Corporate Crime analysis: Important changes to the Proceeds of Crime Act 2002 (POCA 2002) are coming into effect on 1 June 2015. James Fletcher, 5 St Andrew’s Hill, considers the effect of the changes being introduced by the Serious Crime Act 2015 (SCA 2015).

POCA 2002–all change?

What are the most significant changes?

The key changes concern third party interests in the defendant’s property, the time the defendant has to pay the confiscation order, sentencing for non-payment, and the test for pre-charge restraint.

How will the position be different for third parties with an interest in property held by a defendant?

The new provisions will permit third parties to become directly involved in confiscation proceedings where they hold, or may hold, an interest in property held by the defendant.

Before 1 June 2015, third parties had no rights of audience during a defendant’s confiscation hearing. Any claims as to third party rights had to be dealt with in other forums, for example the Family Division or at the confiscation enforcement stage if, say, the Crown sought an enforcement receiver to realise the defendant’s assets. Third parties exercised their claims at that stage because under POCA 2002, s 51(8), an enforcement receiver could not be granted a power of realisation over a defendant’s property unless persons holding an interest had a reasonable opportunity to make representations about it.

Under the new POCA 2002, s 10A, where it appears to a court making a confiscation order that there is property held by the defendant that is going to be realised to satisfy a confiscation order and a person other than the defendant holds, or may hold, an interest in that property, the court can determine the extent of the defendant’s interest if it gives the third party ‘a reasonable opportunity to make representations’ about it.

‘Reasonable opportunity’ is not defined, but courts dealing with third party interests at the enforcement stage have welcomed third parties being represented and therefore ‘reasonable opportunity’ would include the opportunity to make written and oral submissions and provide the court with documentation.

The third parties most likely to be affected by the change in the legislation are partners who claim an interest in property held in a defendant’s name. For example, a partner claiming an interest in a house or someone claiming that property was held on trust for them by the defendant. Thus, a third party may now have the opportunity to make submissions directly to the court about an asserted interest in the defendant’s property during the confiscation proceedings.

It should be noted that even where the conditions are met, the court retains a discretion to apply POCA 2002, s 10A where ‘it thinks it appropriate to do so’. Thus, if the issues are particularly complex, the court may consider that it would not be appropriate to proceed. Alternatively, the issues may be more appropriately determined in ongoing family proceedings, or the court may take the view that it would be better for any third party rights to be determined as part of enforcement proceedings.

If the court does proceed under POCA 2002, s 10A, then subsection (3) states that the ruling it makes is conclusive in relation to the determination of the defendant’s interest for the purposes of issues that arise in connection with the realisation of property or the transfer of an interest in the property. In other words, if the court makes a determination under POCA 2002, s 10A, the same issue cannot be re-litigated.

Although the wording of POCA 2002, s 10A(3) refers to the conclusive ruling applying to the determination of the extent of the defendant’s interest as opposed to the third party’s interest, the legislation intends the ruling to be binding on the third party. This is because the new POCA 2002, s 51(8B) makes clear that at an application for an enforcement receiver, the requirement that the court must not confer the powers of realisation of property on a receiver unless it gives a reasonable opportunity for persons holding an interest in property to make representations about it does not apply where those representations are inconsistent with the ruling under POCA 2002, s 10A.

The new amendments are clearly designed to encourage determination of the defendant’s and third party’s rights early and as part of the confiscation proceedings. This will make applications for enforcement receivers more straightforward and streamlined, but may make confiscation proceedings longer and potentially more complex.

Because of the wording of POCA 2002, s 10A, there may be scope to argue that a conclusive determination under it does not bind a court that is determining the third party’s interest where it is not an enforcement receiver application. This would appear to leave open the opportunity for third parties with rights to pursue their claims at other hearings, for example at a hearing concerning family finances.

An important consequence of the legislative changes will be that third parties wishing to make representations about their interests should consider obtaining legal advice and representation to advance their case during the confiscation process. In practical terms this means it is more likely that partners and wives will be represented at confiscation hearings.

The new POCA 2002, s 16(6A) indicates that as part of its duties in providing the statement of information, the prosecution must provide the court with any information known to the prosecutor which the prosecutor believes would be relevant for the court to make a determination under POCA 2002, s 10A.

For third parties who choose not to engage legal representation or do not wish to make representations directly, they may be able to advance their arguments to the court by informing the prosecution of their alleged interest.

But the court also has, pursuant to the new POCA 2002, s 18A, the power to require a person who it thinks might have an interest in the defendant’s property to give information to help it make a determination under POCA 2002, s 10A. The court can stipulate what information is required, the manner it is required and when it has to be provided by. If the person does not provide that information the court can draw an adverse inference, and POCA 2002, s 18A(5) indicates that the court retains other powers to deal with a person who fails to comply with an order. It therefore appears that a third party who is ordered to provide information and does not do so could face potential proceedings for contempt of court.

Therefore, third parties may find themselves involved in confiscation proceedings and required to provide information, even if they do not want to actively participate by making representations.

As to powers of appeal, the new POCA 2002, s 31(4) permits the prosecutor and any persons who the Court of Appeal considers are or may be holding an interest in the property to appeal against a finding under POCA 2002, s 10A to the Court of Appeal if they were not given a reasonable opportunity to make representations when the determination was made or giving effect to the ruling would result in a serious risk of injustice.

What are the new time limits for paying a confiscation order?

Further important amendments relate to a reduced time to pay the confiscation order and simplified bands for determining default periods of imprisonment for non-payment.

The time to pay provisions under POCA 2002, s 11 are reduced from six months (and up to 12 months in total on application) to a period of three months (and up to six months in total on application).

The maximum period of time to pay a confiscation order before interest starts to accrue and an enforcing magistrates’ court may consider activation of a default sentence is therefore reduced by half. While the intention of the legislation is to speed up payment, in practical terms it may be difficult to achieve sales of real property within that timescale, more so if a defendant is in custody or if the defendant’s assets are restrained.

The key effect of the changes is that defendants will not be able to delay the realisation of their assets. They will have to start realising their assets immediately.

And what are the new sentencing consequences for failure to pay in time?

Amendments to POCA 2002 will increase the default terms for the highest orders. This is designed to be an incentive to pay orders.

Up to 1 June 2015, courts determining the appropriate default terms use the Powers of Criminal Courts (Sentencing) Act 2000, s 139 (4) as a guide:

Amount of confiscation order Maximum term
£200 or less 7 days
£201-£500 14 days
£501-£1,000 28 days
£1,001-£2,500 45 days
£2,501-£5,000 3 months
£5,001-£10,000 6 months
£10,001-£20,000 12 months
£20,001-£50,000 18 months
£50,001-£100,000 2 years
£100,001-£250,000 3 years
£250,001-£1m 5 years
More than £1m 10 years

The new table, as set out in the new POCA 2002, s 35(2A) is as follows:

Amount of confiscation order Maximum term
£10,000 or less 6 months
£10,001-£500,000 5 years
£500,001-£1m 7 years
More than £1m 14 years

The intention of the changes is to increase the maximum default terms available for the largest confiscation orders and to encourage payment of those orders.

Currently a defendant will serve half of a default term of imprisonment before release. SCA 2015 removes early release where a confiscation order is £10m or more. Those defendants will have to serve the whole default term if it is not paid. In effect, this increases the term of time spent in prison for defaulting on a confiscation order that exceeds £1m from five years (being half of ten years) to 14 years.

When will the prosecution now be able to obtain an order restraining alleged offenders from dealing in property before they have been charged?

At present a pre-charge restraint order can only be made if a criminal investigation has begun in England and Wales and there is ‘reasonable cause to believe’ that the alleged offender has benefited from his criminal conduct. SCA 2015, s 11(1) amends POCA 2002, s 40(2)(b) to change the second part of the test to ‘reasonable grounds to suspect’.

‘Suspicion’ is a lower threshold than ‘belief’ and the amendment appears designed to bring the test for pre-charge restraint into line with the requirements for arrest under the Police and Criminal Evidence Act 1984 and to facilitate earlier restraint of assets during an investigation.

However, the new POCA 2002, s 41(7B) requires that where pre-charge restraint orders are made, the prosecution must provide reports to the court as ordered and that the restraint will be discharged if proceedings are not started within a reasonable time.

Therefore, while it may be easier to obtain a pre-charge restraint, the continuation of that order will be subject to increased judicial scrutiny.

Interviewed by Robert Matthews for Lexus Nexis

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

This Article was originally published by Lexis Nexis on 21 May 2015