Jersey Unreported Judgments

Forfeiture of assets

[2019]JRC219

Royal Court

(Samedi)

31 October 2019

Before     :

J. A. Clyde-Smith O.B. E., Commissioner sitting alone.

 

IN THE MATTER OF A REPRESENTATION OF HER MAJESTY'S ATTORNEY GENERAL

AND

IN THE MATTER OF THE FORFEITURE OF ASSETS (CIVIL PROCEEDINGS) (JERSEY) LAW 2018

AND

IN THE MATTER OF IAN JOSEPH ELLIS

Advocate M. T. Jowitt for the Representor.

Advocate P. G. Nicholls for the Respondent.

judgment

the commissioner:

1.        In handing down its judgment on 22^nd July 2019 (AG v Ellis  [2019] JRC 141), which we will refer to as "the First Judgment", the Court asked to be addressed on whether it was proportionate to forfeit the whole of the bank account in the name of the respondent or just that part that represented the taxes evaded.

2.        This judgment should be read as an extension of the First Judgment but by way of a brief recap:-

(i)        The Attorney General applied under Article 11(4) of the Forfeiture of Assets (Civil Proceedings) (Jersey) Law 2018 ("the Forfeiture of Assets Law") to forfeit a bank account in the name of the respondent ("the Account") at Standard Chartered Bank, Jersey Branch, which has a balance of £33,804.52p.

(ii)       Under Article 11(2), the burden was upon the respondent to satisfy the Court, on the balance of probabilities, that the Account was not tainted property, as defined under Article 2, namely property that the Attorney General has reasonable grounds to believe is or has been:-

(a)       Used in, or intended to be used in, unlawful conduct, or

(b)       Obtained in the course of, from the proceeds of, or in connection with, unlawful conduct.

(iii)      The Court found that the Attorney General had reasonable grounds to believe that the Account was tainted property (paragraph 36 of the First Judgment).  Of the grounds put forward, the Court was satisfied that the monies credited to the Account came from the respondent's legitimate taxi and car dealing businesses (paragraph 39 of the First Judgment) and not from any involvement on his part in the drugs trade, but was not satisfied that the Account was used for the purpose of legitimate tax avoidance, as opposed to illegitimate tax evasion (paragraph 40 of the First Judgment).

(iv)      The key finding of the Court is contained at paragraph 42 of the First Judgment, which I set out again:-

"42     We agree with Advocate Jowitt that the obvious inference from the respondent's affidavit is that the respondent paid monies into the Account as part of a dishonest scheme by which he under-declared the true amount of his income to the United Kingdom tax authorities, which would have involved him in filing tax returns which falsely under-stated his true income, and that would be an offence under our law if it had occurred here.  The Account was used in, or intended to be used in, that unlawful conduct.  In short, his conduct means that the Account falls fully within the definition of tainted property in Article 2 of the Forfeiture of Assets Law.  This accords with English authority.  The case of Ahmed v HMRC (2013) EWHC 2241 (Admin) concerned a respondent who hid cash in his home as part of a scheme to under-declare takings from his company to the revenue.  Carr J said (at paragraph 37) 'It is sufficient to prove that the sum or part of it was part and parcel of a dishonest scheme to cheat the Revenue'."

(v)       The case of Ahmed v HMRC [2013] EWHC 2241 (Admin), which, in turn, had quoted at length from the Supreme Court decision in R v Waya [2012] UKSC 51, raised the issue of proportionality, on which the Court had not been addressed.  The skeleton argument filed by Advocate Jowitt, for the Attorney General, on the issue of proportionality maintained that it did not arise in this case and so I sat alone to consider that issue.

3.        The facts in Ahmed v HMRC are analogous in many ways to the facts in this case.  Over a period of some seven years, Ahmed had taken legitimate earnings totalling some £325,400 from the businesses of his wholly owned company and concealed it in his house, and this as part of a dishonest scheme to cheat the Revenue.  There were two issues on appeal, namely whether these moneys comprised "recoverable property" for the purposes of Part 5 of the Proceeds of Crime Act, 2002 ("POCA") and secondly, whether it was proportionate to forfeit the whole amount, or just the part that represented the amount of tax evaded.  The High Court found that this was recoverable property, but that it was disproportionate to forfeit the whole amount.  It remitted the matter back to the District Judge to assess the appropriate amount in the absence of agreement.

Attorney General's submissions

4.        In summary, Crown Advocate Jowitt made the following submissions:-

(i)        That the question of proportionality in the Ahmed v HMRC case was fact specific to that case, which focused on property 'obtained through unlawful conduct' and does not arise in the same way in this case, where the Royal Court found in terms that the property was tainted because it fully met the wide definition of tainted property in Article 2 of the Forfeiture of Assets Law as property "used in or intended to be used in unlawful conduct" as well as property "obtained in the course of ... or in connection with" unlawful conduct.

(ii)       In so far as proportionality may arise for consideration, it would be generally in respect of the Forfeiture of Assets Law's compliance with the European Convention on Human Rights ("ECHR").  No such argument was advanced at trial by the respondent.  In any event, laws to confiscate not merely the proceeds of crime but also the instrumentalities of crime accord with obligations created by a number of international treaties. The Forfeiture of Assets Law seeks to fulfil an internationally recognised obligation and is ECHR compliant.

(iii)      In any event the burden of proving what proportion of the property was due to tax fell on the respondent at trial, for example by the provision of business accounts and annual tax returns.  He provided no such evidence and advanced no such argument.  Accordingly the Court has no evidence before it now upon which it could arrive at any accurate finding.

Respondent's submissions

5.        In summary, Advocate Nicholls, for the respondent, made the following submissions:-

(i)        The approach to proportionality is clear:-

(a)       The Forfeiture of Assets Law must be read and given effect to in a manner which avoids violation of Article 1 of the First Protocol to the Convention for the Protection of Human Rights and Fundamental Freedoms ("A1P1").

(b)       A forfeiture order which does not conform to the test of proportionality would constitute such a violation.

(c)       The Court has a duty not to make an order which involves such a violation.

(d)       The Forfeiture of Assets Law must be read down so as to be compatible with A1P1.

(ii)       It would be disproportionate and a violation of A1P1 for the Court to seek to forfeit the cash in the Account which the Court has held to have been derived from a legitimate business source which was not owed in tax.

(iii)      The only property which is liable to forfeiture is the amount in the Account which the representor is able to establish to represent the tax evaded.

(iv)      The burden is on the representor (as the party seeking a forfeiture order) to establish the amount in the Account (if any) representing the tax evaded.

Decision

6.        The starting point is the Supreme Court decision in R v Waya, which was concerned with confiscation following conviction under Part 2 of POCA which, as Advocate Jowitt rightly points out, is concerned with the recovery of the amount by which a convicted defendant has benefited from criminal conduct, namely the value of what he has obtained (section 76).  I accept that this is a lower concept than the concept of being in possession of property "used in, or intended to be used in, unlawful conduct", namely the instrumentalities of crime.

7.        In giving the judgment of the Supreme Court, Lord Walker and Lord Justice Hughes (at paragraph 11) set out A1P1:-

"Every natural or legal person is entitled to the peaceful enjoyment of his possessions.  No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.

The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties."

8.        Then at paragraph 12:-

"It is clear law, and was common ground between the parties, that this imports, via the rule of fair balance, the requirement that there must be a reasonable relationship of proportionality between the means employed by the state in, inter alia, the deprivation of property as a form of penalty, and the legitimate aim which is sought to be realised by the deprivation.  That rule has consistently been stated by the European Court of Human Rights ..."

9.        Having pointed out that Section 3(1) of the Human Rights Act 1998 requires that in so far as it is possible to do so, legislation must be "read and given effect in a way which is compatible" with Convention rights, they accepted at paragraph 14 that the following propositions are correct:-

(i)        that POCA must be read and given effect in a manner which avoids a violation of A1P1;

(ii)       that a confiscation order which did not conform to the test of proportionality would constitute such a violation;

(iii)      that it is incumbent upon the domestic court  to provide a remedy for any such violation; and

(iv)      that the appropriate remedy lies in the duty of the Crown Court judge not to make an order which involves such a violation.

The Human Rights (Jersey) Law 2000 contains an equivalent provision at Article 4(1).

10.      Whilst accepting that POCA constituted a severe regime which would have a deterrent effect on at least some would-be criminals, that did not represent the essence or the "grain" of the legislation.  Quoting from paragraph 21 of the judgment:-

"21     ....It does not, however, follow that its deterrent qualities represent the essence (or the 'grain') of the legislation.  They are, no doubt, an incident of it, but they are not its essence.  Its essence, and its frequently declared purpose, is to remove from criminals the pecuniary proceeds of their crime.  Just one example of such declarations is afforded by the Explanatory Notes to the statute (paragraph 4): 'the purpose of confiscation proceedings is to recover the financial benefit that the offender has obtained from his criminal conduct.'

22       A confiscation order must therefore bear a proportionate relationship to this purpose.  Lord Bingham recognised this in his seminal speech in UR v May, in addition to his 'Endnote' or overview of the regime, at para 48, two balancing propositions: 'The legislation ... does not provide for confiscation in the sense understood by schoolchildren and others, but nor does it operate by way of fine'."

11.      In R v Waya, a mortgage that had been obtained fraudulently had been repaid by the defendant in full, and it was held at paragraph 28 that to make a confiscation order in his case, when he had restored to the loser any proceeds of crime which he had ever had, was disproportionate and would not achieve the statutory objective of removing his proceeds of crime, but would simply be an additional financial penalty.

12.      The Court in R v Ahmed was concerned with Part 5 of POCA, namely the civil recovery of the proceeds of unlawful conduct by way of proceedings brought by the enforcement agencies.  Whilst the definition contained in Section 240 of POCA is capable of extending to the instrumentalities of crime, Advocate Jowitt again rightly points out that in dealing with the first issue on that appeal, namely whether the money concealed away by Mr Ahmed was "recoverable property" as defined, the Court relied on property "obtained through unlawful conduct", which again is narrower than the definition of tainted property in the Forfeiture of Assets Law.  Advocate Jowitt said it was not surprising, therefore, that given this narrow factual base, the Court looked to the decision of the Supreme Court in R v Waya on the issue of proportionality of confiscation orders following a criminal conviction.

13.      It is helpful to consider first the purpose of this part of the Forfeiture of Assets Law.  The preamble states:-

"A Law to provide for the seizure and forfeiture, by way of civil proceedings, of cash and other assets suspected to be property originating, or intended to be used, in unlawful conduct; ..."

which clearly extends to the instrumentalities of crime, as well as the proceeds.

14.       The projet explains that it followed an on-site inspection by MONEYVAL in 2015 and subsequent recommendations which placed a great emphasis on the effectiveness of a financial crime regime at "successfully depriving criminals of illicit property".   It explains that:-

"Non-conviction based confiscation regimes are common in a number of jurisdictions around the world.  They provide a judicial mechanism for authorities to make an application to confiscate assets, where potentially due to an inability to obtain evidence to reach the criminal standard for prosecution (beyond reasonable doubt), it would not be possible to confiscate such assets.  A common use of these regimes may be to confiscate funds that have been frozen for a significant period of time by a bank after a suspicious activity report ("SAR") has been filed.  These situations arise where an account holder may have simply abandoned the funds and has made no attempt to prove their legitimacy further to requests from the bank.  It is important to note the judicial mechanisms proposed in the draft legislation incorporate important safeguards to address the rights of the individual in respect of property."

15.      Whilst the appended report on Human Rights compliance confirms that the regime brought in by the Forfeiture of Assets Law is compatible with Convention rights and in particular A1P1, and no point was taken in that respect by Advocate Nicholls, the report does place emphasis on the role of the Court at paragraph 22:-

"22     The oversight of the courts provides an adequate safeguard for the purposes of ensuring compliance with A1P1 (the interference caused also has a legitimate aim and is in accordance with the law).  The Court also has the power to award compensation under Article 30 of the draft Law where acts are done in bad faith and a person has suffered loss, further strengthening the proportionality of the regime."

16.      Using the words of Lord Walker and Lord Justice Hughes at paragraph 16 of the judgment in R v Waya, whilst the Forfeiture of Assets Law is Convention compliant as enacted, the legislature must have intended it to remain so, and the Forfeiture of Assets Law must be given effect in a manner which is compliant:-

"The judge should, if confronted by an application for an order which would be disproportionate, refuse to make it, but accede only to an application for such sum as would be proportionate."

17.      Advocate Jowitt submitted that the purpose of the Forfeiture of Assets Law was to deprive people of assets said to be tainted, because they are the proceeds or the instrumentalities of crime, where criminal proceedings cannot be brought.  There is no definition as wide as this in the equivalent English legislation, and by extending the definition to the instrumentalities of crime, forfeiture could extend to legitimately owned assets, such as aircraft or boats used to transport drugs or, as in this case, an account in Jersey used to evade tax.

18.      As the projet states at paragraph 20 of the appendix, the Forfeiture of Assets Law is partly modelled on POCA and in my view its purpose, as set out in the preamble, is to remove from people through civil proceedings both the proceeds and the instrumentalities of unlawful conduct and because its ambit is wider than the civil procedure under Part 5 of POCA, there is an even greater argument for proportionality. As Carr J said in Ahmed v HMRC at paragraph 45:-

"45     As I have said, I acknowledge that the court in Waya was dealing with Part 2, not Part 5.  In my judgment, there is an even greater argument for proportionality when applying Part 5.  Part 5 provides for a civil, not a criminal, sanction.  Compensatory rather than punitive considerations naturally come into play."

19.      In discussion, Advocate Jowitt did not maintain that proportionality could not arise.  The instrumentalities of crime was a concept, he accepted, that could be taken very far and extend, by way of example, to the clothes that a defendant might have been wearing when driving to the airport to transfer drugs or the car he was using to drive there or the flat or home he owned near the airport or, I would add, to the house in which Waya concealed his money.  It could be, he conceded, disproportionate to extend instrumentalities to everything used in connection with unlawful conduct.

20.      Advocate Nicholls gave the example of a drug dealer persuading a friend living abroad to allow £1,000 of the proceeds of the sale of drugs to be laundered through his friend's Jersey bank account, which contained the friend's legitimately earned life savings of £100,000.  Leaving aside the penalty that might be imposed for facilitating money laundering in this way, would it be proportionate for the whole of that friend's life savings to be forfeited because he allowed his account to be used as an instrument in that crime? 

21.      Article 11(4) of the Forfeiture of Assets Law does not provide that where a respondent fails to satisfy the Court that the property concerned is not tainted property, all of that property must be forfeited.  On the contrary:-

"(4)     Unless the respondent satisfies the Court that the property is not tainted property, the Court shall, upon the application of the Attorney General, make a forfeiture order in relation to the property specified in the notice or any part of it."(My emphasis)

This expressly envisages the possibility that forfeiting all of the property found to be tainted may be disproportionate.

22.      I conclude that Ahmed v HMRC, and in particular R v Waya, are authority for the following propositions, as put forward by Advocate Nicholls, namely that:-

(i)        The Forfeiture of Assets Law must be read and given effect in a manner which avoids a violation of A1P1;

(ii)       That a forfeiture order which does not conform to the test of proportionality would constitute such a violation;

(iii)      That it is incumbent upon the Court to provide a remedy for any such violation; and

(iv)      That the appropriate remedy lies in the duty of the Court not to make an order which involves such a violation.

23.      For all these reasons, I conclude that proportionality does arise on the facts of this case, and that as a matter of construction of the Forfeiture of Assets Law, it would be disproportionate for the entire Account, comprising, as it does, the respondent's legitimately earned moneys, to be forfeited.  As the Court found in Ahmed v HMRC, the forfeiture order should be limited to that part which represents the evaded tax and, arguably, penalties and interest.

Burden of Proof

24.      Advocate Jowitt argued that if proportionality considerations did arise, it was for the respondent to prove by evidence at trial what proportion of the money was due to tax by, for example, the provision of business accounts and his annual tax returns.  The respondent had not sought to advance that argument, and had failed to provide any evidence in that respect.  The Court has no evidence upon which it could arrive at any proper determination of the issue, even if it were appropriate to do so.

25.      Advocate Nicholls responded that it would be perverse to criticise the respondent who is alleged to have committed tax evasion for not adducing evidence at trial of his alleged tax evasion; his case was that this was tax avoidance.  If the Attorney General's criticisms were to be accepted, it would be akin to criticising a defendant in a criminal trial for failing to write his own indictment.  The basic principle of law, he submitted, is that it is incumbent upon the Attorney General, as the plaintiff in what are civil proceedings, to prove his case on the balance of probabilities.  Whilst accepting that for the purposes of Article 11 of the Forfeiture of Assets Law, the burden of proof is reversed, that only extended to the question of rebutting the presumption that funds are tainted property.  The issue now is the extent to which the Court is able to forfeit the tainted property, on the basis that part of it can be said to constitute tax evaded, and it was clearly incumbent upon the Attorney General, as the party seeking forfeiture, to establish this.

26.      Absent definitive confirmation from HMRC as to the amount of tax evaded or alternatively agreement between the parties as to the amount to be forfeited, the Court runs a clear and obvious risk, he said, of violating A1P1.  In terms of settlement, Advocate Nicholls referred to Article 34 of the Forfeiture of Assets Law, which allows the Court to make any order under Article 11 agreed between the Attorney General and the respondent. 

27.      In my view, Advocate Nicholls is correct to say that the burden of satisfying the Court that a forfeiture order should be made is upon the Attorney General, the party seeking an order.  Article 11(3) and (4) are in these terms:-

"(3)     If the respondent makes a request under paragraph (2)(b), the respondent must provide an affidavit in answer to the notice within the period of 21 days beginning with the date on which the matter is placed on the list, satisfying the Court that the property is not tainted property.

"(4)     Unless the respondent satisfies the Court that the property is not tainted property, the Court shall, upon the application of the Attorney General, make a forfeiture order in relation to the property specified in the notice or any part of it." (My emphasis)

28.      The respondent has failed to satisfy the Court under Article 11(3) that the Account is not tainted property, but it is now the Attorney General who is applying under Article 11(4) for a forfeiture order, for which application no fresh originating process is required as suggested by Advocate Nicholls.  The burden is therefore upon the Attorney General to satisfy the Court that the forfeiture order he is seeking is proportionate.  These are civil proceedings and the issue of the amount of tax evaded is to be determined by the Inferior Number on the balance of probabilities.  I do not accept that this can only be proved by a "definitive confirmation" from HMRC as to the amount evaded. 

29.      Article 11 is supposed to be a summary procedure and I am conscious that the amounts involved here are not substantial.  It might be hoped, therefore, that this aspect of the case could be dealt with by agreement.

Authorities

AG v Ellis [2019] JRC 141. 

Forfeiture of Assets (Civil Proceedings) (Jersey) Law 2018. 

Ahmed v HMRC [2013] EWHC 2241 (Admin). 

R v Waya [2012] UKSC 51. 

Proceeds of Crime Act 2002. 

Human Rights Act 1998. 

Human Rights (Jersey) Law 2000