16 September 2002
15 April 2013
7 June 2013
1 February 2013
23 July 2013
11 September 2013
2002, which weighs in at a whopping 462 sections and 12 schedules, and which will become effective later this year. However, this is not an act that any solicitor or barrister can afford to understand in only general terms.
While the most significant effect will be on the working lives of practitioners conducting criminal litigation, in particular white collar crime, every lawyer should undertake a detailed consideration of how it will affect their practice, by influencing the advice they give and the way they go about their business.
The key proposals of the act are the establishment of a specialist agency to target confiscation of the proceeds of crime; the consolidation of the criminal confiscation regime; the introduction of a civil forfeiture regime; increased powers of investigation; and a new power to tax criminals without reference to source of income. There are also significant changes to the existing money laundering legislation, and it is this development that should be of interest to all lawyers.
Changes to the substantive law of criminal confiscation have possibly been previously overstated. In fact, the biggest change is academic, namely the introduction of a single regime for the confiscation of the proceeds of all crimes in place of the two regimes that exist now for drugs and non-drugs offences respectively.
Other changes, such as the introduction of the mandatory use of the statutory assumptions in non-drugs cases (assumptions, in certain cases, that all of a defendant's assets represent the proceeds of crime) and the introduction of confiscation orders in nominal amounts where a defendant has no realisable assets, will not make much difference in practice. The important changes for practitioners lie instead in the way that the prosecuting authorities approach confiscation and changes to court procedures.
The current regime fails to recover the proceeds of crime because the authorities are underfunded and have low morale, not because their powers are insufficient. The new Asset Recovery Agency (ARA) will have greater resources and will train police and others to become financial investigators in addition to coordinating efforts between the prosecuting authorities. This should result in those authorities having the wherewithal and funding to pursue confiscation as a matter of course.
The principal procedural change is that the Crown Court will become a one-stop shop, where applications for restraint orders, receivership orders and variations and discharges of such orders will now be heard, rather than in the High Court. This will make it quicker, easier and cheaper to obtain restraint orders and thereafter manage a defendant's assets, which will almost certainly mean a dramatic increase in the number of applications. Further, according to the act, restraint orders will now become available as soon as an investigation has commenced, rather than only after a defendant "is to be charged".
In fraud cases, where an investigation might last two years, there is often little point in going to the High Court for a restraint order, particularly if the accused has not sought to dispose of assets during the investigation. However, under the new legislation, the authorities are very likely to proceed immediately to the Crown Court for a restraint order at the beginning of an investigation, when they may still know very little about a defendant.
There is also the added incentive that a restraint order can prevent a suspect from paying privately for representation, because an individual under restraint will not be permitted to pay legal fees that relate to the offences in connection with which they were restrained. In practice, this provision deals a serious blow to the future of private fraud work.
Henceforth, suspects will only be able to pay privately when the benefit they are alleged to have received from crime is in a precise amount so that the restraint order is limited to that amount (which is less than their total assets), or alternatively where third parties are able and willing to fund the representation.
Legal aid will be available, but only for police station attendances or representation at court, but not preparation in connection with avoiding a prosecution. Lawyers who are used to expending huge time and effort trying to prevent a suspect being charged at all will therefore find that they no longer have the funding to perform such work.
Another consequence of the inevitable increase in restraint orders and confiscation orders is that criminal practitioners will be instructed by a whole new class of client: third parties affected by such orders.
A court may restrain any assets in which a defendant has an interest, and in appropriate cases may lift the corporate veil and restrain companies and businesses in which the defendant has an interest. In some cases the restraint of such property will generate enormous 'civil' litigation in the Crown Court, as various interested parties seek to persuade the court of their interest and remove the assets from restraint.
The radical new civil forfeiture provisions, available to the director of ARA, who may pursue criminal property in the High Court, will also generate significant new work; and as one would expect in relation to a quasi-criminal procedure, this work could be conducted by criminal or civil litigators.
Restraint orders are also available in such cases and reasonable legal expenses will be available for the defendant to fight the case. It remains to be seen how often the authorities will wish to follow the civil forfeiture route, but given the lower standard of proof needed in such cases, it is bound to become popular in difficult cases.
Criminal practitioners who wish to represent defendants and third parties in relation to such cases are clearly going to have to learn a whole new set of skills.
More significant perhaps than any of these developments are the changes to the money laundering provisions brought into effect by the act. These changes affect the whole profession and no lawyer can afford not to fully understand their consequences. Every practitioner should ensure that they know what it means to conceal or use the proceeds of crime, or assist others to do so.
Equally important is the new 'negligence test' in relation to failing to report, which means that if a solicitor working in the "regulated sector" should suspect money laundering, but fails to report such suspicions, they commits a criminal offence, even if they did not, in fact, suspect it.
The difficulty with such cases is that, when all the facts are out in the open following an investigation, it may appear obvious to everyone that there was money laundering, whereas the busy practitioner with only some of the facts could not see it. Moreover, the existence of legal privilege or some other excuse may mean that reporting is not appropriate, which makes some cases even more complicated.
This issue is about to become very important for lawyers, because the definition of 'regulated sector' is soon to be altered with the implementation of the Second European Commission Directive on Money Laundering to include most areas of non-contentious legal work. Those conducting such work will also become subject to the Money Laundering Regulations and the Financial Services Authority Rules.
The only way for firms to avoid the pitfalls of this legislation is to work out carefully the exact nature of the obligations that fall upon them and ensure that they have systems in place to avoid being used as well as staff who are trained to know when they should be suspicious.
Adam Cowell is a partner at Irwin Mitchell's business crime unit