i-law

Criminal Finances Act 2017

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CHAPTER 6

Search, seizure, forfeiture and ‘gross human rights abuse’

Search, seizure, forfeiture and ‘gross human rights abuse’

 6.1 On an initial review of the CFA 2017, one could be forgiven for thinking that the high-water mark of the changes are the new unexplained wealth orders and the new corporate offence. Certainly, both developments have generated the most attention. Even so, there are several other provisions that have been introduced by the CFA 2017 that are likely to have a greater impact on the day-to-day work of regulated professionals and lawyers alike. They include:
  • new powers given to HM Revenue & Customs, the Serious Fraud Office, Financial Conduct Authority and immigration officers
  • wider ability to forfeit property following civil proceedings and, in relation to cash and money held in accounts, administratively
  • expansion of the definition of ‘unlawful conduct’ in Part 5 of the Proceeds of Crime Act 2002 (POCA 2002).
6.2 This chapter considers the implications of each of the above.

New powers to enforcement authorities

6.3 The extension of powers under the CFA 2017 not only ensures consistency between enforcement authorities in the UK but suggests that the use of non-conviction-based confiscation powers (otherwise known as the ‘civil recovery’ of property) will only increase in the future. Indeed, government guidance issued in January 2018 in respect of HM Revenue & Customs, the Serious Fraud Office, National Crime Agency, Financial Conduct Authority and Crown Prosecution Service, urges that ‘asset recovery and financial investigation should be considered at an early stage in every case, including consideration of the non-conviction-based powers of forfeiture, civil recovery and taxation action’.1

Serious Fraud Office

6.4 Part 2 POCA 2002 provides for the restraint of assets and confiscation of a criminal benefit after a criminal conviction. Enforcement authorities are afforded search and seizure of property powers where a confiscation has been made or may be made against them. The rationale for the power is that unless the property is seized, it may otherwise diminish in value or be unavailable when it is time for the confiscation order to be satisfied. The ability

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to search and seize is subject to obtaining appropriate approval from a justice of the peace or, if not reasonably practicable, a senior officer: section 47G POCA 2002. 6.5 Prior to the CFA 2017, Part 2 POCA 2002 search and seizure powers could only be exercised by an officer of HM Revenue & Customs, a police constable, immigration officer or an accredited financial investigator. The position was somewhat incoherent since the Serious Fraud Office, responsible for the most complex of financial crime cases, is a ‘prosecutor’ for the purposes of Part 2 restraint and confiscation orders. Schedule 1 of CFA 2017 amends Part 2 POCA 2002 to give staff of the Serious Fraud Office the search and seizure power. 6.6 Part 5 POCA 2002 establishes the regime for non-conviction-based seizure and forfeiture of cash in the magistrates’ court, and the freezing and civil recovery of property in the High Court. Central to Part 5 POCA 2002 is the need for the cash or property to have been obtained by or intended for use in unlawful conduct. 6.7 Under section 289, select enforcement authorities have the power to search premises for recoverable cash. The cash may then be seized and detained by order of a justice of the peace or magistrate, and forfeited either administratively or following a magistrates’ court hearing. Schedule 1 of CFA 2017 opens up the cash search and seizure powers, as well as the power to seek forfeiture of cash to staff of the Serious Fraud Office.

HM Revenue & Customs

6.8 Before the CFA 2017, HM Revenue & Customs was restricted in its use of the criminal financing investigation powers under Part 5 and Part 8 POCA 2002. 6.9 Powers, including the cash search and seizure powers detailed above, the ability to seek a production order compelling a person to produce documents in connection with a money laundering or property confiscation investigation or apply for a bank account monitoring order or customer information order,2 were not available to HM Revenue & Customs when they related to ‘excluded matters’. These, in brief, concerned certain taxes and allowances specified in Schedule 1 of the Commissioners for Revenue & Customs Act 2005: section 289(5A) POCA 2002. Section 18 of CFA 2017 lifts these restrictions, suggesting that HM Revenue & Customs will be more aggressive in future investigations. 6.10 The above prediction is only underscored by HM Revenue & Customs’ new ability to commence a civil recovery investigation and proceedings for recovery of property in the High Court under Part 5 POCA 2002. The power is conferred by section 19 CFA 2017, which amends sections 316 and 378 POCA 2002.

Financial Conduct Authority

6.11 The power to commence a civil recovery investigation and proceedings in the High Court is also conferred on the Financial Conduct Authority, by virtue of section 20 CFA 2017. The new power further encourages the FCA to be highly strategic in its criminal

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prosecution of financial market wrongdoing as, in the absence of a criminal prosecution, illicit proceeds can still be targeted.

Immigration officers

6.12 In addition to the above, the CFA 2017 introduces several new provisions aimed at making it easier for immigration officers to seize and forfeit unlawful cash at immigration borders. Section 21 CFA 2017 extends the cash civil recovery powers, available under Part 5 POCA 2002, to immigration officers.

Offences

6.13 The criminal offences of assault and obstruction in the exercise of powers conferred by POCA 2002 have been amended to take into account the wider use of these powers by HM Revenue & Customs, immigration officers and officers of the Serious Fraud Office: sections 22–24 CFA 2017.

Civil cash and property forfeiture

6.14 The emphasis of civil recovery proceedings in the CFA 2017 is further reflected by the expansion of the definition of ‘cash’ vulnerable to seizure and forfeiture under Part 5 POCA 2002, the introduction of a new ability to recover in summary proceedings a ‘listed asset’ as well as to forfeit money in bank and building society accounts. 6.15 The provisions are replicated in the Terrorism Act 2000 (TACT 2000) and the Anti-Terrorism, Crime and Security Act 2001 (ACTSA 2001).

Cash

6.16 Section 14 CFA 2017 amends section 289(6) POCA 2002 to close a loophole in the definition of ‘cash’. The definition is critical to the search, seizure, detention and forfeiture powers in Part 5 POCA 2002. 6.17 Previously, where suspected illicit funds had been converted into gambling tokens they could not be seized and summarily forfeited. Now, ‘cash’ includes, alongside notes and coins and banker’s drafts:
  • gaming vouchers, which are vouchers physically issued by a gaming machine representing a right to be paid the amount stated on it
  • fixed-value casino tokens, representing the right to be paid the amount stated on it
  • betting receipts, representing a physical receipt which gives a person the right to be paid the amount stated on it.
6.18 The expanded definition of ‘cash’ does not extend to cryptoassets or cryptocurrency. 6.19 The common feature is the need for any gambling document to state an amount and to represent a right to be paid that amount. As such, documents such as betting slips, which do not confer any right to be paid, fall outside the scope.

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 6.20 ‘Cash’ that has been seized and detained is vulnerable to forfeiture either administratively upon the issuance of a forfeiture notice by the relevant enforcement authority or following successful forfeiture proceedings in the magistrates’ court. The powers may only be used where the financial threshold, £1,000, has been met.3

Summary forfeiture of listed assets

6.21 A new framework for the forfeiture of certain high-value assets in the magistrates’ court has also been introduced into the Proceeds of Crime Act 2002 to complement the cash forfeiture regime. 6.22 Chapter 3A of Part 5 POCA 2002 has been inserted by section 15 CFA 2017, enabling a constable, officer of HM Revenue & Customs, an SFO officer or accredited financial investigator to search for, seize and ultimately seek the detention and forfeiture of certain high-value ‘listed assets’ believed to have been obtained through unlawful conduct or to be intended for use in unlawful conduct. According to the 2017 Home Office impact assessment, which explains the rationale for the new regime, the following assets have been identified as being particularly susceptible to be used by criminals to store and move value both domestically and across international borders:
  • precious metals (gold, silver or platinum only)
  • precious stones
  • watches
  • artistic works
  • face-value vouchers
  • postage stamps.
6.23 These are the assets that fall within the category of ‘listed assets’ in new Chapter 3A and therefore, are vulnerable to being seized and eventually forfeited. 6.24 There are several procedural safeguards within the new regime that replicate those applicable to cash seizure. For example, exercise of the search and seizure powers is subject to approval first being obtained from a judicial officer (justice of the peace) or, if not practicable, a senior officer: section 303E POCA 2002. Enforcement authorities are guided in the exercise of the new powers over listed assets by a detailed code of practice, which was issued pursuant to section 303G POCA 2002 on 16 April 2018.4 There is also (limited) provision for compensation and for victims of detained property to seek release. The powers, furthermore, are only available where the ‘listed asset’ has a minimum value of £1,000: section 303Y POCA 2002. 6.25 There is, however, one striking difference between the listed asset regime and the cash regime in Part 5 POCA 2002. Administrative forfeiture is not available for ‘listed assets’ whereas it is for seized cash in relation to which a justice of the peace or magistrate has authorised detention. The power of law enforcement to administratively forfeit

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detained cash pursuant to section 297A POCA 2002 was introduced by section 65 of the Policing and Crime Act 2000 which came in to force in 2014. Whilst forfeiture of property without judicial oversight is a highly draconian feature of any legal system and is vulnerable to criticism, the slight difference in the approach to illicit cash and illicit mobile high-value assets does seem incoherent. 6.26 In 2017, the Home Office estimated that the number of ‘listed asset’ forfeiture cases would be 150–200 a year. It is projected that, on average, the value of the asset will be between £5,000 to £8,000.5

Account freezing and forfeiture

6.27 Law enforcement powers are further enhanced by the new ability to freeze and forfeit funds held in bank and building society accounts. Section 16 CFA 2017 introduces new Chapter 3B into Part 5 POCA 2002. Chapter 3B aligns closely with the cash forfeiture provisions and new ‘listed asset’ forfeiture provisions detailed above. The impact of this new power, however, should not be underestimated. 6.28 Prior to the CFA 2017, law enforcement were able to obtain bank account monitoring orders and identify suspicious accounts from suspicious activity reports (SARs) submitted by the regulated sector; but the route to freezing and ultimately forfeiting money in bank accounts was not straightforward. Freezing and forfeiture depended on the use of either Part 2 POCA 2002 powers (restraint and conviction-based confiscation) or Part 5 POCA 2002 powers (civil recovery). 6.29 Use of Part 5 powers presented several challenges. Axiomatically, money held in bank accounts is not ‘cash’. Consequently, the ability to summarily forfeit the funds under Chapter 3 Part 5 POCA 2002 was not open. Further, although de-risking banks voluntarily suspend bank accounts because of suspicious activity, the subsequent recovery of the funds depended on the enforcement authority commencing civil recovery proceedings in the High Court. Quite apart from the time, money and investigative resources required to pursue High Court proceedings, the property in question must meet the £10,000 value threshold.6 6.30 According to the Home Office in its impact assessment of the new bank account freezing and forfeiture provisions, it is estimated that between £30 million and £50 million is sitting in accounts that have been suspended by banks and building societies in the UK. The new power presents a clear route to the recovery of the funds, so long as the court is satisfied that on that they have been obtained through unlawful conduct or are intended for use by any person in unlawful conduct. The power is open to HM Revenue & Customs, police, the National Crime Agency, Serious Fraud Office and accredited financial investigators.

Banks and building societies

6.31 As for what is a ‘bank account’ or a ‘building society account’, a bank is defined as an ‘authorised deposit taker’ that has its head office or a branch in the UK: section 303Z7

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POCA 2002. The Act is silent on whether the account to be frozen must actually be maintained by a UK branch. 6.32 ‘Building society’ is as defined in the Building Societies Act 1986. A building society is a society incorporated under that Act for the purpose of making loans secured on residential property and funded substantially by its members which has its principal office in the UK: section 5 Building Societies Act 1986. 6.33 Consistent with the regime for cash and listed asset forfeiture, there is a minimum financial threshold. The account must contain at least £1,000.

Account freezing

6.34 Where an enforcement officer has reasonable grounds for suspecting that money held in a bank or building society account is ‘recoverable’ (obtained through unlawful conduct) or intended for use in unlawful conduct, he or she may apply to the magistrates’ court for an account freezing order. As the court in SOCA v Matthews7 clarified, there is no need to identify a particular offence to satisfy ‘unlawful conduct’ for the purposes of Part 5 POCA 2002 proceedings. The unlawful conduct need not to take place in the UK. 6.35 Prior to the making of the application, the applicant must have obtained approval from a senior officer within his or her enforcement authority. The application will be successful where the court is satisfied that there are reasonable grounds for suspecting that all or part of the funds have been obtained through unlawful conduct or are intended for use in unlawful conduct. Once it is made, the order prohibits the making of withdrawals or payments from the account. All persons affected by the order must be given notice of it. 6.36 The framework contains provisions for the variation and discharge of the order and replicates the provisions elsewhere in Part 5 POCA 2002 for the exclusion of property for the purposes of reasonable living or business expenses and legal expenses.

Forfeiture

6.37 Forfeiture of money held in bank or building society accounts is available two ways:
  • administratively by the enforcement authority on the issuance of an account forfeiture notice
  • by order of a magistrates’ court.
6.38 The provisions are identical to those applicable to cash forfeiture. For the funds to be forfeited, the decision maker must be satisfied on the balance of probabilities that the funds are recoverable property or intended for use in unlawful conduct.

Expansion of ‘unlawful conduct’

6.39 In addition to the above, the advent of the CFA 2017 marks an expansion of the definition of ‘unlawful conduct’ in section 241 of Part 5 POCA 2002 to expressly include a gross human rights abuse or violation. The amendment to the definition is introduced by section 13 CFA 2017 and entered into force on 31 January 2018.

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 6.40 The purpose of the amendment, as explained by the Home Office, is to ensure that proceeds derived from gross human rights abuses overseas may be frozen and recovered under Part 5 POCA 2002. Underscoring the in terrorem effect, the government’s overarching impact assessment of the CFA 2017, published in June 2017, records, ‘[the measure] demonstrates that the UK is a hostile environment for those who commit human rights abuses or violations abroad, and for the proceeds of these crimes if they are brought to the UK’.8 6.41 Prior to the CFA 2017, the definition of ‘unlawful conduct’ was subject to a dual criminality requirement. Proceeds could not be recovered in the UK if the underlying conduct, though regarded illegal under UK law, was considered legal in the country in which it took place. An impediment to civil forfeiture could particularly arise where proceeds were obtained through or derived from human rights abuse and yet, in the country in which the abuse took place, the conduct was legal, considered justified or ‘state-sanctioned’ by the government in power. 6.42 With this in mind, section 241(2A) contains the following provision which removes the dual criminality requirement in the context of a gross human rights abuse:
  • (2A) Conduct which –
    • (a) occurs in a country or territory outside the United Kingdom,
    • (b) constitutes, or is connected with, the commission of a gross human rights abuse or violation (see section 241A), and
    • (c) if it occurred in a part of the United Kingdom, would be an offence triable under the criminal law of that part on indictment only or either on indictment or summarily, is also unlawful conduct.

Gross human rights abuse or violation

6.43 New section 241A POCA 2002 goes on to define ‘gross human rights abuse or violation’ by reference to three conditions. 6.44 The first condition is that there has been the torture or cruel, inhuman and degrading treatment of a person who has ‘sought to expose illegal activity carried out by a public official’ or person acting in that capacity or who has sought to ‘obtain, exercise or defend’ human rights. The breadth of this term is likely to attract future judicial consideration. Conceivably, persons captured could include campaigners, political dissidents, investigative journalists as well as whistleblowers who have sought to expose grand corruption and civilians seeking to exercise, for instance, freedom of expression or worship. 6.45 The second condition is that the ‘conduct’, namely the torture or cruel, inhuman and degrading treatment, against the person has been carried out in consequence of the person having sought to expose the illegal activity or obtain, exercise or defend human rights. 6.46 The third condition is that the ‘conduct’ has been carried out by a public official or person acting in that capacity, or with the consent or acquiescence of such a person. 6.47 Subject to these conditions being satisfied, the unlawful conduct could also comprise of acting as agent in the commission of the gross human rights abuse or violation, directing or sponsoring such activities, materially assisting such activities, directing such activities or profiting from such activities: section 241A(5) POCA 2002. ‘Material assistance’ includes providing goods and services that assists the activities or providing financial or technological support.

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 6.48 To fall into the category of ‘unlawful conduct’ for the purposes of Part 5 POCA 2002, all of the conditions must be satisfied to the civil standard. Gathering sufficient evidence is likely to be challenging but, even so, the amendment potentially exposes individuals as well as companies who deal in, receive, invest or profit from funds derived from abusive regimes to civil recovery proceedings in the UK. 6.49 The government’s overarching impact assessment, published in June 2017, contains an example of how the new expanded definition could benefit law enforcement in practice. By way of illustration, the provision could be relied on where a government official participated in or was the architect of a state-sanctioned regime of abuse in an internment camp and had moved some of his salary into a UK bank account and purchased property in the UK. Under the previous framework, even if the abuse of, say, political campaigners and dissidents was well documented, civil proceedings for the recovery of funds in the official’s bank account or UK property could not commence because it would not meet the dual criminality test. The amendment removes the impediment. 6.50 The question arises whether the provision could be relied on where a link between gross human rights abuse and funds or property is identifiable but less direct than in the scenario above. For property to be ‘recoverable’ under Part 5 POCA 2002, it must be obtained ‘through’ unlawful conduct, which means ‘by or in return’: section 242 POCA 2002. Axiomatically, a person’s property rights under Article 1 Protocol 1 to the European Convention on Human Rights are at stake. However, in the context of concerns over the UK being a final resting place for so-called ‘dirty money’, how widely – or narrowly – this term will be interpreted by the courts remains to be seen.