From trail to trial

THE ASSETS RECOVERY AGENCY IS EQUIPPED WITH NEW TEETH TO CONFISCATE PROCEEDS OF CRIME.

BUT, AS MARK SMULIAN DISCOVERS, THOSE POWERS HAVE IMPLICATIONS FOR HOW DEFENCE SOLICITORS WORK

Jane Earl is not your regular senior civil servant.

'I feel a passion for getting the bad guys out of the picture,' she says.

'If you have a large house and five places in the Caribbean, with no visible means of support, no rich aunties who have recently died leaving the odd 5 million and no successful lottery tickets, it won't do to say that someone gave you the money.'

But then there is little that is normal about the Assets Recovery Agency (ARA), and this new crime-fighter is causing concern among solicitors who work on fraud and asset-recovery cases.

Not the least of these worries is the question that, if the agency is pursuing an alleged fraudster, how can a law firm get paid for a defence if its client first has to prove that he is not paying for lawyers out of the proceeds of crime?

Ms Earl, the former chief executive of Wokingham Borough Council, is answerable to Home Secretary David Blunkett for a range of tough new powers, which include carrying out investigations that may lead to criminal confiscation or civil recovery proceedings.

The ARA can pursue confiscation proceedings against convicted defendants for assets thought to be the proceeds of crime, and can tax any person or company when it reasonably suspects that profits result from criminal activity.

It is no accident that the London-based agency has its only branch office in Belfast.

This is partly because the pursuit of paramilitary crime will be high on its list, but also because the idea has been adapted from the Republic of Ireland.

Louise Delahunty, a partner with niche London-based crime firm Peters & Peters and chairwoman of the Law Society's money laundering and serious crime task force, has studied the workings of Ireland's operation.

'The joke in Ireland is that their agency meant all their drug traffickers had to leave and come here, so they may have to leave here because of this agency,' she says.

But the rest is no joke.

The Proceeds of Crime Act 2001 created the ARA and gives it and other law enforcers wide powers, and strengthens obligations on solicitors to report to the authorities activity which might involve illegality.

The task force has issued interim guidance to the profession, and intends to produce a fuller version in the summer.

Studying the Irish experience, Ms Delahunty says she has seen no evidence that the authorities have employed their powers improperly or capriciously, but admits it could be 'quite a challenge' to act for the defence in cases brought under the Act.

Jeremy Cole, a fraud and asset recovery partner at City firm Lovells, echoes this fear.

'The Proceeds of Crime Act will, I suspect, lead to a fair amount of issues in situations where defence firms are acting for an alleged fraudster and cannot be sure whether to accept fees,' he says.

'They have to be sure the fees are from a source which is untainted.

That could be quite difficult.'

A client would have to prove that the funds from which he proposed to pay his lawyer were from sources independent of the matter being investigated, or that the matter concerned was not a crime.

'That is completely circular; I'm not sure how one would resolve that,' Mr Cole says.

He says there could be human rights issues if it effectively becomes impossible for someone to mount a defence, even requiring legal aid to be offered.

He adds that he has never heard of this being granted where an individual has money but cannot use it because of questions about its origin.

The issue arose several times during the Act's passage through Parliament last year, with Conservative and Liberal Democrat peers mounting sustained pressure for a provision that would unfreeze suspect funds to pay legal fees.

However, the government consistently rejected the efforts.

The Attorney-General, Lord Goldsmith QC, said last May that the government had chosen the option that would see defendants either pay legal fees from non-frozen assets or receive public funding.

To ally fears, he added that, in relation to legal aid, the standard means test would be 'relaxed to the extent necessary to ensure that everyone has access to legal funding who needs it and who qualifies financially'.

Keith Oliver, head of civil fraud at Peters & Peters, notes that the profession will face more regulatory compliance demands, in particular over the requirement to 'tip off' the authorities about suspected crime.

'The impact on solicitors and accountants has never been more onerous.

One will have to look at the situation to see where the line should be drawn,' he says.

Mr Oliver predicts that the key battleground will be the powers of the ARA to make freezing order applications.

He says: 'Once assets are frozen, it will be very difficult to unfreeze them, as that requires one to succeed with a reversed burden of proof.

It will generate an industry for forensic accountants trying to prove a negative.'

Although the agency cannot exercise any of its powers without the permission of a judge, Mr Oliver says that with good arguments, it could get a world-wide freezing order without notice.

'It is a sea change in approach.

Here is action that is not based on a tracing claim, but on the state making a statement to the effect that there is benefit from unlawful conduct,' he says.

It is not only the Proceeds of Crime Act that exercises Paul Friedman, a partner at international firm Baker & McKenzie, which last month launched a business crime department in London.

He points out that the anti-corruption powers in the latest anti-terrorism legislation make it an offence to bribe and corrupt a foreign public official.

'That could lead to civil asset-tracing cases in addition to those resulting from the ARA's new powers,' he says.

Mr Friedman says the key tasks in asset tracing are to discover in which jurisdiction the fraud took place, where the assets are, and where the perpetrators may be, work which may involve teams of specialists across the globe.

He is wary of criticising the standards of foreign countries, but says: 'In a global marketplace, it is unlikely that in a large fraud the assets will remain in the country were the fraud took place.

'For example, there could be property in New York, a trust in the Bahamas and investments in Switzerland.

Certain countries have rules which make it difficult to trace assets, but these may also make it difficult to get assets out.'

Freezing or seizing assets are 'the two nuclear options' of this field of practice, he says.

'When you intend applying to court for these powers, you must be quite ready, because the tests are stiff and suspicion is not enough.'

Parties may have to make cross-undertakings in which they agree to pay damages if they are wrong.

Back-up may also be needed from private investigators.

Mr Friedman says they must be used with care, as 'one has to be very careful to stay within the law and not infringe someone's human rights'.

One growing area is computer forensics, where law firms employ specialists to examine a seized hard disk and see what is on it, what has been deleted, even what has been printed from it.

Forensic accountants will be used to crunch numbers, and run probability checks to analyse accounts in great detail, and probe where the money may have gone.

These computer and accountancy specialisms are outside the experience of most lawyers but essential to many cases, he says.

But what of the lawyers on the prosecution side of the ARA? Its head of legal services is Richard Alderman, a barrister on secondment from the Inland Revenue.

He says: 'It is early days.

We have set up an agreement to work with the Treasury Solicitor and other government litigators.

'There may well be a role for the private sector sometime later, especially outside London and perhaps in specialised areas.'

His team to fight the agency's cases is drawn from both the government legal service and the private sector.

Among Ms Earl's trenchant observations is the statement that she will be going after criminals who 'prey on human misery'.

Although she says it is 'invidious to pick out the top ten most loathsome characters', her agency may well be working through a list of promising suspects, all of whom will no doubt be looking for lawyers willing to take their money to defend them.

Mark Smulian is a freelance journalist

The Proceeds of Crime Act has five new investigatory powers.

They are:

- Production orders for obtaining material already in existence for a known account in the control of a known person, for example, bank statements and correspondence (section 345).

- Search and seizure warrants for searching premises where production orders are not complied with or where production orders are likely to be ineffective (section 352).

- Customer information orders for trawling financial institutions for accounts in the name of a particular person or organisation (section 363).

- Account monitoring orders for monitoring future transactions through a known account for up to 90 days (section 370).

- Disclosure orders for requiring any person to produce documents, provide information or answer questions relating to an investigation (section 357).

The investigations for which the powers may be used are criminal confiscation, money laundering and civil recovery.

The investigators are the director of the ARA and any constable, customs officer or accredited financial investigator.

The agency director is the only investigator entitled to use the five powers for civil recovery (part 5).

Other investigators will be entitled to the four powers (other than the disclosure order) for criminalconfiscation and money laundering.

Source: Baker & McKenzie