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Hidden Assets in Confiscation Proceedings
- Mar 19, 2019
- Latest News
Many readers will share my view that the Proceeds of Crime Act is draconian.
It has always been said that this law is not in force to punish convicted criminals, but to recover the proceeds of their crimes.
So why is that very rarely the case?
Generally speaking, there are two elements to the aspect of confiscation under the Act.
1. The benefit
2. The available amount
Both of these amounts are set out in a Section 16 statement of information, which is prepared by the prosecution in the case.
The benefit is broken down into proceeds from specific criminal conduct, property transferred, property held and expenditure incurred after the relevant date.
Under the law, the prosecution is essentially entitled to assume that any assets received or held by the defendant in the six years before they were charged represent proceeds of crime. This can lead to significant anomalies in the benefit calculation.
My colleagues and I at Inquesta see many cases where a defendant has been convicted of, for example, benefit fraud for a relatively insignificant sum. However, due to the way they run their finances, they face a general benefit figure which is many times higher than the benefit from their specific offences.
The good thing from a defendant’s perspective is that they can only be forced to pay what they can afford, which is normally the value of their assets at the date of the confiscation order.
This is known as the available amount.
However, the available amount can, and often does, include tainted gifts and hidden assets.
Tainted gifts are assets which have been transferred for little or no consideration.
Hidden assets are those which are deemed by the prosecution to have been concealed by the defendant. In most instances it is cash, but we have seen many other examples of hidden assets, such as monies transferred to foreign jurisdictions and monies paid to family and friends.
Ordinarily, a defendant will deny that they have any hidden assets. The issue from a forensic accountant’s perspective is how does one prove a negative, bearing in mind that the onus is on the defendant to prove that, on the balance of probabilities, there are no hidden assets.
In my view, the matter of hidden assets and tainted gifts is where a forensic accountant adds most value, and below are examples to show why this is the case.
Case study 1
D was convicted of VAT fraud to the tune of £175,000. The benefit in the Section 16 statement was £325,000. This included £150,000 of monies received into the defendant’s bank accounts, which the prosecution averred could not be accounted for.
The defendant was unable to account for the cash deposits into his bank account.
Furthermore, £80,000 of cash was withdrawn by the defendant. The prosecution stated it was their belief that this cash had been hidden and was available for confiscation.
The defendant instructed that all of the withdrawn cash had been spent. However, he was unable to provide any documentary evidence in support of this.
How, as an expert witness forensic accountant, do I go about helping such a defendant to support his instructions?
Defending an allegation of hidden assets is by far the most difficult part of a forensic accountant’s role in confiscation proceedings.
However, there are a number of ways to look at it.
Ultimately, the onus is on the defendant to prove that the proceeds of his crimes have been spent.
The first step we always take is to try to reduce the benefit. If it can be reduced to lower than the available amount, this will automatically reduce the hidden assets figure.
If the benefit cannot be reduced, the next step is to consider the defendant’s lifestyle.
Has he been living a lavish lifestyle? Have all of the normal living expenses been paid out of his bank accounts?
If, for example, it is clear that there are normal living expenses which have not been met from his bank account, the obvious inference is that he has used cash to pay for these.
We have often used, and with great success, the Office for National Statistics’ Living Costs And Food Survey to ascertain what that individual, on average, should be spending on living expenses. If this equates to less than the total living expenditure which has been paid from the bank accounts, it can be argued that at least part of the hidden assets has been used to fund this.
If he was living an obviously lavish lifestyle above his means, and these expenses do not appear to have been paid from his bank accounts, it would be reasonable to argue that he has used the cash withdrawn to pay for this.
Case study 2
Defendant B was convicted of fraud involving significant sums of money from various employers
Most of the money – amounting to over £1m – was sent to a foreign jurisdiction, and the prosecution said this money was still available to B and was classified as a hidden asset in the confiscation proceedings.
In evidence, B said she had sent the money abroad to start a haulage business which would fund her and her family’s lifestyle.
B’s instructions were that this business made significant losses and that all the money had been dissipated.
We were enlisted to consider B’s instructions and to identify whether any of the money was still available for confiscation.
This case involved a significant amount of analysis. The case was not helped by the fact that the money had not been sent to the foreign jurisdiction by the usual means but to individuals who withdrew the cash there and used it to pay for all business expenses.
We were provide with 15 boxes of financial documentation which was shipped over to us from the foreign country.
Our team had to input and analyse every invoice and bank transaction, to recreate the accounts for this business and to assess whether the money had, indeed, been lost.
The records were incomplete and we were dealing with a difficult client who was somewhat vague with her instructions, a situation which was not helped by the fact that she herself claimed to be an accountant.
Notwithstanding this, we were able to show through our analysis of the paperwork that the business was genuine, had traded and, on the face of it, the vast majority if not all of the money had been spent and was no longer available.
Thereafter, and following much discussion and negotiation, we were able to assist the defence with in its dialogue with the prosecution and were able to agree a figure which was acceptable to all parties. The sum was a fraction of the original figure as assessed by the prosecution.
In my view, in complex cases such as those outlined above, where the prosecution’s figures are high and documentation is incomplete, the instruction of a forensic accounting expert is imperative.
A forensic accountant (as opposed to a general practitioner accountant) has experience of working with lawyers, prosecuting financial investigators and the courts. This, combined with good knowledge of Proceeds of Crime legislation, means they can make a material difference to the outcome in confiscation matters.
Forensic accountants are able to efficiently input and analyse high volumes of complex data and simplify the information to assist the court.
In my experience, judges dislike complex, lengthy spreadsheets and typically do not give them the attention they require.
I always say that the overriding job of a forensic accountant is to take complex information and simplify it into bite-sized, comprehensible chunks.
Furthermore, as forensic accountants we have experience of giving evidence in court and negotiating with the prosecution team, with a view to agreeing a mutually-acceptable confiscation figure.
Rob Miller is an experienced forensic accountant who is a director and co-founder of Inquesta, which has offices in Manchester and Leeds.
He is a member of the Institute of Chartered Accountants and The Academy of Experts.
Rob has experience of a vast range of high-value and complex cases, including fraud investigations, criminal defence proceedings, commercial and contractual disputes, with a particular specialism in defending confiscation proceedings brought under the Proceeds of Crime Act.