Benefit in confiscation proceedings

By  |  12.06.2015

Chahall: all expenses paid crime.

Following the majority decision of the Supreme Court in the case of Waya[1], practitioners may have been forgiven for assuming that the approach to the calculation of benefit in confiscation proceedings might soften by importing a general concept of proportionality, or at least by encouraging a calculation based on the real benefit that finally settled in the hands of the defendant.

However, any such misconception will now have been removed by the recent case of Chahal[2], in which  judgment was handed down by the Court of Appeal on the 21st May 2015.

In Waya, the Supreme Court recognised that even where the assumptions in the legislation were met and properly applied with regard to confiscation proceedings[3], that if the end result was disproportionate, a judge should refuse to make an order. In essence, that the confiscation scheme must be given effect in a manner that is compliant with Article 1 of the First Protocol to the ECHR (the right to peaceful enjoyment of possessions). The case involved a mortgage fraud whereby Mr. Waya had obtained money from a lender by giving false information about his earnings. The residential property he purchased with these funds jumped significantly in value before the fraud was detected and prosecuted.

Mr. Waya was originally ordered to pay the majority of the increased value of the property, even though the party he had defrauded (the original building society) had suffered no loss, and had been repaid in full when he had legitimately remortgaged before the fraud had been detected. It was eventually decided by the Supreme Court, that to order the entirety of the value of the property to count as benefit would be disproportionate, essentially because the loan itself did not increase in size as the value of the property had increased. The loan itself was a fixed liability and the increase in value resulted from the increases in the property market not by the operation of the original fraud.

The case of Chahal on the other hand, involved an MTIC fraud (missing trader intra-community) whereby the two appellants were among seven defendants convicted of conspiracy to cheat the public revenue. The illegal scheme featured several companies in a chain making claims for repayment of VAT whereby goods were imported by a UK company that then went missing without accounting to the revenue, to then sell the goods which would be passed through a chain of purchasers “buffer companies” only to be exported by a “broker” company.

Following conviction, proceedings under the Proceeds of Crime Act 2002 were initiated and orders were made based upon a legal ruling in the case in respect of the assessment of benefit. At first the prosecution argued that the benefit figure should include the total sum generated by the scheme despite the fact that the defendants were only involved in one of the companies in the chain. The learned judge held that the proper approach was to include only the total input claims made along the chain in the benefit figure and recognised that a calculation of benefit based on total turnover of the entire scheme would cause a serious risk of injustice under section 10(6)(b) POCA 2002.

It was this assessment that was then challenged in the Court of Appeal on the basis that the benefit should simply have been regarded as the loss to HMRC that was the aggregate of the amounts claimed by the exporter. Secondly, that if that was wrong as a matter of interpretation of POCA 2002, then the application of Article 1 of Protocol 1 of the ECHR meant that the benefit should be limited to that sum in any event.

During argument, the appellants argued that the benefits obtained (the repayments from HMRC) were used as part of the ongoing fraud to keep it going. It was argued that these sums should be discounted from the benefit figure because they were used to finance the next fraudulent transaction –in essence that these sums were the expenses of the fraud.

The Court of Appeal disagreed, firstly explaining that they did not regard the calculation of benefit espoused by the trial judge as causing any serious risk of injustice. Also, that it was no argument against the inclusion of the sums as benefit to submit that they were simply re-invested in the fraud because they still amounted to benefit from criminal conduct.

Secondly, that unlike Waya, this was a case where the defendants had a “criminal lifestyle”. So that the attempt to avoid liability for the sums raised across the scheme would be “equivalent to the cocaine dealer claiming that he should be allowed to deduct the expense of acquiring the cocaine, and that his benefit is not the sum he charged his customers, but the profit he made”.

It seems that we have reached a point where the landscape is quite settled once more, the concept of proportionately of benefit should be regarded as highly case specific and the confiscation regime remains largely as draconian as was originally intended.