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Given the impending reforms to both the POCA Part 2 confiscation regime and corporate criminal liability, Charles Bott KC and Vanessa Reid argue that the time is right for the Law Commission to look more closely at the issue of confiscation orders made against companies.
On 17th September 2020, the Law Commission published its consultation paper on confiscation under Part 2 of the Proceeds of Crime Act 2002 (POCA). It describes the project as a once-in-a-generation opportunity ‘to consider root and branch reform’ of an entire area of law. The consultation paper contains a serious and detailed examination of this troubled subject and makes wide ranging proposals for reform. The final report and recommendations are expected to be submitted to the government in the spring of 2021.
Shortly afterwards, on 3rd November 2020, the Law Commission announced that it was also beginning a new project on corporate criminal liability. Its task is to investigate current laws relating to the criminal liability of companies and to provide options to reform them. The Law Commission says that ‘Calls for reform have been revived following the mixed success of recent high-profile prosecutions. Without action to reform this area of law, there is a risk that the UK will fall behind international standards in the prosecution of economic crime.’
The two projects converge around the question of how a reformed confiscation regime should be applied to corporate defendants. This is an area of law that is ripe for reconsideration and reform, a point argued by the White Collar Crime Centre at Bright Line Law in its January 2020 paper Proceed with Caution: The Case for a Narrowly Tailored Corporate Confiscation Scheme in the UK.
The Law Commission’s proposals on confiscation touch on the issue of corporate confiscation very lightly: its focus is on when assets held by a company can properly be attributed to a personal defendant. Now that its project on corporate criminal liability is under way, it is time for the Law Commission to consider more closely the question of how confiscation orders can and should be made against corporate defendants – as opposed to individual defendants who operate through limited companies. We hope that this important opportunity for comprehensive reform of these two inter-connected areas of law will lead to a robust and realistic regime for corporate confiscation, particularly in light of the steadily increasing number of criminal prosecutions of corporate defendants.
There are three areas where reform is most obviously needed.
Part 4 of the Law Commission consultation paper addresses the most fundamental defect in the current confiscation regime. Unhelpful statutory language – and diverse attempts by the courts to apply it – has led to a painful tension between the concept of ‘benefit’ as it is popularly understood (what an offender made out his offending) and the extended definition that the law has given to it (at its worst, the gross aggregate value of an offence in which many participate at different levels). The subject is complicated by the uneven application of principles derived from civil and property law. The requirements of proportionality only soften the outcome in a minority of cases.
The ‘benefit’ figure hangs over all defendants, even those who do not immediately have the available assets to match the figure. It is a direct cause of many of the unsatisfied and unenforceable confiscation orders (over £2 billion worth on recent estimates) and it complicates and distorts the subject in ways that are neither intellectually satisfying nor fair.
The Law Commission sensibly proposes a new test based upon the concepts of ‘gain’ and the subjective intention of the offender who gains from his offending. In some personal contexts, this should produce fairer and more rational outcomes. It might even deliver a figure in some cases that broadly corresponds to the amount of the ‘ill-gotten gains’ of which some judges have repeatedly spoken. But there are thorny problems in calculating the benefit of corporate defendants.
The Law Commission has addressed this issue to a limited extent, proposing that certain principles derived from case law – which relate to assets that have been obtained in part through criminal conduct – be incorporated either in non-statutory guidance or a Criminal Practice Direction. Specifically, Consultation Question 49(2) proposes that ‘When the alleged benefit is in connection with an undertaking, benefit should be calculated with reference to the extent to which criminality taints that undertaking. Only where the entire undertaking is founded on illegality should the court calculate benefit with reference to the entire turnover of the business.’
This is a reasonable starting point. It is not the first time the law has tried to distinguish between a company that exists for the purpose of committing a crime and a legitimate company that commits an offence. In general, substantial and effective corporate prosecutions tend to proceed against the latter. But, as case law in this area makes clear, the courts have struggled to apply this distinction in practice, and the results are often uneven. The White-Collar Crime Centre proposed the use of net rather than gross proceeds as the better calculation of ‘benefit’ for all corporate defendants. Similar schemes have been adopted in jurisdictions such as Australia. This is one possible approach – there are others.
This is not how the law of benefit works at the moment, subject to rare exceptions. Public policy is said to reject the idea that the costs of criminal activity can reduce an offender’s benefit. One hopes that a new generic test based upon ‘gain’ will itself make inroads into this problem – but the Law Commission appears to favour the retention of gross profit figures in at least some contexts.
With corporate defendants, this requires a clearer focus. An offending company will already have been the subject of a financial penalty. It may not assist the development of corporate confiscation if that company is additionally required to disgorge sums that go beyond the profit that would otherwise be available to shareholders as a result of the offence the company committed.
Corporate confiscation orders are comparatively rare at the moment. If they are made fairly and consistently, they can undoubtedly be a useful tool in the fight against economic crime. But in our view, a clear and robust set of principles for corporate confiscation must be articulated for this to be successful. Without clear guidance, the courts are likely to continue to under-utilise this tool against corporate defendants.
The Law Commission has noted that the concept of a ‘criminal lifestyle’ is particularly unsuited to a corporate defendant. Overall, it proposes greater prosecutorial and judicial discretion in the application of the well-known statutory assumptions that apply in criminal lifestyle cases. With companies, it makes little sense to proceed on the basis that the commission of a particular type of offence gives rise to a reasonable obligation to provide legitimate justification for many years of past trading.
The Law Commission proposes that money laundering offences, fraud, bribery, and corruption should not be included in the schedule of offences that trigger a finding of a criminal lifestyle. (Consultation Questions 30, 31, 33, and 34).
It may be sensible to go further and to disapply the criminal lifestyle provisions altogether in the case of a corporate defendant. The underlying idea – that offending of a particular type suggests a criminal personality and that the innocent exceptions can easily rebut that suggestion – was always flawed. Only companies created for the purposes of the crime are remotely comparable: they are rarely the subject of useful corporate prosecution and, if they hold assets, these can nearly always be attributed to the people behind them using existing principles of law. In our view, the application of the criminal lifestyle provision to companies is generally counter-productive and will make orders of corporate confiscation – already under-utilised by the courts – less likely in the future.
As the White-Collar Crime Centre has shown, there are currently many difficulties in enforcing confiscation orders against companies. Default sentences, the primary incentive and ultimate enforcement mechanism for a personal defendant, are self- evidently unavailable. There is a disparity here between companies and individual defendants that cannot be avoided.
Currently, there are no other levers which can be used to put pressure on the actual decision-makers in the company context to ensure that a confiscation order is paid.
The Law Commission briefly notes the use of deferred prosecution agreements (DPAs), which are frequently utilised against corporate defendants in the USA and increasingly in the UK, but does not go so far as to suggest any kind of equivalent mechanism in the POCA context.
The White-Collar Crime Centre proposed a number of possible new enforcement tools, including organisational probation (already well established in the USA) and the creation of a new offence applicable to company officers and directors of failure to ensure payment of a confiscation order, analogous to existing Companies Act 2006 offences.
The subject lends itself to creative thinking – and there are other possible enforcement mechanisms which could be proposed. They are central to the success of the regime: without a coherent approach to the real problems of enforcement, these orders are likely to remain under-used and under-enforced.
Charles Bott KC is a well-known specialist in cases of fraud, corruption and financial regulation. He has been instructed in more than 90 serious fraud trials, including some of the leading cases of recent years. He is regarded as an authority on all issues relating to financial crime, money laundering and the proceeds of crime. He has of wide experience in the fields of confiscation, forfeiture and civil recovery, and is regularly asked to speak on these subjects to professional audiences in the UK and other parts of the world.
He has drafted and advised on the implementation of POCA-related legislation in various jurisdictions.
In addition to being a qualified barrister in England and Wales, Vanessa Reid is also a US-qualified lawyer and member of the California State Bar. Vanessa has worked for the White Collar Crime Centre at Bright Line Law and the UK White Collar Defence and Investigations Group at WilmerHale’s London office. She has published academic articles and white papers on joint enterprise liability, corporate criminal confiscation, and intellectual property rights. Since joining Carmelite Chambers as a pupil, Vanessa has been instructed in a wide range of criminal matters including fraud and the proceeds of crime.
 As a former research associate at the White-Collar Crime Centre, Vanessa Reid co-authored this paper with Jonathan Fisher KC, Lead Counsel at Bright Line Law.
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