England and Wales Court of Appeal (Criminal Division) Decisions

IN THE COURT OF APPEAL
CRIMINAL DIVISION

		Royal Courts of Justice Strand London, WC2A 2LL
		26 April 2018

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LORD JUSTICE TREACY:

1. This is an appeal against a confiscation order made in the sum of £2.34 million, pursuant to section 6 of the Proceeds of Crime Act 2002. That sum was to be paid within 3 months, with a term of 10 years' imprisonment to be served in default. The order was imposed at Birmingham Crown Court on 11 January 2017. The sole ground of appeal is that the confiscation order was disproportionate.
2. The appellant had previously pleaded guilty to a multi-defendant conspiracy to supply a controlled drug of class A, namely cocaine. He put forward a basis of plea which was rejected by the Crown so that a Newton hearing took place. Following that hearing, the judge rejected the appellant's account that he was a mere courier and found that he had played a leading part in the conspiracy. He was sentenced to 14 years' imprisonment and made an unsuccessful application for leave to appeal against that sentence.
3. The appellant was one of about 20 defendants charged with serious drugs offences involving large-scale drug dealing between organised criminal groups throughout the country, including the West Midlands and the south-east of England where this appellant was based. The appellant was involved in the supply of high purity cocaine in bulk.
4. At the conclusion of the Newton hearing, the judge found that the appellant's involvement in supplying drugs took place on a monthly basis between September 2013 and June 2014. During that period he supplied to a West Midlands crime syndicate 6 kilograms of cocaine on a monthly basis. The proceeds of those supplies over that 10-month period went through the appellant's hands. He was an equity partner in an Essex drug syndicate and was close to the importation of drugs. His role in the overall conspiracy was a leading one.
5. At the confiscation hearing the Crown limited itself to calculating a benefit figure by reference only to the appellant's particular criminal conduct rather than by reference to general criminal conduct. The benefit figure was fixed at £2.34 million, representing the value of drugs supplied by the appellant to the crime syndicate at the rate of 6 kilograms of cocaine a month for 10 months at £39,000 per kilo. There is no challenge to that finding.
6. Section 6(5) of the Proceeds of Crime Act provides that if a court decides that a defendant has benefited from criminal conduct, it must decide the recoverable amount and make a confiscation order requiring the defendant to pay that amount as long as it would not be disproportionate to require the defendant to pay the recoverable amount.
7. Section 7 provides that the recoverable amount is an amount equal to the defendant's benefit from the conduct unless the defendant shows that the available amount is less than the defendant's benefit from the criminal conduct. In that case the recoverable amount is either the available amount or a nominal amount if the available amount is nil. It is for a defendant to show that the available amount is less than the benefit figure.
8. In the present case, the appellant neither gave nor called evidence in the confiscation proceedings despite being legally represented, and the judge had given a warning that failure to adduce evidence might have adverse consequences for him. A document was put forward showing that as at 8 April 2016 the appellant had no real property registered in his name in Lithuania. The judge regarded that as being of very limited evidential value since property could have been held in the name of someone else and since there was evidence that the appellant had owned property there.
9. As to the recoverable amount, the judge concluded that there was significant evidence of hidden assets. He found:

(i) That £2.34 million had passed through the appellant's hands in cash and that the appellant had not explained what he had done with it despite the burden being on him to establish that he no longer had it.

(ii) The appellant was close to the source of importation and a Lithuanian national. It would not be difficult for him to find a hiding place for the money in Lithuania or indeed elsewhere in the world. There was evidence that he had had a Lithuanian bank account in 2011 and that he had owned property there. The appellant had given no evidence as to his present assets in Lithuania or elsewhere or any evidence as to what had happened to the real property he had owned in Lithuania.

(iii) There was evidence of a cash-rich lifestyle, leading to an inference that he had a significant fund of cash available which could not be traced. There was evidence of cash transfers of sums to his wife's account, evidence of undocumented share purchase and trading and evidence of a car purchased for cash. There were no equivalent withdrawals from any of the appellant's known bank accounts.

(iv) Despite his cash-rich lifestyle the appellant had declared no legitimate income for some time. His wife had only modest income from her employment. Indeed she was receiving tax credits. She therefore could not have supported the appellant's cash lifestyle.

(v) The judge rejected a defence assertion that the appellant's apparent bank overdrafts meant that he did not have hidden assets.

10. Submissions were made below that the recoverable amount should be fixed at an amount less than the benefit figure as it did not take account of the appellant's drug business expenses, such as the purchase price of the drugs. It was argued that the judge should try to estimate the profit level of the appellant's drug transactions and approach confiscation based on the resultant amount.
11. he judge rejected that submission, stating that it misunderstood the nature of the exercise before the court. He said that the benefit figure had already been fixed and observed that the available amount need not be the direct proceeds of the drug dealing. A defendant might have large, untraced cash reserves out of which a confiscation order could be made even though his profit on any individual drug transaction was relatively modest. The burden was on the appellant to show on the balance of probabilities that he did not have the money to satisfy a confiscation order equivalent to the full amount of assessed benefit. This appellant had presented no evidence to establish that he did not have the funds available and so the judge found that he had not discharged the burden.
12. The judge then went on to consider whether making the order would be proportionate in the circumstances. He found that it would. The appellant had played a large part in a serious enterprise dealing with very large quantities of cash. There was a strong public interest in making sure that those who traded illegally in this way did not benefit financially. The appellant had done his best to conceal his involvement, had lied throughout the proceedings, failed to make full financial disclosure in the confiscation proceedings and had not given evidence as to his financial situation.
13. In those circumstances, the judge said that there was nothing disproportionate in applying the terms of the statute and finding that the available amount was the same as the benefit figure.
14. The grounds of appeal urge that the confiscation order was disproportionate. Mr Goold submitted that in a case such as this, where the available amount was arrived at by reference to a finding of hidden assets alone and there was no evidence of significant income or assets other than the value of supplied drugs which made up the benefit figure, proportionality required that some consideration be taken of the proceeds likely to be retained by the appellant from his involvement in drug dealing when calculating the available amount.
15. Developing that submission, counsel relied on R v Waya [2012] UKSC 51 for the proposition that confiscation orders must be proportionate. Counsel submitted that although the appellant's failure to give or call evidence was a significant factor in considering whether he had discharged the burden of proving that the available amount was less than his benefit, it did not simply give licence to the court to find that the standard of proof was not met and automatically to impose an order for the full benefit figure.
16. Reliance was placed on R v McIntosh [2012] 1 Cr App R (S) 60. At [15] Moses LJ said:

"In the light of Glaves and May there is no principle that a court is bound to reject a defendant's case that his current realisable assets are less than the full amount of the benefit, merely because it concludes that the defendant has not revealed their true extent or value, or has not participated in any revelation at all. The court must answer the statutory question in s.71(6) in a just and proportionate way. The court may conclude that a defendant's realisable assets are less than the full value of the benefit on the basis of the facts as a whole. A defendant who is found not to have told the truth or who has declined to give truthful disclosure will inevitably find it difficult to discharge the burden imposed upon him. But it may not be impossible for him to do so. Other sources of evidence, apart from the defendant himself, and a view of the case as a whole, may persuade a court that the assets available to the defendant are less than the full value of the benefit."

17. Whilst it was acknowledged that an assessment of benefit is determined by the value of property obtained rather than property retained by a defendant, it was submitted that different considerations applied when determining a defendant's available amount. Whilst it was proportionate to have a strict interpretation of benefit to ensure that defendants do not profit from their crimes, it would not be proportionate to require them to pay what they do not have. To do this would condemn a defendant to serving a prison sentence in default and would be disproportionate.
18. Mr Goold argued that in any case of substantial drug dealing the proceeds retained by a defendant would be far less than the total value of the drugs which passed through his hands. Common sense dictated that offenders do not make one hundred per cent profit from supplying drugs since they have expenses and will often be involved with co-conspirators. The court's failure to give any consideration to the appellant's net proceeds (in other words what he actually retained from his offending) and then the available amount meant that the order imposed required the appellant to pay much more than his true proceeds of the crime so that he could not satisfy it. The order was therefore disproportionate and unlawful.
19. The court was urged to approach the matter by taking a broad, robust and commonsense view which could err on the side of caution in overestimating the appellant's likely retained benefit. In the circumstances, it was said that the judge had failed to recognise the effect of the requirement of proportionality in considering the available amount. It was also argued in written submissions that some of the matters which the judge took into account in considering proportionality were irrelevant. Those included the appellant's denials and lies, which suggested that the judge was influenced by a punitive approach in considering proportionality.
20. On behalf of the respondents, Mr Wallace argued that the judge had made a clear finding on the evidence before him that there were hidden assets available to this appellant. The benefit figure was not the subject of any challenge and was itself conservative in the sense that the judge took a figure which had represented monies actually passing in cash through the appellant's hands. There had been ample evidence to show that this appellant had hidden assets of substance so that a finding of the existence of substantial hidden assets was clearly open to the judge.
21. Mr Wallace argued that the appellant's submissions assume that his available assets must be limited to his unquantified profits from his involvement in the conspiracy. That was said to be neither a logical nor a correct assumption. The benefit obtained from criminal conduct and the amount available to a defendant at the time of the confiscation hearing are separate matters. The relevance of the available amount is that if it is less than the benefit, the confiscation order must be in that sum, save to the extent that it would be disproportionate to require that amount to be paid.
22. here is no requirement that the recoverable assets need to come directly from the appellant's drug dealing. Once a benefit figure is established, it was incumbent on a defendant to satisfy the court that he does not have assets available to meet that figure. The appellant's arguments had addressed the wrong issue. He sought to have his personal benefit figure reassessed on the basis that he would not have kept all of the proceeds of the cocaine he sold. What the appellant had failed to address at any stage was what assets he had.
23. Mr Wallace drew attention to [27] of McIntosh, which states:

"The judge concluded that he was not satisfied that Marsden no longer held such property there or elsewhere. He found that the value of what he has abroad is totally unknown. This was a crucial finding. Once the judge had reached that conclusion, there was no basis on which he could conclude that the value of Marsden's realisable property was less than the value of his benefit, in the light of Marsden's role in so lucrative a conspiracy. There was no justification for valuing his available assets as being less than the full value of the benefit, even accepting the modest style in which he lived."

24. On any view, this appellant had himself been involved at a top level in a multi-kilo, multi-million pound drug enterprise. The evidence showed that he had substantial assets which he had not declared or explained in any way and that he had led a lavish lifestyle. Section 7 applied and in the circumstances of this case the appellant had failed to show anything at all in that respect, namely showing that the available amount was less than the benefit. Accordingly, it was argued there was nothing disproportionate in the order made.

Conclusions

25. We begin our analysis by referring to Lord Bingham at paragraph 48(1) of R v May [2008] UKHL 28, where he stated:

"The legislation is intended to deprive defendants of the benefit they have gained from relevant criminal conduct, whether or not they have retained such benefit, within the limits of their available means ... The benefit gained is the total value of the property or advantage obtained, not the defendant's net profit after deduction of expenses or any amounts payable to co-conspirators."

In this case, as we have observed, there was no challenge to the judge's quantification of benefit nor could there have been since the judge applied correct principles.

26. The next stage of the process was to consider what sum was recoverable from the appellant. Section 7 provides that it should equate to a defendant's benefit from his criminal conduct subject to the proviso that if the available amount is less then the recoverable amount is the available amount. There is no requirement that the available amount should derive from the sums obtained through crime. There is no provision in the Act to that effect and high authority confirms the position. For example, in May at paragraph 9 it was stated that where a criminal has benefited financially from crime but no longer possesses the specific fruits of his crime, he will be deprived of assets of equivalent value if he has them.
27. In R v Harvey [2015] UKSC 73, Lord Hughes said at [56]:

"No doubt a different scheme could have been prescribed, and one such might have involved calculation of retained benefit. In some countries schemes for the confiscation of criminal proceeds do follow this approach, notably those which rely upon tracing and recovering specific property. The UK system does not. It depends upon ascertaining the value of what was obtained, and then recovering not specific property but, rather, that sum. Having obtained such a sum through crime, the defendant is expected to surrender it from any assets which he holds, whether they were legitimately or criminally acquired. That, as Lord Bingham observed in May at para 46, involves no injustice or lack of proportionality."

28. In considering whether there were available assets which could satisfy a confiscation order, the judge was fully entitled to find that there were hidden assets available to this appellant. There was ample evidence to show this and there was no contrary explanation to qualify that evidence. Had there been such an explanation, one would normally expect a defendant who had little or no assets to say so in evidence. Since the appellant had failed to give any evidence at all to disclose or quantify the value of hidden assets which were plainly available to him, he had failed to discharge the burden of proof upon him to show that the value of his realisable property was less than the value of his benefit.
29. Whilst the decision in McIntosh shows that a court should not make a precipitate leap from a failure to give evidence or a failure to give any credible evidence in confiscation proceedings to an automatic order in the amount of the benefit figure, this was not a case like that of R v Brooks [2016] EWCA Crim 44, where notwithstanding the rejection of that appellant's evidence, there was other evidence before the court which was relevant to the question of the available amount.
30. Accordingly, we consider that the judge was fully entitled in the circumstances to find that the available amount equated to the benefit figure.
31. The focus of this appeal has been on the need for proportionality in the making of the confiscation order, as recognised by Waya and later incorporated into section 6(5) of the Act by section 85 and schedule 4, paragraph 19 of the Serious Crime Act 2015. The assertion that the court should at this stage consider net profits of criminal activity is a surprising one. Firstly because the policy of the legislation to deprive criminals of what they have obtained through crime means that the focus of the court is not on net profits from a criminal enterprise or on carrying out some form of accounting exercise into enterprises of this sort, which almost by definition would prove impossible to undertake. The legislation is directed towards the proceeds rather than the profits of crime.
32. The difficulty with the appellant's argument is exemplified by the fact that he invites the court to take a common sense or broad brush approach and find that a criminal like this appellant will undoubtedly incur expense in carrying out his activities. For example, he will have to pay his own source of supply for the drugs which he supplies to others. There was no material before the court to enable any such exercise to be carried out. Moreover, other expenses, such as travelling and storage, were specifically eschewed. Indeed, to try to take them into account was acknowledged by Mr Goold to be "perverse and unfeasible". This approach demonstrates to us a lack of principle and practicality particularly in the situation where the burden of proof lies with the appellant.
33. The decision in Waya provides important guidance on the question of proportionality. The court is required to examine the relationship between the aim of the legislation and the means employed to achieve it in order to be satisfied that the proposed order would not be disproportionate. Here, the purpose of the statute is to strip criminals of the proceeds of crime through a regime which is necessarily severe in seeking to attain that purpose. The question is whether the means adopted to achieve that aim are proportionate or not in relation to that aim. A synonym for proportionality is fairness (see Harvey at [69]). It seems to us that catering to the requirements of proportionality can be done at more than one stage of the process of considering a confiscation order.
34. At [26] of Waya it was said that a legitimate and proportionate confiscation order may require a defendant to pay the whole of the sum which he has obtained by crime without enabling him to set off expenses of the crime. The possibility of removing from a defendant by way of confiscation order a sum larger than may represent his net proceeds of crime is consistent with the statute's objective and represents a proportionate means of achieving it. The application of Article 1 of the First Protocol to the European Convention does not amount to creating a new governing concept of real benefit.
35. At [27] their Lordships noted that it was an important part of the scheme that, even if the proceeds have been spent, a confiscation order up to the value of the proceeds will follow against legitimately acquired assets to the extent that they are available for realisation. A consideration of those matters demonstrates that the appellant's argument cannot be sustained.
36. The question of disproportionality, which has to be considered prior to making any confiscation order, will necessarily be a fact-sensitive exercise. Some general examples of situations giving rise to disproportionality can be seen in Waya (restoration of property to its owner), R v Ahmad [2014] UKSC 36 (non-enforcement of orders against multiple defendants which would lead to the state recovering more than the total benefit amount) and Harvey (disproportionate to include VAT received by a defendant which has already been accounted for and paid to HMRC).
37. In each of those situations, a finding of disproportionality is understandable. However, we regard the situation as being very different when the justification for a finding of disproportionality is based on an approach requiring an ascertainment of the net profits of crime in circumstances like the present.
38. The judge below did not approach the question of proportionality in a vacuum. He considered the circumstances of this offender's involvement in the offending. He took account of money shown to have passed through this appellant's hands over a significant period of time in a very large illegal drugs enterprise in which he took a leading role. He had regard to the expensive cash lifestyle led by this appellant, which was unaccounted for. He was satisfied that the appellant had substantial hidden assets about which he had provided no evidence.
39. Those circumstances were relevant to a consideration of whether the order made would be proportionate or not. In our view, they justified the judge's conclusion. Whilst the observations about the appellant's persistent mendacity were of lesser relevance, they were not wholly irrelevant and in any event do not invalidate the judge's decision. We are not therefore persuaded that there is anything in the point raised by the appellant.
40. Accordingly, this appeal is dismissed.

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