Changes in the proceeds of crime

The Proceeds of Crime Bill 2001 was introduced at the beginning of March with the claim that it will bring a much needed revolution in...The Proceeds of Crime Bill 2001 was introduced at the beginning of March with the claim that it will bring a much needed revolution in the recovery of the profits of criminals, which will be overseen by a new Criminal Assets Recovery Agency (CARA).

Adam Cowell and Ian Smith warn that most solicitors are likely to be affected by the proposals in the mammoth 350-clause Bill.Money laundering offences and investigationsAccording to the Home Office: The introduction of a negligence test is now necessary as a deterrent against those who fail to act competently and responsibly where information before them ought to make them suspect money laundering.

Failure to report a transaction will become a criminal offence where the relevant person had reasonable grounds for suspecting that another person is engaged in money laundering.

This produces a substantial drop in the threshold from the current offence which requires actual suspicion.

For those affected, it presents real dilemmas.

For lawyers there are unique issues.

Legal professional privilege remains a lawful justification for not reporting a transaction, but does not protect information (instructions) given by a client with a criminal purpose.

Consequently, if the lawyer has reasonable suspicion of the criminal purpose the justification falls down.

Lawyers will have to make a judgement about whether information is really privileged: get it wrong and conviction and six months imprisonment await you for refusing to yield.

Routine disclosure will not be the answer either: statutory protection is to be afforded an accusation of breach of client confidence, but incorrect disclosures remains just that a breach of confidence.Criminal Assets Recovery Authority will be given compulsory powers of investigation, by application to the Crown Court.

These include a disclosure order against persons with relevant information.

Professional privilege provides grounds for refusing to answer questions, but otherwise criminal sanctions apply for failing to answer.

Customer information orders and account monitoring orders are new additions, which will also complement the existing armoury of production orders and search and seizure powers.

Information and documents gathered using these powers may be used in any of the ensuing asset recovery actions, but like other compulsory powers their use in criminal prosecutions will be limited to ensure compatibility with the European Convention on Human Rights.Criminal confiscationThe criminal confiscation regime is given a much needed unification in the Bill.

The High Courts jurisdiction will be transferred to the Crown Court.

CARA will play a watchdog role over other prosecutors, ensuring that full use is made of the confiscation legislation, and may also bring confiscation proceedings.

Crown Court judges will have to decide if a convicted person (any offence) has a criminal lifestyle.

If so, a number of assumptions will apply, as under the current law.

Most draconian is the assumption that all assets held by a convicted person represent his proceeds of crime; assumptions which the Privy Council and Court of Appeal have under present laws were upheld against attack under the European Court of Human Rights in relation to drug traffickers and offenders of at least two relevant crimes.

Crown courts will also issue restraint, charging orders and appoint receivers to enforce confiscation orders.

These changes should bring about a marked increase in the reach and use of confiscation following conviction, but really only amount to restructuring and strengthening the law, rather than any radical change.

Civil recoveryThe Bill also introduces an entirely new right of action for the recovery of property obtained through unlawful conduct.

The action is available only to the director of CARA and only through the High Court.

The proceedings can be used to recover the actual property obtained through unlawful conduct or any property that represents that property, namely new property for which it has been exchanged.

The director is not empowered to pursue legitimately owned property in substitution of unlawfully obtained property that has been dissipated.

The action lies against third parties who have come into possession of the unlawfully obtained property, but not if they have purchased the property in good faith and for full value.

Moreover, the director cannot pursue the original property from a third party (for example, a stolen car) and also property still in the possession of the offender that represents that property (cash received for the car).It is claimed that the new scheme will fit within the existing civil law principles and procedures, which means relaxed rules in relation to hearsay evidence, no privilege against selfincrimination where evidence is obtained under compulsion and the action will be decided on the balance of probabilities.

Therefore, the action will be most useful where there is insufficient evidence to obtain a criminal conviction.

The burden of proof is on the director, but if the respondent chooses to say nothing the court will be able to draw adverse inferences.The director will usually commence proceedings in the High Court by obtaining an interim receiving order (without notice) over all the respondents property, not just the recoverable property.

In addition the director may obtain compulsory powers by order in the Crown Court.

The court can vary the order where appropriate and the respondent will be allowed living expenses.

Legal aid will be available and the court may allow legal costs out of the property under restraint, but costs may be capped if the respondent loses.TaxationThe director will be empowered to take over responsibility for the revenue functions of, among other things, income tax, capital gains tax, corporation tax and inheritance tax, by serving a notice on the Revenue confirming he has reasonable grounds to believe that income, gain or profit are derived from the proceeds of crime.

The director may use any of the compulsory powers provided under the Act to obtain information that might establish a taxation liability on gains from criminal conduct and will become responsible for taking the appropriate action to recover the tax, interest and penalties.

The director must apply the Revenues interpretation of the law and concessions when exercising these functions.

The director is also provided with a new power, unavailable to the Revenue, namely the power to issue tax assessments in relation to income that has no identifiable source placing the onus on the taxpayer to show that the income should not be taxed.

A gateway will be created for the sharing of tax information between the Revenue and the directors office, but confidentiality will be retained in relation to other authorities.Adam Cowell and Ian Smith are a partner and an associate respectively at the London office of Irwin Mitchell

Key features of the new regime

Money laundering

l All crimes offences

l Criminal negligence in failing to report transactions

l Compulsory disclosure powers

Criminal confiscation

l Unified regime for all offences

l Crown Court as a one stop shop

l Earlier and increased use of restraint orders

l Mandatory application of criminal lifestyle assumptions

Civil recovery

l New action against the criminal/third parties decided to civil standard

l Recovery of actual property or other property representing it

l Interim receivers

l Compulsory disclosure powers

Taxation

l All taxation functions can be vested in director of CARA

l Non-identifiable income source assessments

l Information gateways between CARA and revenue

l Compulsory disclosure powers