England and Wales Court of Appeal (Criminal Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CRIMINAL DIVISION)
ON APPEAL FROM BLACKFRIARS CROWN COURT
His Honour Judge Byers
U20050160

		Royal Courts of Justice Strand, London, WC2A 2LL
		20/12/2005

Lady Justice Smith :

1. This is an appeal by the Revenue and Customs Prosecutions Office ("RCPO") from the decision and order of HH Judge Byers sitting at the Crown Court at Blackfriars on 22^nd September 2005 whereby he discharged restraint orders made by him under sections 40 and 41 of the Proceeds of Crime Act 2002 (POCA) on 15^th August 2005. The application for leave to appeal was referred to the Court by the Registrar of Criminal Appeals and we granted leave at the start of the hearing.
2. Section 40(1) of POCA provides that the Crown Court may make a restraint order under section 41 if any one of five conditions, set out in section 40(2) to (6) is satisfied. The relevant condition in this case is that in subsection (2), which is that –

(a) a criminal investigation has been started in England and Wales with regard to an offence, and

(b) there is reasonable cause to believe that the alleged offender has benefited from his criminal conduct.

3. Section 41 defines the extent of the restraint orders that may be made. By section 76(1), 'criminal conduct' is defined as conduct which constitutes an offence in England and Wales, or would do so if it occurred in England and Wales.
4. The power to make restraint orders during the course of an investigation contained in POCA was new. Under the preceding legislation (the Criminal Justice Act 1988 as amended and the Drug Trafficking Act 1994), a restraint order could be made in the High Court but not until criminal proceedings were about to begin. Restraint orders under both the old and the new legislation were and are intended to support confiscation orders. Section 69(2) of POCA provides that the power under section 41 'must be exercised with a view to the value …. of realisable property being made available (by the property's realisation) for satisfying any confiscation order that …. may be made against the defendant'.
5. A confiscation order is an order made under section 6 of the POCA. Section 6 provides that, subject to certain conditions which are not relevant for present purposes, a confiscation order may be made if a defendant has been convicted of an offence by the Crown Court and he has benefited from that offence.
6. The POCA came into effect on 24^th March 2003. Transitional provisions were contained in the Commencement Order (Statutory Instrument 2003 No 333). Article 5 of that order provides that:

"Section 41 (restraint orders) …… of the Act shall not have effect where -

(a) the powers in (that section) would otherwise be exercisable by virtue of a condition in section 40(2) … of the Act being satisfied; and

(b) the offence mentioned in section 40(2) (a) ….. was committed before 24^th March 2003."

7. Article 3 of the Commencement Order relates to confiscation orders and provides that no confiscation order can be made under section 6 of the Act where the offence or any of the offences was committed before 24^th March 2003. Thus it was common ground at the hearing of this appeal that a POCA restraint order could only be made if an investigation had begun into an offence which had taken place after 24^th March 2003.
8. For the purposes of this appeal, the following brief description of the background will suffice. In March 2005, HM Customs and Revenue commenced an investigation into the activities of two companies called Safe Solutions Management Ltd and Safe Solutions Accounting Ltd, to which we will refer hereafter as the Safe Solutions companies. Safe Solutions traded by offering temporary and contract workers (who were remunerated without deduction of income tax or national insurance contributions) a means of reducing their liabilities for tax and national insurance. The worker would pay all his fee income into the bank account of a personal service company (PSC) set up and controlled by Safe Solutions. Each PSC would have between five and ten workers, who were also shareholders. A proportion of the fee income received by the PSC would be set aside for national insurance. The worker would receive a 'salary' from the PSC fixed at a level just below that which would attract income tax. Subject to administration and management charges, the balance would be a 'profit' for the PSC on which corporation tax would be payable. The duty to pay such tax lay upon Safe Solutions.
9. The appellant came to suspect that this scheme was being operated dishonestly so as to perpetrate a fraud on the Revenue. Safe Solutions was imposing administration and management fees of such size that they absorbed the PSCs' gross profits, leaving little or nothing for tax purposes and leading to the PSCs' liquidation. Hundreds of PSCs had been created and many had gone into liquidation. The appellant also came to suspect that the fees deducted for administration and management were being sent out of the jurisdiction. In July 2005, it obtained search warrants under section 20 of the Taxes Management Act 1970. Many documents were seized. Three potential defendants were arrested on suspicion of false accounting and tax fraud. They were interviewed.
10. Initial analysis of the documents suggested that between £6 and £10 million had been transferred out of the jurisdiction by Safe Solutions between 2003 and 2005. Transfers were continuing at the rate of between £100,000 and £200,000 per month. The appellant took the view that those transfers amounted to money laundering offences. Enquiries also revealed evidence of tax evasion or cheating the Revenue going back to 1999. This latter evidence came mainly from two witnesses named David Stewart and Michael Moore who had knowledge of the operation of Safe Solutions in 1999. It was clear that, if any offences of tax evasion and cheating had been committed, they had either been committed before 24^th March 2003 or were continuing offences which had commenced before and had continued after 24^th March 2003. However, because it wished to take advantage of the provisions of POCA, which, it believed, would permit the appellant to seek a restraint order in respect of its investigation into any money laundering offence which had occurred after 24^th March 2003, HM Customs and Revenue and RCPO decided to 'focus' on the offences of money laundering. These had all occurred after that date, save for one transfer, which had been made earlier.
11. On 15^th August 2005, the appellant applied ex parte for restraint orders in respect of five potential defendants who were under investigation by the appellant. They were the three respondents to this appeal, John Harry Hill, (John Hill) Timothy Simon John Hill (Timothy Hill) and Kevin Joseph Goddard and also Derek Martin Williamson and Vinod Bhargava. All five potential defendants had been involved in the operation of the two Safe Solutions companies and two other companies under investigation, namely Hawkway Finance Ltd and Cruise Developments Corporation.
12. The judge held that the condition in section 40(2) was satisfied in respect of all five potential defendants and made restraint orders in respect of all their assets. He directed that the assets of the four companies should be treated as assets of the potential defendants. He appointed a receiver in each case.
13. Under section 42(3) of POCA, the potential defendants were entitled to apply to the court to set aside the restraint orders. The applications of the two respondents, John Harry Hill and Timothy Hill were heard on the 22^nd September.
14. In support of the application to set aside the restraint orders, it was contended that there was no jurisdiction to make restraint orders because the offences which were under investigation had taken place before 24^th March 2003. In response, HM Customs and Revenue argued that they were also investigating money laundering offences which had taken place after 24^th March 2003. They had made it plain in their skeleton argument that, if and when the time came to charge the potential defendants, they did not intend to charge any offence which had occurred before 24^th March 2003. However, it was submitted on behalf of the respondents that the underlying offences had taken place before 24^th March 2003 and therefore there was no jurisdiction. The judge accepted that submission. In giving judgment, he mentioned that the documents seized in the investigation had revealed irregularities which may give rise to charges of money laundering and tax evasion. He continued:

"But that does not alter the fact that one has to go back to the basic principles as set out in section 40(2). The first condition that must be satisfied is that a criminal investigation has been started in England and Wales with regard to an offence. But where that offence occurred prior to 24^th March 2003 the order would be unlawful if made.

"I have come to the conclusion that the offence that was being investigated at that time stemmed from the information that had been given by David Stewart and Michael Moore and others and that accordingly the investigation was into an offence which preceded 24^th March 2003. Having considered carefully with counsel all the relevant procedures and enactments, it is plain that it is difficult legislation. But going, as I say, to the basic principle that is enunciated in section 40, I have come to the conclusion that this court has no jurisdiction to make that order and accordingly the order that I made on 15^th August of this year must be discharged."

15. The judge discharged the order against the two respondents who had applied for discharge. Soon afterwards, applications to discharge the orders made against Mr Williamson and Mr Goddard were made. The appellant took the view that it could not oppose these applications in the light of the judge's ruling and the orders against them were discharged by consent. Mr Bhargava has not made an application to set the order aside and it remains in force. The appellant lodged an application to appeal the judge's decision.
16. Before the restraint orders were discharged, the receiver appointed on 15^th August had applied for a variation of his powers and had been appointed as administrator of the two Safe Solutions companies. Following the discharge of the POCA restraint orders, the receiver/administrator no longer had any authority to act. However, he had formed the view that the PSCs had transferred about £39.6 million to the Safe Solutions companies and they in turn had transferred that money for the benefit of the three directors, the respondents in this appeal. The administrator had also formed the view that the Safe Solutions companies were insolvent. He brought these matters to the attention of a judge of the Chancery Division of the High Court and was appointed provisional liquidator. He then commenced civil proceedings in the Chancery Division alleging breach of fiduciary duty against the same three directors. On 25^th November 2005, he obtained temporary freezing orders on the assets of the three respondents. On 8^th December, those freezing orders were continued until further order. In those orders, assets to the value of £17 million are frozen in respect of both John Hill and Timothy Hill. The assets of Goddard are frozen to the value of £13 million.
17. Notwithstanding the fact that the assets which the appellant had sought to protect by a POCA restraint order are now frozen as a result of the proceedings in the Chancery Division, the appellant still pursues this appeal. It contends that the appeal is not moot because there is no precise correlation between the relief which the appellant seeks and the relief granted in the civil proceedings. In particular, the appellant is not a party to the civil proceedings and has no locus standi. Second, the appellant had been obliged to consent to the discharge of the order against Williamson. He was not involved in the civil proceedings and, if the appeal is successful, the appellant would wish to re-apply for a restraint order in respect of him. Further, as things stand at the present time, the appellant could not sensibly resist an application by Bhagarva to discharge the restraint order against him. The appellant wishes for an order overturning the judge's decision and for this court to remit the matter for reconsideration by the Crown Court. The position of each of the five potential defendants could then be re-considered in the light of the effect of the freezing orders.
18. Mr Edmund Lawson QC for John Hill and Mr Jonathan Fisher QC for Timothy Hill submitted that, in the light of the freezing orders against their clients, pursuit of the appeal was a waste of time and money. As we understand it, however, they did not go so far as to submit that the appeal was moot.
19. In our view, this appeal is not moot because the appellant is not a party to the civil proceedings and has no control over the continuance of the freezing orders. Accordingly, the appellant is entitled to pursue the appeal, so that, if the appeal is successful, it will be able to seek POCA restraint orders if it regards them as appropriate.
20. The main submission advanced by Mr David Perry for the appellant was that the judge had erred in treating the appellant's investigation as an investigation into only one offence, which had taken place before 24^th March 2003. In fact, the investigation that was on foot at the time of the application was into a large number of offences, many of which had taken place after 24^th March 2003. He submitted that it appeared that, in so far as the judge appreciated that many offences were under investigation, he had thought it necessary for the appellant to prove that all the offences had taken place after 24^th March 2003. This, he submitted was wrong because the combined effect of section 40(2)(a) and Article 5 of the Commencement Order requires only that, at the time the application for relief is made, an investigation should have been started into an offence which occurred after 24^th March 2003. It mattered not that, as part of the same overall investigation, the appellant was also looking into events and offences that had occurred before that date. As investigator and eventual prosecutor, the appellant had discretion as to how to conduct its investigations and which offences it would eventually charge. In this case, the appellant made it plain to the judge in paragraph 11 of its skeleton argument that, if and when the time came to charge the respondents, they would charge only offences that had occurred after 24^th March 2003. These were money laundering offences, under sections 327-329 of POCA. These sections provide that it is an offence to transfer criminal property or remove criminal property from England and Wales. Section 340(3) of POCA defines criminal property. It provides that:

"Property is criminal property if -

(a) it constitutes a person's benefit from criminal conduct or its represents such a benefit (in whole or in part whether directly or indirectly) and

(b) the alleged offender knows or suspects that it constitutes or represents such a benefit."

Section 340(4) provides that it is immaterial whether the criminal conduct occurred before or after the passing of POCA. Section 340(5) provides that a person benefits from conduct if he obtains property as the result of or in connection with the conduct.

21. Thus, submitted Mr Perry, it was open to the appellant to prosecute these respondents for money laundering offences comprising the transfers of money out of the jurisdiction. All but one of the transfers had occurred after 24^th March 2003 and the appellant could, if it wished to make use of POCA, abandon any reliance on that first transaction. It was the appellant's intention that the indictment would comprise only charges relating to offences which had occurred after 24^th March 2003. If convicted of any or all of those offences, a confiscation order would be available. It is true that the appellant would have to prove the underlying or predicate offence of conspiracy to evade tax or cheating the Revenue. That would relate to conduct which had occurred before 24^th March 2003. But it was clear from Section 340(4) that it did not matter whether the conduct underlying the POCA money laundering offence took place before the Act came into force. It was open to the appellant to make a policy decision that, instead of investigating with a view to charging the respondents with tax evasion or cheating the Revenue, it would proceed with a view to making use of the new regime of restraint orders by focusing the investigation on offences committed after March 2003 and giving a clear indication to the Court that, when the time came to lay charges, those charges would relate only to post March 2003 offences. That is what the appellant had sought to do in the present case. Mr Perry submitted that the judge should have held that there was jurisdiction to make the orders. He should then have gone on to consider, as an exercise of discretion, whether, on the particular facts of these cases, the orders should stay in place or should be discharged.
22. Mr Perry also drew attention to a number of authorities concerned with the confiscation provisions in the Criminal Justice Act 1988, as amended. These included R v Sekhon and others [2003] 1WLR 1655, R v Simpson [2003] 3 WLR 337 and R v Soneji and another [2005] 3 WLR 303. In Soneji, the House of Lords stressed the need for a purposive construction to be placed upon the confiscation provisions. In particular, at page 305F, Lord Steyn said:

"Parliament has firmly adopted the policy that in the fight against serious crime, apart from ordinary sentences, a high priority must be given by the courts to the making of confiscation orders against defendants convicted of serious offences. The purpose of confiscation proceedings is to recover the financial benefit that the offender obtained from his criminal conduct.

…..

The most recent statute is the Proceeds of Crime Act 2002 which came into force on 24^th March 2003. The aim of the new statute is to create an effective unified regime of confiscation law."

23. The case of Soneji and the others in which similar issues were considered, arose from a failure by prosecutors to comply with various technical requirements of the legislation. We accept that the courts have been prepared to apply a liberal purposive construction to the preceding legislation and to hold that Parliament had not intended that failure to comply with a technical requirement would deprive the Court of the jurisdiction to make a confiscation order where there had been no prejudice to the defendant. However, we do not think that these authorities are of direct application in the present case where there has not been any such technical failure. The issue here is whether or not an investigation had begun into an offence which had taken place after 24^th March 2003.
24. Mr Lawson submitted that the offence underlying the investigation was one of tax evasion or cheating the Revenue, which offences clearly pre-dated 24^th March 2003. He reminded the Court that the respondents had been arrested on suspicion of false accounting and not on suspicion of money laundering. Also, he drew attention to the fact that, in its skeleton argument before the Crown Court, the appellant had accepted that, in the past, where the offences under investigation had straddled 24^th March 2003, the practice had been not to make use of the POCA. Finally Mr Lawson drew attention to the undertaking given by the Appellant to review its position in the event that it wished, after all, to charge the respondents with any offence which pre-dated 24^th March 2003. That undertaking was inappropriate and should be unnecessary because the restraint order should only be made if it is clear that the offence under investigation took place after 24^th March 2003.
25. Mr Perry accepted that, in the past, it had not been the appellant's practice to use POCA where the offences under investigation straddled 24^th March 2003. But, he explained, in the past, the weight of offences to be investigated had taken place before 24^th March 2003 and it was not sensible to make use of the POCA 2002. However, as time passed, it became feasible to make use of the 2002 Act, as this case demonstrated. Mr Perry also accepted that the respondents had not been arrested on suspicion of money laundering. However he submitted that defendants are often investigated for and charged with different offences from the ones for which they are initially arrested.
26. As for the undertaking to review its position if the appellant wished to change its mind and to charge an offence which pre-dated 24^th March 2003, Mr Perry accepted that that submission had been made before the judge. Counsel then representing the appellant appeared to have accepted that a restraint order would not be available if any offence to be charged had taken place before 24^th March 2003. However, Mr Perry did not accept that that was necessarily right or that, if there were to be a change of mind, it would follow that the Appellant would have to review its position in respect of a restraint order. During the course of argument, it was suggested to Mr Perry that any change of mind might amount to an abuse of the process of the court, once the appellant had given an indication to the court that, if and when it came to laying charges, the charges would relate only to events occurring after 24^th March 2003. Mr Perry reserved his position on that point and, on reflection we think he was right to do so. As we understand it, he regards it as at least arguable that the appellant could charge some offences which preceded or straddled the dateline as well as offences which post dated it, so long as, after conviction, it sought confiscation orders only in respect of offences which post dated the dateline. On reflection, we consider that that is arguable but that it is not necessary to resolve the issue in this appeal. The appellant has expressed a settled intention to charge only offences which post date 23rd March 2003 and we see no reason to doubt the appellant's bona fides in that respect. In the event, that the appellant were to wish to change its mind, the issue could then arise for decision.
27. Mr Fisher submitted that the judge had been right to discharge the orders for the reason that he gave, namely that the offence under investigation was in truth a continuing offence of tax evasion or cheating the Revenue which went back to 1999. He also submitted that the judge was required to look at what offence was under investigation when the investigation commenced. Here it was clear that the trigger for the investigation was the information that had come from Mr Moore and Mr Stewart, which related to events going back to 1999. When asked what the position was if it was clear that there was more than one offence under investigation, Mr Fisher submitted that a restraint order under section 41 could be made only if all the offences under investigation had been committed (if at all) before 24^th March 2003.
28. Mr Fisher drew attention to the guidance on charging issued by the Crown Prosecution Service. This suggests that where the prosecutor is considering whether to add a charge of money laundering, the underlying offence should usually be proceeded with because it represents the conduct which gives rise to the criminal proceedings.
29. In response to those arguments, Mr Perry submitted that section 40(2)(a) requires only that an investigation should have been begun into an offence. The judge should look at what offences were being investigated as at the time of the application for the order, not at the time the investigation began. It would be sufficient to found jurisdiction if any post 24^th March 2003 offence were under investigation, provided of course that the offence was one in respect of which a confiscation order could be made after conviction. However, Mr Perry accepted that it would not be appropriate to make a restraint order in every case where that jurisdictional requirement was satisfied.
30. As to the guidance offered by the CPS, Mr Perry said that it was not at all uncommon for money laundering offences to be charged without including the underlying offence or offences on the indictment. The underlying criminal conduct had to be proved by the prosecution to the criminal standard of proof. There was no difficulty about that and that was what was intended in the instant case.
31. Mr Andrew Mitchell QC submitted a skeleton argument on behalf of Mr Goddard. We have read it but, as it contains substantially the same arguments as were advanced by Mr Lawson and Mr Fisher, there is no need to say anything further.
32. In our view, the judge erred in his approach to the requirement of section 40(2)(a), when read in conjunction with Article 5 of the Commencement Order. The test to be applied is whether an investigation has begun into an offence which took place after 24^th March 2003. In order to satisfy section 69, the offence must be one in respect of which a confiscation order may be made following conviction. For the purpose of establishing jurisdiction to make an order, it matters not whether the investigating authority is also investigating one or more offences which occurred before 24^th March 2003. Nor does it matter, for the purpose of jurisdiction, that there is criminal conduct occurring before 24^th March 2003, which underlies the post March 2003 offences – as may occur with money laundering. In our view, the time at which the test is to be applied is the time when the application is made, not when the investigation began. That is clear from the words of section 40(2)(a). All that is required therefore, to establish jurisdiction, is that an offence that may, following conviction, give rise to a confiscation order is under investigation at the time of the application.
33. In the present case, it is clear that, at the time the application was made in August 2005, the appellant was conducting an investigation into money laundering offences as well as tax evasion or cheating the Revenue. All but one of the money transfers said to amount to laundering were effected after 24^th March 2003. It is clear in our view that the judge had jurisdiction to make the order sought. For those reasons the appeal must be allowed.
34. We would add, however, that the power to make a restraint order under sections 40 and 41 of POCA is a discretionary power. Because the judge concluded that he had no power to make an order, he did not consider whether he ought to do so in the exercise of his discretion. Accordingly, we think that, if the appellant still wishes to obtain an order in respect of these three respondents whose assets are frozen in the civil proceedings, the case should be remitted to the judge for him to exercise his discretion.