6. Written evidence from the Assets
Recovery Agency
INTRODUCTION
1. The Proceeds of Crime Act 2002 (the Act)
established the Assets Recovery Agency (the Agency) to be headed
by a new office holder, the Director, who is appointed by the
Home Secretary. The Act provides that the Director must exercise
her powers in a way which she considers is best calculated to
contribute to the reduction of crime. In considering this matter,
the Act states that she is to have regard to any guidance provided
by the Secretary of State and that the reduction of crime is in
general best secured by criminal investigations and prosecutions.
2. The Agency is a small non-ministerial
department and has been in operation since the 24 February 2003.
It is based in London with a branch office in Belfast. It currently
employs around 200 people and has a budget of £15.5 million
of which the Belfast office accounts for 47 people and £3.59
million respectively. Of these, operationally speaking, the Belfast
branch has seven financial investigators and eight assistant financial
investigators, supported by a legal team of seven lawyers and
six legal caseworkers.
3. The Agency's key functions are:
— To initiate and pursue confiscation
proceedings in England and Wales and Northern Ireland.
— To investigate and bring civil recovery
proceedings in England and Wales and Northern Ireland.
— To exercise revenue functions throughout
the United Kingdom where there is a reasonable suspicion of criminal
conduct.
4. The statutory assumption which underlies
work in the proceeds of crime field is that recovery through confiscation
following criminal conviction will be the norm and that it will
be cases which are not generally amenable to the criminal process
which will be dealt with by way of civil recovery or tax. In relation
to confiscation proceedings, the Public Prosecution Service for
Northern Ireland as Northern Ireland's prosecuting authority assumes
responsibility for all restraint and confiscation proceedings.
In Northern Ireland, the Agency has provided investigative expertise
and support to enable other government departments, such as the
Benefits Investigation Service and the Environment & Heritage
Service, to conduct confiscation investigations in relation to
criminal investigations and proceedings they have initiated.
5. The Agency's core role in the reduction
of crime is through civil recovery proceedings. Civil recovery
is an entirely new civil right of action which enables the state
to sue for the recovery of property which has been obtained in
the past 12 years through conduct which is contrary to the criminal
law. The focus of the proceedings is on the property and the defendant
will be the person holding the property at the time when the proceedings
are initiated and not necessarily the perpetrator of the unlawful
conduct by which the property was obtained. It is not necessary
to tie the acquisition of the property to a specific unlawful
act. If it can be established on a balance of probabilities that
the property was obtained through a variety of unlawful conduct,
this will suffice. The Director may apply to the High Court to
have the assets frozen pending the completion of the civil recovery
investigation and the resolution of the civil recovery proceedings.
6. Where there are reasonable grounds to
suspect that an individual has an income or a gain upon which
tax ought to have been paid and that income or gain has come from
unlawful conduct, whether his own or another's, in part or in
full, the Director may notify the Commissioners of her suspicion
and assume the functions of the Revenue. Agency tax specialists
will then conduct an assessment under the normal rules for taxation.
In addition to the normal taxation rules, the Director has one
other power in that she can raise an assessment against income
or gain whose source is unknown. The assessment can take into
account the individual's tax liability over the previous 20 years.
The individual has 30 days in which to appeal the assessment to
the Special Commissioners but they must still pay the amount due
while awaiting the outcome. Penalties of up to 100% of the assessment
can be imposed for failing to pay the tax in the first place thus
enabling the Agency to recover substantially more revenue than
the assessed amount.
TYPES OF
CASES BROUGHT
BY THE
AGENCY
7. While the priority remains the criminal
investigation and prosecution of those engaged in criminal activity,
whether organised or not, there will be individual cases where
the reduction of crime will be best secured by the bringing of
either civil recovery proceedings or the taxation of income which
is suspected of being derived from criminal activity.
8. Where an individual dies they are, obviously,
beyond criminal prosecution. However this does not mean that the
proceeds of crime are beyond recovery. The Agency has instituted
civil recovery action in a number of Northern Ireland cases where
the property holder has met a violent death.
Assets Recovery Agency v Johnston
9. Jim Johnston was shot dead outside
his Crawfordsburn home in May 2003 during a loyalist feud. The
case was referred to the Agency by the Police Service of Northern
Ireland in the suspicion that Johnston's assets had been gained
through unlawful activity. After initial investigations, the Agency
searched a number of properties including Johnston's Crawfordsburn
address where they discovered a partially assembled bomb and some
ammunition. In September 2003 the High Court was satisfied that
the evidence was sufficient to freeze Johnston's assets, appointing
an Interim Receiver who took possession of his assets and was
tasked to carry out an independent investigation on behalf of
the Court. The receiver's subsequent report found that all of
the property in Johnston's estate was the proceeds of unlawful
conduct and was therefore "recoverable" under the Act.
In September 2004, following discussions between the Agency and
the representatives of Johnston's estate, the Court granted a
recovery order by consent under which assets valued at approximately
£1.25 million were forfeited. This included Johnston's former
home in Crawfordsburn, together with a further seven houses in
Northern Ireland, a holiday home in Ireland and a set of commercial
premises in Belfast. A significant investment portfolio was also
forfeited. In November 2004, Johnston's home was sold by public
auction for £410,000. In February 2005, four properties were
sold by public auction; with a further two houses being sold by
private treaty for a total of £390,000. In addition the trustee
for civil recovery raised a further £100,000 from various
cash and other investments, and £86,000 from the sale of
two apartments.
10. A second category of circumstance in
which civil recovery proceedings have been commenced is in relation
to the property of those who have been acquitted in criminal proceedings
and where confiscation proceedings have therefore not been possible.
Assets Recovery Agency v Gault
11. Paul Gault was murdered in his home
in 2000. His widow, Lesley Gault, and her lover, Gordon Graham,
were subsequently prosecuted for his murder. Although Graham was
convicted, the jury could not reach a verdict in respect of Gault.
She was therefore tried a second time and was convicted. However
on appeal her conviction was quashed by the Court of Appeal for
Northern Ireland. At her retrial, she was acquitted and police
then referred the case to the Agency. Police alleged to the Agency
that Gault benefited from her husband's murder by receipt of his
life insurance and by inheriting his share of their joint marital
home. The Agency identified that the proceeds of these assets
amounted to the equivalent of approximately 75% of the value of
another property subsequently purchased by Gault, which was estimated
to be worth approximately £130,000. Gault fully co-operated
with the Agency throughout its investigation, and, whilst not
admitting to any culpability in the murder, she agreed to settle
the civil recovery proceedings. The Official Solicitor for Northern
Ireland subsequently confirmed that her office had been involved
in the action on behalf of Gault's children for whom the money
at issue in the proceedings had been placed in trust.
Assets Recovery Agency v Cecil Walsh
12. On 13 June 2003, Cecil Walsh was
found not guilty of three charges of obtaining services by deception
and one charge of obtaining property by deception. In related
criminal proceedings Gavin McCartan, a solicitor, was convicted
of failure to disclose suspicions of money laundering. The PSNI
referred the case to the Agency as they believed that Walsh was
in possession of c. £85,000 of property which they believed
was the proceeds of his criminal conduct. Walsh had an extensive
criminal record for offences of an acquisitive nature and, at
the time the Agency initiated proceedings, was serving a six year
sentence for his part in a cash in transit robbery. The Agency
obtained a Mareva injunction to prevent Walsh dealing with his
property while the civil recovery proceedings are litigated. Walsh
is currently once again in custody following his arrest in a vehicle
in suspicious circumstances. This case has not concluded.
13. A third category of circumstances in
which civil recovery proceedings have been brought is where an
appropriate confiscation order has not been possible. It may be
that a conviction was obtained but confiscation did not follow
or followed only to an inadequate extent. This might have been
because of prosecution error, a particular plea bargain, or because
the circumstances led to a limited confiscation order which did
not cover all of the recoverable property.
14. A fourth type of circumstance where
civil recovery has been effective is where the defendant is alive
but is not within the territorial jurisdiction of the court.
Assets Recovery Agency v Patrick David Belton
15. Patrick David Belton was investigated
by Her Majesty's Customs & Excise in relation to his involvement
in the evasion of duty payable on smuggled hydrocarbon oils. However
before the investigation was complete and before the Department
of the Director of Public Prosecutions for Northern Ireland was
able to consider the investigation material, Belton removed himself
from the jurisdiction and is currently resident in County Monaghan.
Extradition was considered inappropriate and Belton's absence
meant that a prosecution could not be taken. The case was referred
to the Agency as Belton was identified as owning property in this
jurisdiction. Following an investigation a Mareva injunction was
obtained from the High Court preventing Belton from disposing
of any of his assets pending resolution of the recovery proceedings.
This case has not concluded.
16. A final category of circumstance where
the Agency has taken civil recovery proceedings is where there
is deemed to be insufficient evidence to institute criminal proceedings.
Assets Recovery Agency v Colin Robert Armstrong
17. Since the early 1990s the PSNI had
linked Armstrong to drug trafficking from Belgium to NI and supplying
drugs within NI generally. It was further believed that Armstrong
had links to the UVF and then the LVF following the split between
these organisations. He was known to associate with known criminals
yet had nothing in the way of criminal convictions himself. Despite
extensive enquiries into his drugs importation, the PSNI could
not obtain sufficient evidence to warrant the prosecution of Armstrong.
The case was referred to the Agency who investigated the assets
of Armstrong in light of the substantial information the PSNI
were able to provide in relation to Armstrong's criminality. The
investigation identified 31 properties and other assets valued
at £3.75 million and successfully applied for an Interim
Receiving Order to freeze Armstrong's assets pending the outcome
of civil recovery proceedings. The receiver has identified a further
29 properties and is following up enquiries into possible properties
in France. This case has not concluded.
Assets Recovery Agency v Frances McCluskey
18. Frances McCluskey managed to acquire
42 properties worth c. £3 million during a period in her
life when she was in receipt of a number of different means tested
benefits, some of which were in different names, including that
of her sister in the USA. She had clearly failed to disclose her
property portfolio and the rental income she had received from
tenants. McCluskey had made a number of false declarations about
her assets and sources of income in numerous mortgage applications.
The case was referred to the Agency by the Benefits Investigation
Service of the SSA who, notwithstanding having identified McCluskey
as a suspected fraudster, had been unable to secure her attendance
for interview thus preventing them from submitting an investigation
file to the DPP for prosecution. The Agency spent 12 months unravelling
a web of financial transactions including an analysis of the history
of over 60 properties and the transactions on over 60 bank and
building society accounts stretching back over the previous 12
years. On 9 March 2005, the Agency successfully obtained and Interim
Receiving Order to freeze McCluskey's property and bank accounts.
This case has not concluded.
REFERRAL AND
CASEWORK INFORMATION
19. The Agency does not initiate its own
cases. Rather it acts on case referrals submitted to it by law
enforcement. The following graphs represent the sources of case
referrals, the organised crime links, the primary unlawful conduct,
the current status of civil recovery cases being investigated
and litigated in Northern Ireland and the cases rejected upon
referral and returned to the referring organisation.
CROSS BORDER
CO -OPERATION
20. The Agency enjoys close working relations
with the Criminal Assets Bureau (CAB) in Dublin. Not only was
CAB of assistance in advising on the setting up of the Agency
but, since the establishment of the Agency, a number of Belfast-based
staff have benefited from short secondments to CAB to gain experience
of working practices used there. In the past nine months the Agency
has been able to obtain evidence from the Republic of Ireland
directly from CAB under the provision for co-operation which was
inserted into section 5(d) of the Criminal Assets Bureau Act 1996
by the Proceeds of Crime (Amendment) Act 2005. The Chief Bureau
Officer has made arrangements with his staff that, upon receipt
of the precise details of what evidence is sought, any request
from the Agency will be expedited as a matter of urgency. The
Agency has received assistance with the following types of casework:
Alcohol Smuggling
21. The subject of a civil recovery investigation
by the Agency was for a time licensed in both the Republic of
Ireland and Northern Ireland to operate as an alcohol trader.
Evidence was obtained from CAB in relation to the levels of alcohol
traded by the various trading entities operated by the subject.
Similarly, details of the evidence held by the Agency were copied
to CAB to assist in their own investigation. Details of company
formation were also provided.
Drug Trafficking
22. Evidence of vehicle importations into
the Republic of Ireland were obtained from CAB in relation to
the subject of a civil recovery investigation by the Agency. This
evidence was required to support the Agency's case that large
volumes of cash and high levels of spending on lifestyle could
not be sustained by the defendant from his declared turnover of
his car sales in Northern Ireland and were in fact the proceeds
of his drug trafficking. Details of property ownership and company
formations by the Defendant in the Republic of Ireland were also
provided by CAB.
Fuel Smuggling
23. Evidence of trading and property ownership
was provided by CAB in connection with the fuel smuggling activities
in three separate civil recovery investigations by the Agency.
Of critical importance was evidence relating to Garda search and
seizure operations at two commercial premises where the smuggled
oils originated. This material had been obtained by the Director
of Public Prosecutions for Northern Ireland in connection with
criminal proceedings by way of international mutual legal assistance.
Its use, however, was limited to the criminal proceedings and
the Agency was unable, as a matter of law, to be given the evidence
by either Her Majesty's Customs & Excise or the Director of
Public Prosecutions for Northern Ireland. As CAB was simultaneously
investigating other persons involved in the same fuel smuggling
activities, they provided the evidence under the aforesaid provisions
for co-operation in their proceeds of crime legislation.
Money Laundering
24. CAB has positively responded to three
separate requests from the Agency for information in relation
to a civil recovery investigation into property in Manchester.
Regular meetings have been held with CAB and the Police Service
of Northern Ireland to ensure that evidential co-operation is
maximised.
25. Beyond formal requests for information
a number of meetings have taken place for the exchange of information,
the sharing of ideas and to update each other on the progress
of our investigations.
DELAYS AFFECTING
THE AGENCY
26. The Agency has experienced a variety
of delays in its civil recovery litigation, both at the investigative
stage and once court proceedings have been initiated.
Investigation Stage
27. The Agency has experienced delays in
the receipt of information from referring organisations and financial
institutions. Such delays impact on the progress of any investigation.
As civil recovery investigations will usually involve a detailed
examination of property and financial transactions over a period
of up to 12 years, the complexity of the work has resulted in
protracted investigations. This is especially the case where a
substantial number of individuals or companies are involved. Notwithstanding
the Agency's extensive use of information technology, the investigative
process remains paper-intensive and the Agency will have to liaise
with four or five points of contact to obtain what is often related
information. However, it is important to emphasise that the Agency
has experienced an extremely high degree of willingness to assist
its investigations.
28. Delays have also been experienced in
relation to the receipt of reports from the Interim Receiver.
The Agency requires the Receiver's report before taking a decision
on whether to initiate civil recovery proceedings in the High
Court. The Agency has been advised that the delay in submitting
a report has been the result of factors such as the lack of co-operation
provided to the Receiver by the defendants or individuals involved
and the complexity of the case and the forensic accountancy exercise
which may be required.
29. The Agency has experienced difficulties
in relation to the receipt and permitted use of intelligence information
held by referring organisations. The Agency's intelligence cell
continues to foster close professional relationships with their
counterparts in the referring organisations and it is anticipated
that the effective use of intelligence by the Agency will continue
to develop.
30. Delay has also been occasioned by the
necessity of obtaining and examining trial transcripts in relation
to civil recovery referrals which arise from failed prosecutions.
Where a criminal trial has been aborted as a result of some procedural
irregularity or impropriety, it may impact on the Agency's ability
to rely on the same criminality in the civil recovery proceedings.
31. Finally, delays in the investigation
of cases have sometimes resulted from the lack of an open gateway
between the Agency and the referring organisation, for example
Trading Standards, for the making of referrals and the exchange
of information. Steps have been taken to creat such gateways where
they are needed.
Court Proceedings Stage
32. Civil litigants often experience delays
in pursuing their litigation to a conclusion. This may be for
any one of a number of reasons. For example a defendant may decide
to change his solicitor or counsel or a defendant's chosen counsel
may be unavailable due to other trial commitments. The issues
surrounding the provision of legal aid to defendants have also
been responsible for considerable delays in progressing the litigation
of civil recovery proceedings in Northern Ireland. Following a
recent amendment to the Act, defendants can now, in addition to
applying for legal aid if they meet the criteria, apply to the
High Court for the release of frozen assets which can be used
to fund legal expenses reasonably incurred in connection with
their defence of the proceedings.
33. Where a defendant decides to defend
the civil recovery proceedings, delays associated with High Court
procedure and practice will inevitably occur. Given that the Act
is a relatively new piece of legislation, further delays have
been experienced as the Agency has been forced to defend numerous
challenges to the legality of both the civil recovery investigation
and proceedings. Such challenges have included:
— Adjourning the proceedings as an
application for legal aid has been rejected and seven persons
wished to appeal this decision and ultimately to judicially review
the decision made by the Legal Services Commission.
— Bringing challenges on points of
law, for example the compatibility of the Act with the ECHR.
— Bringing challenges on points of
procedure, for example the Agency's right to serve interrogatories
on the defendant.
— Delaying the progress of the proceedings
by requesting extensive disclosure/discovery leading to protracted
argument over Public Interest Immunity issues.
The Agency has been successful in meeting all
the challenges raised to date.
34. Further delays have been experienced
in relation to the settlement of cases where property has to be
sold to provide the funds. This is particularly the case where
the property is perceived to be situated in an unpopular location.
LEGISLATIVE CHANGES
TO THE
ACT
35. Since the enactment of the Proceeds
of Crime Act 2002, there have been three main changes to the way
civil recovery works:
A New Property Freezing Order
36. Where the Director can demonstrate to
the High Court that there is a good arguable case that the property
under investigation is derived from crime and that there is a
risk that the property may be at risk of being dissipated, the
court may make an order to freeze the property pending the resolution
of the civil recovery proceedings. The Serious Organised Crime
and Police Act 2005 amended the Act to introduce a new type of
order called a Property Freezing Order and essentially replaced
the Agency's use of Mareva injunctions in Northern Ireland. A
Mareva injunction could only be sought where the Agency was in
a position to commence civil recovery proceedings and effectively
brought the Agency's investigative functions to an end. The advantage
the new Property Freezing Order has is that it can be obtained
before the Agency is ready to commence proceedings, thus "holding
the ring" while the investigation is completed.
Legal Aid
37. A further significant amendment to the
Act contained in The Serious Organised Crime and Police Act 2005
concerns the payment of legal fees. The Act originally contained
a provision which meant that someone defending civil recovery
proceedings was not allowed to use the frozen assets to pay legal
fees. The rationale behind this prohibition was the concern that
a criminal facing the loss of property he had acquired through
his criminal activities may consider that he had nothing to lose
by funding a "Rolls Royce" defence, thus effectively
dissipating the assets. Although legal aid was available to defendants
in Northern Ireland, in many cases defendants were unable to get
public funding from the Legal Services Commission because they
failed the means test in light of the amounts of living expenses
which were being allowed under assets freezing orders. The danger
was then that the proceedings would breach the fair trial provisions
of Article 6 of the ECHR if defendants could not get legal aid
and couldn't fund their defence out of frozen assets.
38. The amendments provided that where public
legal funding was available, this had to be the first option.
Where it was not, the court may allow the defendant to spend frozen
assets on legal expenses provided that they are reasonably incurred
and within the rates laid down by the Legal Expenses regulations
made by the Lord Chancellor under the Act.
A Hierarchy of Preference
39. The Act provides that the Director must
exercise her powers in a way which she considers is best calculated
to contribute to the reduction of crime. The Act then says that
in considering the way which is best calculated to contribute
to the reduction of crime, the Director must have regard to any
guidance provided by the Secretary of State and that the guidance
must indicate that the reduction of crime is in general best secured
by means of criminal investigations and criminal proceedings.
40. The words "in general" are
crucial as they allow the Director an element of discretion. Clearly
the Act anticipated that in certain circumstances, the reduction
in crime would be best secured in an individual case by the bringing
of either civil recovery proceedings or the taxation of income
which is suspected of being derived from criminal activity.
41. The original guidance provided in 2003
was amended in 2005 in an attempt to increase the Agency's effectiveness
in reducing crime and removing the proceeds of criminality. The
current guidance allows the Agency to pursue civil recovery or
taxation investigations in parallel with criminal investigations
and proceedings. This will ensure that, where necessary, civil
recovery or taxation proceedings can commence immediately after
a criminal matter has concluded.
42. The guidance sets out four principles:
— A criminal investigation can take
place at the same time as a civil recovery or taxation investigation.
— Civil recovery or taxation proceedings
can be initiated where a criminal investigation is ongoing into
unrelated criminality.
— Civil recovery or taxation proceedings
can be initiated where criminal proceedings are ongoing into unrelated
criminality.
— In no circumstances can criminal
and civil proceedings be carried on at the same time in relation
to the same criminality.
EFFECTIVENESS OF
THE AGENCY
43. The Agency has in its first three years
made an important and significant start to the recovery of the
proceeds of crime by mechanisms outside the criminal confiscation
regime. Operational and legal staff are in post and have been
trained. Relationships have been built with stakeholder organisations
and procedures put in place with them. Some high profile cases
have been brought to a successful conclusion. A number of important
legal precedents have been achieved before the High Court, the
Court of Appeal for Northern Ireland and the Special Commissioners.
A considerable number of cases are now in litigation and are working
their way through the court system.
44. The Director of the Agency is committed
to exercising her statutory functions under the Proceeds of Crime
Act 2002 in a robust but fair and proportionate manner with a
view to the reduction of crime. As with any new legislation, however,
a number of issues have been identified where there could be changes
which would make the recovery of criminal proceeds more effective.
These include:
(a) The creation of international mutual
legal assistance arrangements in respect of civil recovery investigations
and proceedings. Mutual legal assistance treaties and laws apply
for the most part only to criminal investigations, prosecutions,
and related confiscation proceedings. Thus, some jurisdictions
by law cannot provide assistance unless the request emanates in
respect of criminal proceedings. Such assistance can be critical
in cases where assets have been moved through a number of jurisdictions
in an attempt to make the money trail more difficult for investigators
to follow. As civil recovery systems become more prevalent, jurisdictions
need to begin to consider solutions to this issue. Among the possibilities
are:
— provisions in domestic legal assistance
legislation that permit such assistance;
— agreements to requests for subsequent
use in civil proceedings of materials previously gathered through
mutual legal assistance channels, and
— multilateral or bilateral conventions
that provide a legal basis for such assistance.
(b) A number of small amendments to
Part 5 of the Proceeds of Crime Act 2002. The inclusion of the
words "in connection with" in section 242(1) of the
Act. This would allow property which had been "retained"
by criminal conduct but arguably not "obtained" thereby,
to be recoverable would increase the effectiveness of the Act.
Similarly, a change to the limitation period, currently 12 years,
would allow the recovery of properties purchased with drug trafficking
proceeds in the early 1990's which are currently beyond the reach
of civil recovery proceedings.
(c) A revision of Part 6 of the Proceeds
of Crime Act 2002 to provide a legislative scheme more close to
that operated in Ireland by the Criminal Assets Bureau. A number
of technical changes are possible which, if Parliament were minded
to implement, would make the taxation of monies suspected to be
derived from criminal conduct much more effective.
(d) A relaxation of the guidance issued
to the Director by the Home Secretary. This could be done in such
a way as still to maintain that the bringing of criminal prosecutions
is preferable when normal evidential and public interest tests
have been satisfied.
(e) The consideration of any measures
which have the effect of reducing the capacity of respondents
to cause delay to civil recovery proceedings which have been instituted
against them. For example, in South Africa, under the Prevention
of Organised Crime Act 1998, a respondent who wishes to defend
such proceedings must submit to the court, within a specific timescale,
an affidavit specifying the nature of his interest in the property
and the basis of his defence to the proceedings.
16 February 2006
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