must be a reasonable relationship of proportionality between the means employed by the State in, inter alia, the deprivation of property as a form of penalty, and the legitimate aim which is sought to be realised by the deprivation (emphasis added). Under the HRA this meant that the following principles were “plainly correct”:�� POCA must be read and given effect in a manner which avoids a

violation of Art 1 of the First Protocol;�� That a confiscation order which did not conform to the test of

proportionality would constitute such a violation;�� That it is incumbent upon the domestic court to provide a remedy for

any such violation; and�� That the appropriate remedy lies in the duty of the Crown Court

judge not to make an order which involves such a violation.Attention was drawn to previous cases where the Court had held that

the pursuit of confiscation proceedings was an abuse of process. Those cases were R v Morgan and R v Bygrave [2008] EWCA Crim 1323; [2009] 1 Cr App R (S) 60 and R v Shabir [2008] EWCA Crim 1809, [2009] 1 Cr App R (S) 84. The first involved consideration of a class of defendant whose benefit was limited to loss occasioned to a single victim, who did not have a criminal lifestyle, and who had either repaid or stood ready to repay the victim in full. The second case involved a case where the Crown sought a confiscation order hundreds of thousands of pounds greater than the actual advantage gained by the offender by a combination of relying on the manner in which the money had been obtained, together with the form of the charges of which he was convicted. The Supreme Court stated that, while the outcomes of these cases were correct, the better analysis of such situations is that orders such as those considered ought to be refused by the judge on the grounds that they would be wholly disproportionate and a breach of Art 1 to the First Protocol. This analysis shifts the practitioner’s emphasis away from both abuse of process (a notoriously difficult argument to prove on behalf of a defendant which should only really be successful in exceptional cases) and from broad general criticisms of a spectacularly unfair regime (unproductive and inelegant) to case specific considerations of proportionality. The critical

23 Essex Street is a set of barristers’ chambers specialising in criminal litigation and noted in the fi nancial fi eld for its work in white-collar crime cases, including money laundering, confi scation and asset recovery, revenue and customs,

business and market-related and intellectual property crime. In addition, it is noted for its expertise in the associated fi elds of professional regulatory and disciplinary proceedings.

January 2013 Butterworths Journal of International Banking and Financial Law48

Biog BoxChristopher Badger is a practising barrister at 23 Essex Street. Email: chrisbadger@23es.com

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issue is to identify those factors that a Court can legitimately take into account when assessing these arguments. In reaching its conclusion, the Supreme Court found that the safeguard of the defendant’s Convention right under Art 1 not to be the object of a disproportionate order does not, and must not, depend on prosecutorial discretion, nor on the very limited jurisdiction of the High Court to review the exercise of such discretion by way of judicial review2. However, the Court made it explicitly clear that a refusal to make a confiscation order which was disproportionate was not the same as the re-creation by another route of the general discretion once available to judges not to make a confiscation order but which was deliberately removed. In order to expand on this point, the Court drew attention to the qualifications in s 10(6) of POCA that the assumptions that must be applied in a criminal lifestyle case should not be applied where: (i) they are shown to be incorrect (by the defendant on the balance of probabilities); or (ii) where they would give rise to a risk of serious injustice (in the absence of any burden of proof allowed for by the statute, a matter for the Court to determine in the exercise of its discretion). The Court stated: “The combination of these provisions, and especially the latter, ought to mean that to the extent that a confiscation order in a lifestyle case is based on assumptions it ought not, except in very unusual circumstances, to court the danger of being disproportionate because those assumptions will only be applied if they can be made without risk of serious injustice.”

A moment of caution. Case law has held that a “serious risk of injustice” does not refer to the hardship that would be sustained by an offender were a confiscation order to be made. Proportionality in this context therefore does not appear to take into account the financial impact on a defendant, providing that the order is made within their means. In R v Jones [2007] 1 Cr App R (S) 71, the Court stated that, the purpose of s 10(6) was to ensure that the assumptions, which are to be made in relation to particular property or expenditure when deciding questions as to benefit from general criminal conduct, were not so unreasonable or so unjust that they should not be made (eg they should not be made if they gave rise to double counting or were inconsistent with an agreed factual basis of sentence). The implication is that, where the calculation of a confiscation order relies on the application of the assumptions, and a defendant cannot prove that assumption to be incorrect (for example through the production of financial records), in the absence of some additional factor to be taken into account by the Court (such as a basis of plea but which does not include personal hardship), the defendant cannot claim that such an order would be disproportionate. As if emphasising that proportionality does not necessarily bear a relationship to individual profit or net benefit, the Supreme Court went on to state that legitimate and proportionate confiscation orders can include the following, applying R v May [2008] UKHL 28, [2008] 1 AC 1028:�� that a defendant pay the whole of a sum that he has obtained jointly

with others;�� that several defendants each pay a sum that has been obtained

successively by each of them;�� that a defendant pay the whole of a sum he has obtained without

enabling him to set off the expenses of the crime.

However, in cases where the benefit obtained by the defendant has been wholly restored to the loser, a confiscation order that requires him to pay the

same sum again “does not achieve the object of the legislation of removing from the defendant his proceeds of crime, but amounts simply to a further pecuniary penalty – in any ordinary language a fine. It is for that reason disproportionate”. R v Waya did not conduct a true analysis of tax or excise avoidance and for that reason, cases of that type await full argument. Similarly, circumstances where confiscation orders resulted from the obtaining of employment through deception was not the subject of argument before the Court. Mr Waya’s personal case concerned a defendant who had put £310,000 of his own money, honestly obtained, into a flat purchase, but who told lies in the mortgage application. Years later, the equity in the flat was worth £1.1m. The question was whether Mr Waya should be ordered to pay an amount equivalent to his entire interest in the flat in confiscation proceedings. The Supreme Court ruled that he should not. Mr Waya was permitted to keep not only the portion of equity equal to his original contribution, but also the increase in the value of the property attributable to his original deposit. Moreover, where equity was taken out of the flat by a second, honestly obtained, mortgage, the Supreme Court ruled that the authorities could not recover a sum of money equal to that cash.

In the final analysis, it is possible to draw together the following principles, following R v Waya as I anticipate the Supreme Court intended: �� Proportionality in confiscation proceedings is not simply another

term for discretion. �� Hardship to the defendant looks likely to be irrelevant to the issue of

proportionality, as is economic or other harm caused by the offending behaviour itself. �� The critical focus of the Court should be on whether or not the

confiscation order will have the effect of achieving one of the identifiable aims of the confiscation legislation, to quote R v Rezvi [2002] UKHL 1, [2003] 1 AC 1099 “to punish convicted offenders, to deter the commission of further offences and to reduce the profits available to fund further criminal enterprises” and is proportionate to that aim, rather than simply amounting to an additional financial penalty. �� In the event that there is an identifiable loser in any particular case,

then whether or not that loser has been repaid is highly likely to be determinative of whether a confiscation order should be made or not. �� Proportionality arguments are unlikely to be successful in cases

involving a finding of “criminal lifestyle” due to the safeguards inherent in the phrase “serious risk of injustice”.It will remain of some interest how the Courts apply this in practice. n

1 Per Lord Wilberforce.

2 This is a highly interesting part of the judgment. There have been several cases

recently, most notably concerning strict liability offences, where the Court

of Appeal has held that permitting the Crown to exercise its discretion in

deciding which prosecutions to pursue was perfectly proper, where such a

decision invariably automatically resulted in a defendant’s conviction (eg R v Ideal Waste Paper Ltd [2011] EWCA Crim 3237; R v KV [2011] EWCA

Crim 2342). Does the natural extension of this principle allow a Crown

Court judge to stop a prosecution that he considers to be disproportionate to

the harm done? Or does the traditional approach still hold, where the remedy

available to the Court is to reflect the fact that the Judge believes that the case

should never have been brought by imposing a nominal penalty?