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Civil recovery actions have been identified as a powerful tool in the fight against financial crime. Nicholas Cox examines their progress to date and whether criticisms of them being used as an alternative to prosecutions hold any water
As acquisitive crime and fraud, both in the UK and internationally, increase during the economic crisis, there are signs that a troublesome child of the Proceeds of Crime Act 2002 (Poca) may be coming of age.
A report published in July 2009 by the Home Office and the Cabinet Office Strategy Unit, ‘Extending Our Reach: A Comprehensive Approach to Tackling Serious Organised Crime’, proposes that more “forceful” use be made of civil recovery powers, alongside other tools, such as financial investigations and tax assessments of criminals’ income.
The civil recovery action under Part 5 of Poca came into force in the spring of 2003. It confers upon the relevant enforcement agencies - principally the Serious Organised Crime Agency (Soca), which has a specialist civil recovery team, the Serious Fraud Office (SFO) and the Crown Prosecution Service (CPS) - a statutory course of action for the recovery of property that is (or represents property that was) obtained in whole or in part through unlawful (ie criminal) conduct. There are associated pre-action powers to investigate and compel disclosure of information and powers to freeze assets or appoint interim receivers pending trial. The action directed at identified property in a respondent’s hands is concerned with the unlawful conduct associated with its acquisition, whether or not the unlawful conduct was that of the respondent or if it took place in the UK or abroad.
The early years of the civil recovery jurisdiction were characterised by legal challenges, litigation delays and costs. Six years on and the civil recovery action is now better understood (human rights challenges have failed and there is greater clarity as to what needs to be proved and how) and it has become easier for enforcement agencies to deploy as they are assisted by more sophisticated case management methods. Areas of legal difficulty remain, however, in particular disclosure and the use of frozen assets for the funding of respondents’ legal and living costs. The latter is an area (along with ‘rebalancing’ the burden of proof) that the Home Office has indicated it plans to review with the Attorney General’s Office by October 2009.
Coming of age
Evidence of a greater emphasis on civil recovery is already beginning to emerge - controversially so, in the opinions of some. Soca’s civil recoveries for 2008-09 (£16.7m) exceeded targets. While other agencies have been slow to develop the expertise and to deploy the legislation, there are signs of a change of attitude at the SFO.
In October 2008 the SFO concluded a high-profile £2.25m civil recovery settlement with Balfour Beatty after the company self-reported payment irregularities connected with a building project in Egypt.
“[The SFO] will adopt the tool best suited to the individual case in the public interest,” stated SFO director Richard Alderman. “The more we use a consensual approach, the happier I’ll be.”
More recently it has been reported in the press that the SFO has been considering the use of non-traditional methods in connection with its investigation into international bribery allegations involving BAE Systems.
“Whenever we can we will prosecute,” reads the policy set out in the report. “But we will also go further in using non-criminal proceedings […] to disrupt the activities of those involved in serious organised crime.” Although interestingly it is elsewhere stated that “we need to persuade operational partners that financial outcomes can be as much of a success as convictions or commodity seizure”.
Although it presently remains the case that the primacy of criminal investigation and prosecution over civil recovery is enshrined in Poca (Sections 2 and 2A) and statutory guidance provided to the enforcement agencies, a prudent note of caution has been sounded that civil recovery should not become an easier, more profitable and less costly alternative to prosecution. Civil settlements of this kind can run the risk of creating a perception of ‘justice behind closed doors”.
It will be interesting to see whether and how the statutory guidance issued to the enforcement agencies by the Secretary of State will be revised to reflect the greater emphasis on civil recovery and its relationship to criminal prosecutions. In a recent speech, the SFO director gave a useful example of when the SFO would regard a civil approach as inappropriate. In the case of corporate frauds, board complicity in the fraud, particularly where that is at a senior level and there has been personal benefit, can be expected to lead to a criminal investigation - certainly so where (unlike in the Balfour Beatty case) individuals implicated in the conduct remain.
The international nature of organised crime still presents practical challenges of cooperation and enforcement. Regulations empower the English courts to enforce civil recovery orders made outside the jurisdiction and the English court can also freeze and make recovery orders relating to property located abroad if (inter alia) the owner of the property is within the jurisdiction. The problem lies in enforcing such orders.
Even between countries committed to international cooperation in this field, difficulties arise from differences in language and terminology, definitions of criminal offences and the characterisation of recovery proceedings as civil rather than criminal.
The UK Government, though, commits in its report to lobbying for increased recognition abroad and there is evidence that the virtues of civil asset forfeiture are being recognised abroad.
As financial crime continues to dominate headlines, the Isle of Man has enacted legislation recently enabling civil recovery for the first time in that jurisdiction and has indicated an intention to legislate to permit law enforcement agencies on the island to cooperate with agencies in other jurisdictions engaged in civil recovery.
Nicholas Cox is a barrister at 4 Stone Buildings and a member of the Chancery Bar Association