To Restrain or Un-Restrain

We take a look at the Proceeds of Crime Act and Restraint Orders. For anyone who has experienced their assets being ‘frozen’ by a Restraint Order made under the Proceeds of Crime Act 2002 you will identify with the very frightening and helpless feeling that permeates through one’s mind when you become aware of the terms of the Order. Especially so, in relation to the implications for use of bank accounts. It suddenly becomes clear that a detailed investigation has been under way into your activities and affairs for some considerable time – but you were oblivious.

Has this really happened to me?

Often the initial reaction of clients is one of disbelief. Soon that feeling can become resentment at the mis-stated ‘facts’ gleaned from an accredited Financial Investigator’s supporting witness statement , or the settling in of thoughts about why the Order was made on an ex parte basis (without the Defence present or even aware of the private application), or even the anticipated conclusions that “must have” been reached about the benefit had by the Defendant from the proceeds of crime.

Clients can feel like they are losing the game straight from kick-off!

The Test

The Crown has to be seen to be transparent and be careful not to mis-state their case or leave out important facts which may contribute to a judge’s understanding of the reasons why the Order ought to be made. The test that needs to be satisfied at the application stage is:

‘is there reasonable cause to believe that the alleged offender has benefitted from his criminal conduct?’. (s40(2) POCA 2002).

The Court too has an important duty to the absent defendant. This is often forgotten, or not used properly until the next stage – the inter partes stage – when the defendant can apply to vary or discharge the Order.

The Crown do not simply have to show that the proceeds of crime have been had but there must also be a ‘risk of dissipation’. If the Defendant would have had the opportunity to dissipate but chose not to, the burden weighs more heavily on the prosecution. This presents an early opportunity for the Defence to seek to discharge the Order.

Discharge and Variation

Challenges to orders can be made against the Court, the prosecution or both. Judicial Review of the decision to grant the Order is also possible but more likely the first step will be the Defendant making an application to vary or discharge the Order.

At this stage both sides are usually represented. Experience tells us that such hearings can be before the Judge who granted the Order or before any of several other Judges who may also decide subsequent applications to Discharge or Vary the Order.

A prosecution has to be brought within reasonable time – usually one year from the date of the investigation being started.

Full and frank disclosure by the prosecution is fundamental.

A Case Study

In the case of Windsor & Hare v CPS [2011] EWCA 143, at Court of Appeal, HMRC were investigating an alleged duty diversion fraud involving suspects linked to the Eastenders group of companies dealing in alcohol imports.

In December 2010 HMRC obtained ex parte both a restraint and a management receivership order from a Judge sitting at the Old Bailey. In the subsequent appeal proceedings the Court of Appeal quashed the orders, but allowed time for the Crown to re-apply to the Old Bailey for new orders. That later application was unsuccessful. The Appeal Court took advantage of the case to effectively teach HMRC a lesson and it also serves as a lesson to Judges that such orders should not be granted ex parte unless the prosecution can demonstrate that they have done their job properly.

Fulfilling the requirements of the statutory test is crucial for the prosecution and failing that, it opens up a potential playground for the defence. The key ground for the Court of Appeal was the insufficiency of the evidence before the Judge who granted the Order – could the judge draw from what was before him “reasonable cause to believe?” The witness statements in support of the application were full of badly-connected suspicion. Suspicion is not evidence, and the Court firmly found it insufficient to satisfy the test. It was deemed irrelevant to the restraint order test that the people involved in the case had previous convictions for the same alleged offence.

The Prosecution’s Disclosure

There has been a swathe of cases concerning ex parte applications by prosecutors before Crown Court Judges. The ex parte procedure imposes a duty on the prosecution to make a balanced application and inform the Court of all material facts. Any non-disclosure should be reflected in costs against the prosecution – by far an under-used defence tool.

Non-disclosure which is ‘appalling’ is likely to disqualify the Restraint order altogether.

Of potentially powerful use are the detailed procedural rules under the Criminal Procedure Rules and the Attorney General’s Code of Practice. It is plain that the higher Courts are prepared to quash Restraint Orders, and other Orders granted ex parte in the early stages of investigations.

The Prosecution: Risk of Dissipation

In the Proceeds of Crime Act there is no reference to ‘risk of dissipation’. It is case law that has developed this test.

In R v B [2009] 1 Cr App R 14 Moses LJ said :

“There can be no justification for such a restraint unless the prosecution establish that there is a real risk that assets will be dissipated which might otherwise meet a confiscation order should there be a conviction.”

So, if you have been under investigation for a long time and during that time there has been no evidence, (e.g. bank balances being transferred to overseas accounts or tainted gifts being made) then that is positive evidence against the making of the Order.

Living & Legal Expenses

The amount allowed by the Order for ordinary living expenses is usually set at £250 per week; barely enough to sustain a medium sized family. Variation applications usually focus on living expenses first, but can be rather busy with other company related restrictions needing to be addressed simultaneously with that.

For living expenses, these are analysed together with proof of such expenditure. An early analysis can be highly beneficial.

No exceptions can be made for legal expenses in relation to the actual offence in respect of which the Restraint Order is made (s41(4)(a)). Third party litigation funders or state legal aid are the two most common funding methods for cases.

Why seek advice?

Pro-active early negotiations conducted with the prosecution, robust defending and the early implementation of effective strategies will all maximise the chances of discharging a Restraint Order. This may ultimately avoid charges being brought. In this context, the restraint proceedings may seem like a warm up game before the main match – the criminal proceedings.

The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. Specific legal advice should be taken on each individual matter. This article is based on the law as at March 2016.