9.This chapter follows the three main stages of collecting proceeds of crime: investigation, prosecution and enforcement.
10.In order for law enforcement agencies to collect money which represents criminal proceeds, it must first be established that a crime has taken place. This starts with the investigative agencies—predominantly the police, including the National Crime Agency (NCA), and Her Majesty’s Revenue and Customs (HMRC). The NAO summarised the main bodies responsible for initiating investigations which could lead to the collection of criminal assets.
Box 1: Main bodies involved in administering confiscation orders (financial investigation and preparing a case)
Accredited financial investigators from a range of law enforcement agencies, including:
11.While there must be a criminal conviction for a confiscation order to be made, it is important that, as soon as these agencies start to investigate a crime where the offender has benefitted financially, action is taken to ensure that the proceeds are protected from being hidden. Too often this is not the case and we heard that the recovery of criminal benefit is rarely part of the early stages of a criminal investigation. Jonathan Fisher QC, Visiting Professor in Practice, London School of Economics, and Barrister, Devereux Chambers, told us that the investigation often focussed solely on securing a conviction for the crime—usually at the expense of investigating the financial element of recovering the proceeds of the crime. He summarised much of the evidence that we received that the two elements should be investigated concurrently:
The financial investigators should be working alongside the criminal investigators and they should be using the power that they have to discover the whereabouts of assets and then sweeping in at an early stage simultaneously with the execution of search warrants. There has to be a culture shift. They have to understand that just as it is important to get the evidence to prove the criminal case, they also need at the very same time the evidence to prove the existence of the assets and their whereabouts.
12.Much of the evidence we received regretted the fact that the recovery of criminal assets was often an afterthought only considered after a conviction. We heard that, by that stage, any organised criminal would have hidden or moved any assets far beyond the reach of the law. Pinsent Masons LLP recommended that proceeds should be effectively frozen at the very beginning of an investigation so that they were available to be confiscated upon conviction and specifically that investigating agencies should freeze suspected criminal assets “within two months of the commencement of an investigation” which they believed would “significantly improve enforcement and recovery rates of confiscation orders”. Pinsent Masons LLP also stated that:
Too often, cases are investigated and prosecuted without due consideration for how a confiscation order would ultimately be enforced. It goes without saying that confiscation orders will be enforced with much greater success if a restraint order is also obtained in good time.
13.We received evidence that poor collection performance could be improved through better training at an investigation level. Often investigators did not know that they could and should seize or restrain criminal assets, or what process to follow if they suspected financial gain from a crime being investigated. The NCA trains and accredits all financial investigators employed by any organisation legally authorised to use the Proceeds of Crime Act 2002 powers. Detective Chief Superintendent Clark, Head of the Economic Crime Directorate at the City of London Police, recommended that—while there was a need for specialist financial investigators—training should be provided to “mainstream” the financial investigative ability of officers to conduct these investigations more competently and speedily:
The overseas and hidden assets are the issues in terms of recovery. The police service absolutely needs to mainstream the ability of officers, either on entry to service or as part of detective training.
The City of London Police subsequently told us that:
New recruit content includes a one hour session on POCA and cash seizures and the frequency of any refresher training is at the discretion of forces. It is our view that a one-day training session should be compulsory for post-probation uniform officers to improve understanding of POCA and identification of money laundering offences.
On training for detective officers, it went on to state that:
Currently new detective training is around 6 weeks which includes a one-day module on money laundering. Our view is that this should be extended to two days and delivered to all existing detectives. In addition, the overall content of new detective courses should be developed so that identifying and dealing with money laundering offences forms part of the broader curriculum and is embedded as a fundamental part of training for dealing with all acquisitive crime.
14.Criminals are becoming more sophisticated at concealing the proceeds of their crimes. Ensuring the efficient recovery of these proceeds should be one of the first issues an investigator tackles. Ideally, assets should be frozen simultaneously with the criminal becoming aware of the investigation for the first time (this will often be at the time of arrest, although not always). Waiting for a conviction is far too late. As part of their training police officers should be equipped to deal with these challenges.
15.We recommend that, upon entry into the service, all police officers receive at least one full day of financial investigative training, accredited by the National Crime Agency (NCA), so that all officers are equipped to secure recovery at a much earlier stage and have a good understanding of the impact of charges, offences and pleas on asset recovery. Secondly, all detective officers should receive advanced financial investigation training on at least an annual basis so that appropriate evidence is gathered about financial gain, as well as criminal conduct in every investigation into a serious crime offering financial gain. We recommend that NCA training and accreditation of specialised financial investigators emphasises the importance of initiating asset freezing at the earliest stages of an investigation. Performance against this objective should be measured for all the agencies involved by recording whether assets are frozen and ready to be recovered as soon as a confiscation order is made.
16.Recovery of criminals’ assets often requires complex and technical financial skills. Organised criminals make use of complicated avoidance and concealment techniques to prevent their illicit gains being found, seized and returned to either victims or the State. Highly trained investigators are therefore needed to combat this. However, we heard evidence that retaining specialised investigators was difficult, largely because of “poaching” by the private sector. Detective Chief Superintendent Clark told us that the City of London Police investigators were often drawn to the higher wages that the private sector was able to offer, resulting in a high turnover of officers. In subsequent written evidence, the City of London Police told us:
In the last year, we have had 22 investigators leave City of London Police who were trained in financial investigation or financial intelligence. Four were accredited financial investigators. Around 70% left to take up employment in the banking sector. The remaining took up employment in other industries (namely insurance and gambling), other law enforcement agencies and regulators.
17.The Serious Fraud Office (SFO) agreed that “experienced accredited financial investigators with the skills to deal with complex financial crime are scarce within the public sector, and their skills are increasingly attractive to financial institutions in the private sector”. It reported that, since its establishment in 2009 it had employed 15 Senior Financial Investigators. It told us that, of those, six had left the SFO and the resulting recruitment campaigns had had very “limited success”. The NCA told us that a “cross-Whitehall working group has been formed to explore this issue to identify and understand the factors affecting recruitment and retention”.
18.We heard in evidence that retention of investigators with necessary but scarce skills in financial investigation is a problem. Skilled staff are being “poached” from the public sector because it cannot match the remuneration incentives being offered by large financial firms—which may themselves be increasingly concerned about becoming the subject of financial investigations. We understand that a cross-Whitehall working group has been set up to try to address this issue. The Government should publish details of the working group’s membership terms of reference, remit and timetable for reporting its findings immediately. When the report is published, we expect it to include a clear timetable for action and targets for progress on recruitment and retention against which subsequent progress can be measured.
19.The principal method for industry to report any concerns to be investigated about the validity and legality of clients or transactions is through the submission of Suspicious Activity Reports (SARs). The NCA is responsible for this regime and described the process of reporting suspicious activity:
The Suspicious Activity Reports (SARs) regime describes the end-to-end system by which industry spots suspicious activity related to money laundering or terrorist financing and reports this to the UK Financial Intelligence Unit (UKFIU). Upon receipt, SARs are logged onto the UKFIU internal SARs database (known as ELMER). The UKFIU analyses the SARs to extract strategic and tactical intelligence, and makes all SARs available to law enforcement agencies for investigation (with the exception of SARs in certain sensitive categories).
20.It is crucial that the financial services industry (and connected industries such as real estate and professional services) have confidence in the robustness and objectivity of reporting what they consider to be suspicious activity. Without the support of industry, investigation and enforcement agencies will be unable to target some criminals, nor spot patterns of wrongdoing.
21.Both we and our predecessors in the last Parliament have been concerned over a number of years that the IT system designed to support the SARs regime (ELMER) was not fit for purpose. Donald Toon, Director of Economic Crime at the NCA, told us that ELMER was currently processing 381,882 SARs, despite having been designed originally to cope with a much smaller number of around 20,000.
22.The private sector shared the concerns. Laurence Sacker, Partner, Corporate Finance and Money Laundering Reporting Officer at UHY Hacker Young LLP said that his perception was that the system was so overloaded, that many SARs were never actually investigated. He believed that many firms were submitting SARs simply so that the reporting officers were “in the clear” in terms of having met their statutory requirement and that investigators “probably only look in detail at the consent SARs that go to them, which is about 15,000 in a year. The others are just recorded somewhere and may get passed on eventually”.
23.It was not surprising, therefore, that the Government announced in response to a recent Parliamentary Question that the ELMER system will be replaced because the “IT infra-structure is coming to the end of its life”:
In the Action Plan for anti-money laundering and terrorist financing, the Government set out that a replacement for the existing SARs IT infrastructure will be designed to support a significant improvement in the UK’s anti-money laundering regime. The benefits will include; more effective processing of SARs, including; automated cross-checking with law enforcement databases; development of intelligence on those responsible for money laundering; and better information on threats for sharing with the private sector. We are consulting on the proposals to improve the anti-money laundering regime.
We also note that the aim of improving the effectiveness of SARs was announced in the Queen’s Speech in May 2016.
24.We have been deeply concerned for some time that the ELMER system for Suspicious Activity Reports (SARs) is heavily overloaded and therefore rendered completely ineffective. The ELMER system currently processes 381,882 SARs despite being designed to manage only 20,000 and, of this figure, only 15,000 looked at in detail. We have reminded the Government time and again that it must be replaced. The failure of ELMER has made the SARs system a futile and impotent weapon in the global fight against money laundering and corruption. We note that the Government has finally given a commitment to make the system work in this year’s Queen’s Speech, although we have yet to receive details of how this will be achieved. An effective regime to help organisations report suspicious financial activity must be introduced without further damaging delay. We recommend that the Government replaces ELMER with a robust system for handling Suspicious Activity Reports by 31 December 2016.
25.To repair the damage to the reputation of the SARs regime caused by the failure of ELMER, we recommend that the Government involves those who actually use the SARs system to make reports—as well as those charged with investigating at the other end—in designing the replacement to ELMER. Only by doing so can the Government rebuild industry’s trust in the regime and ensure that the next generation of SARs does not suffer the same fate.
26.In order to deprive a criminal of the benefit of their criminal conduct, a confiscation order can be made by a judge. These orders are made after a criminal has been convicted of a crime. Helena Wood of RUSI explained how confiscation orders worked on a practical level:
A confiscation order is a post-conviction court order, which is value-based rather than asset-based. It does not confiscate property, but is an order of the value of ‘criminal benefit’ and is, in effect, akin to a debt. The framing of the law in this way negates the need for the prosecution to link a particular asset to specific criminality.
27.The NAO summarised the main bodies involved in the prosecution, hearing and judgement side of administering confiscation orders:
Box 2: Main bodies involved in administering confiscation orders (prosecution, confiscation hearing and judgement)
28.Because the vast majority of collection occurs after a conviction, the processes and attitude of the prosecution authorities (and the courts) towards the recovery of criminal assets is crucial to its effectiveness. We heard that one of the failings of the recovery system was that the prosecution agencies did not get involved early enough. For example, Pinsent Masons LLP recommended that prosecution and investigation teams should work together as soon as it became apparent that asset recovery would be made:
Where it is believed that the crime under investigation has resulted in some financial benefit to the potential defendant or loss to a victim, the prosecuting agency should be working closely with the financial investigators to collate the information necessary to obtain a restraint order without delay.
29.Many witnesses pointed out that asset recovery and proceeds of crime were seen as being a very niche area of law which neither prosecutors nor judges were enthusiastic about pursuing as a specialism. The British Bankers’ Association told us that it was concerned that judges and prosecutors were not consistently trained, nor actually interested in engaging with such training:
It could be argued that the Judiciary has not embraced the POCA confiscation process powers as fully as possible. Recent publications show that very few Judges have attended training in this area of the law. In addition, the relevant training, in what is a complex legislative area, has been scaled back. Some Crown Court Judges are openly critical of this piece of legislation and consider it to be “two bites” at the sentencing of criminal conduct.
This was confirmed by practising barristers on both the prosecution and defence side. Tim Owen QC admitted that he had only attended “a one-day seminar on it [ … ] in five or six years” and that “most judges do not enjoy or look forward to doing confiscation”. Kennedy Talbot QC told us that he had sent an email to all his colleagues that he knew worked in the area of confiscation and that “overwhelmingly, the response was unenthusiastic reception at courts and, insofar as dealing with the opposition is concerned, practitioners who are not familiar with and do not want to do this and want to move on to the next jury trial”.
30.We also received evidence that a lack of interest and training had led to inconsistency in terms of the application of confiscation orders as well as a waste of resources as different judges and prosecution teams dealt with different elements of a prosecution (for example having to spend time getting up to speed with the elements of complicated cases). Martin Bentham of the Evening Standard explained the issue:
The problem is it is different people handling the same case on different occasions, and then of course they lose the background of that particular case. In my experience, which is focused on a particular court—generally speaking, most of the ones here in London are dealt with at Westminster Magistrates Court—it is more a problem of the people who do know about it not always following the same case through and, therefore, the loss of knowledge that way.
31.The issue of consistency in terms of the application of POCA is not a new one. In 2013, the NAO and the Committee of Public Accounts recommended that:
Law enforcement and prosecution agencies need to agree and apply a common set of criteria to ensure that they consider consistently and properly all crimes with a financial gain for confiscation orders.
It is clear, however, that this has not been achieved yet. The British Bankers’ Association told us that the perception was that, at a prosecutor level, the interest in POCA was still too low. It told us that it needed to be heightened “to ensure that professionalism and consistency is applied in the courts”.
32.To combat this lack of consistency, and specifically to raise the profile of POCA, a number of witnesses argued for the creation of specialist ‘confiscation courts’. Mr Jeffery Bryant, a barrister and prosecutor working within the CPS Proceeds of Crime Service (writing in a personal capacity) explained that “a specialist confiscation court would have the expertise and time available to hear and properly deal with restraint applications”. He went on to explain how it could work in practice:
The establishment of a specialist confiscation court, comprising of judges and support staff with a specialism in confiscation and ancillary law. [ … ] A specialist confiscation court could also have referred to it some confiscation cases where the Crown Court judge considered that the case was of sufficient complexity and where personal judicial knowledge of any trial was not necessary for the issues in dispute at the confiscation hearing; or once those issues had been resolved.
33.Other expert witnesses supported this. Kennedy Talbot QC told us that “definitely we need confiscation courts so you have specialist judges dealing with it”. Tim Owen QC said that he was “very strongly in favour of the idea of specialist judges assigned to deal with these cases from the beginning to the end”. Richard Fisher QC also agreed.
34.We received strong evidence that the creation of a ‘confiscation court’ would combat the current lack of interest in confiscation orders among prosecutors and judges, which has led in turn to a lack of training and specialist skills. Specialist courts would enable complex confiscation hearings to be dealt with more efficiently and with much greater expertise, with the added bonus of leaving Crown Courts more time to focus on criminal trials. We recommend that the Government takes the necessary steps to establish confiscation courts to allow for serious and/or complex confiscation hearings. For example, we would expect these courts to hear those cases featuring cross-border financial transactions, use of corporate vehicles or very high value proceeds.
35.The creation of confiscation courts would encourage the specialisation of judges in the area of proceeds of crime. This would mean that one judge could deal with the financial aspect of a serious and/or complex case from cradle to grave. The confiscation courts must therefore be properly resourced, with highly motivated and expertly trained judges and prosecutors, to ensure the highest standard of understanding and consistency in the application of this aspect of the law.
36.After the initial investigation, prosecution and conviction, the final stage in recovering proceeds of crime is the enforcement of that instruction to recover (often the enforcement of a confiscation order). The NAO summarised the main bodies involved in enforcing the recovery of proceeds of crime.
Box 3: Main bodies involved in administering confiscation orders (enforcing a confiscation order)
Other bodies involved:
Overall enforcement of confiscation orders under POCA is the responsibility of Her Majesty’s Courts & Tribunal Service (HMCTS).
37.Agencies involved in POCA are directly incentivised to allocate time and resources to the recovery of criminal assets. This is implemented through the application of the Asset Recovery Incentivisation Scheme (ARIS). The National Audit Office explained how ARIS is currently set up:
Since 2006, the Home Office has run the Asset Recovery Incentivisation Scheme (ARIS) which apportions all asset recovery monies collected each year at pre-determined rates. This amounted to nearly £170 million in 2014–15, half of which was paid out across the 163 bodies involved with confiscation order administration and the rest retained by the Home Office.
38.As shown in Figure 3, in all cases of confiscation the Home Office retains 50% of any proceeds recovered, while the remainder is split between either the relevant investigation agencies, prosecution agencies or the courts—depending on the nature of the recovery. In 2013 the National Audit Office described ARIS as a “flawed incentive scheme” because it was based on income confiscation only (rather than the contribution to wider policy goals, an issue we discuss in detail later in this Report). The NAO was also critical of the fact that there was no clear link between activity and formal financial reporting.
39.The Home Office told us that ARIS had already been reformed for 2014–15:
The changes make the use of ARIS funds more transparent and boosts the operational response. A ‘top-slice’ of approximately £5 million has been set aside to fund key national asset recovery capabilities: improvements to the Joint Asset Recovery Database, the regional ACE Teams, new Crown Prosecution Service resources to revisit old orders, and additional intelligence resources for the NCA to bolster the national response to cash-based money laundering.
Despite this, when the NAO published its progress review in 2016, it was clear that the Government’s reforms had failed to satisfy the auditor. Specific criticisms included:
40.The United Kingdom is not the only country to confiscate proceeds of crime. We heard from Dr Colin King, a senior Law Lecturer at the University of Sussex, who explained how some other countries incentivised the enforcement bodies involved in the recovery of criminal assets. Specifically he discussed the incentivisation model in Ireland where money that is recovered is “sent back to a central exchequer. All the money goes back to the Minister for Finance to spend at his discretion. It goes back to a central fund”. We were interested to hear that, when it was suggested to the Irish agencies involved in recovery of these assets that they could adopt a system where they received a slice of the proceeds (similar to ARIS), “everyone there was completely against such a scheme”. Dr King elaborated in his written submission that this was possibly to avoid the scenario in the United States where “there has been criticism about ‘policing for profit’ and abuse of police powers as a result of skewed priorities”.
41.Helena Wood from RUSI pointed to the model in Scotland where some of the proceeds are used to “regenerate payback for the communities”. She noted that this was an incentive in itself because it raised awareness, public support and therefore the profile of the enforcement agencies: “The Scottish model really focuses on using the funds recouped to fund new schemes, so it is really visible to the community that that money has been taken away from a criminal”. Ms Wood was referring to the Scottish ‘CashBack for Communities’ scheme. This is a Scottish Government programme which “takes funds recovered from the proceeds of crime and invests them into free activities and programmes for young people across Scotland”. The scheme appears to have had a positive impact on those communities affected by crime and on the youth of Scotland more generally:
Since 2008, £75 million recovered under the Proceeds of Crime Act has been committed to the CashBack for Communities Programme and other community initiatives. The programme has funded 1.8 million activities and opportunities for young people.
This investment includes £24 million on sporting activities and facilities projects, £10 million on grant schemes that support youth work projects across all 32 local authority areas and over £3.5 million on cultural activities involving arts, music and dance.
42.Despite some reforms to the incentive system for recovering proceeds of crime, the Government has failed to satisfy the National Audit Office (NAO) or us that the system is fit for purpose. We agree with the NAO that there are significant weaknesses in the Asset Recovery Incentivisation Scheme (ARIS), specifically in that it rewards those who have not been affected or taken a role in the recovery of assets.
43.We recommend that the Government applies a new formula which ensures that at least 10% of the criminal assets recovered are returned or donated to the communities which have suffered at the hands of criminals, for example through charities. This must not disadvantage the agencies that have worked hard to recover the assets, but instead should be deducted from the 50% portion which the Home Office currently takes.
44.As we have already discussed, responsibility for enforcing confiscation orders lies with HM Courts and Tribunal Service. These orders are made after conviction when, in most cases, the criminal is within the criminal justice system—either as a serving prisoner or subject to some other supervisory order. Release does not mean that a criminal is beyond the reach of POCA. The City of London Police told us that police officers often dealt with suspects who owed money under POCA, but that there was no practical way for a police officer ‘on the ground’ to know about it:
Currently law enforcement has to log into the Joint Asset Recovery Database to check whether there is an outstanding confiscation order. Access to this system is currently restricted to financial investigators.
45.The City of London Police advocated merging the Joint Asset Recovery Database (JARD) with the Police National Computer (PNC) to ensure that the “information would be available to officers dealing with offenders”. Detective Chief Superintendent Clark explained that his “greatest need” to improve collection rates, disrupt criminals and collect broader information was for different systems that hold information to inter-operate:
If we can record that a dog is at a premises when an officer visits, I’m sure we could have the ability to record the fact that a confiscation order is outstanding against an individual, which would be very helpful in the collection of intelligence information for recovering those orders.
46.We recommend that outstanding confiscation orders be put onto the Police National Computer by merging or connecting the Joint Asset Recovery Database with the Police National Computer so that the police on the front-line know that a suspect is in breach of a confiscation order and can act on it. It is ludicrous that the PNC can tell a police officer that a suspect owns a dog but not that they are evading payment of a criminal confiscation order.
47.Secondly, in terms of the practical enforcement of confiscation orders, several experts advocated a wider use of the private sector. Pinsent Masons LLP told us that “consideration should be given to potentially outsourcing the recovery and enforcement of confiscation orders to the private sector”. It recommended using the private sector to assist in circumstances where confiscation orders have been obtained but there are difficulties in enforcement. This view was supported by Grant Thornton LLP, which stated that it was “convinced that there is more of a role for the private sector in this area because of its expertise and its ability to make resources available to handle a wide range of cases”.
48.Much of the evidence that we received agreed. The City of London Police supported such collaboration. It stated that data and intelligence sharing could benefit collection rates and disruption to criminals, arguing that:
An opportunity exists to deal with this through innovation and partnership. The Crown could retain control of the confiscation order but allow for private companies to pursue the order and, where successful, retain a proportion of the proceeds as a fee. This would create a market that allowed for funds to be pursued at a reduced cost to the public purse and reduce demand on limited police resources.
49.The Home Office appeared to agree and stated that it would “look to potential opportunities for enhanced cooperation with the private sector to improve asset recovery performance”. Sharing information, evidence and intelligence between law enforcement and private prosecutors has the potential to increase effectiveness and efficiency of recovery.
50.Greater coordination and collaboration between public bodies involved in POCA and the private sector could result in more efficient collection of proceeds of crime and the denial of assets to criminals. We recommend that the Government creates a market for the private enforcement and collection of unpaid confiscation orders once they enter arrears, earning a fee from a portion of that order. The Home Office has already stated that it will look at enhancing cooperation with the private sector to improve asset recovery. We recommend that the Government acts upon this aspiration and shares information and evidence between law enforcement and the private sector to achieve this.
24 For example British Bankers’ Association (), Crown Prosecution Service () and Pinsent Masons LLP ()
25 Pinsent Masons LLP () para 3.4.3
26 Pinsent Masons LLP () para 4.1
27 National Crime Agency, ‘,’ accessed 15 June 2016
29 City of London Police supplementary evidence ()
31 City of London Police supplementary evidence ()
32 Serious Fraud Office () para 14
33 Serious Fraud Office supplementary ()
34 National Crime Agency () para 12
35 National Crime Agency, ‘,’ accessed 15 June 2016
36 For example , 11 October 2012; and , 9 December 2015
39 Response to Parliamentary Question , answered on 3 May 2016
40 HC Deb , col 3
41 Royal United Services Institute, (February 2016), p 4
42 Pinsent Masons () para 4.1
43 For example Mr Jeffrey Bryant (), NPCC Financial Investigation and Proceeds of Crime Portfolio () and Royal United Services Institute ()
44 British Bankers’ Association()
48 Committee of Public Accounts, Forty-Ninth Report of Session 2013–14, , HC 942, p3
49 British Bankers’ Association ()
50 Mr Jeffery Bryant () para 14
51 Mr Jeffery Bryant () para 13
54 Ministry of Justice and HM Courts and Tribunals Service () para 2
55 National Audit Office, Confiscation Orders: progress review, , March 2016, p 38
56 National Audit Office, Confiscation Orders, , December 2013
57 Home Office () para 14
58 National Audit Office, Confiscation Orders: progress review, , March 2016, p 40
61 Dr Colin King () para 10
64 CashBack for Communities, ‘,’ accessed 15 June 2016
65 CashBack for Communities, ‘,’ accessed 15 June 2016
66 City of London Police () para 17
67 City of London Police () para 17
69 Pinsent Masons LLP () para 6.3
70 Grant Thornton UK LLP POCA Team () para B (v)
71 For example British Bankers’ Association (), NPCC Financial Investigation and Proceeds of Crime Portfolio () and Grant Thornton UK LLP POCA Team ()
72 City of London Police () para 8
73 Home Office () para 10
11 July 2016