Keeping track

Confiscation orders remain a topical issue among those practicing criminal law. Not only did the Proceeds of Crime Act 2002 lead to a significant increase in the pursuance of such cases by the Crown, but the perceived lack of success of the Assets Recovery Agency over a number of years, together with the recent announcement that it would be merged with the Serious Organised Crime Agency (SOCA), has continued to generate media attention.

Given that the key issues in confiscation orders tend to be in respect of the quantification of the benefit to the defendant (both the particular benefit from the crime of which they were convicted and the general benefit if the Court determines they have enjoyed a criminal lifestyle) and the available amount from which any award can be made, accountancy issues tend to be central to the proceedings.

As a forensic accountant undertaking a significant amount of work in this area, I see certain recurring issues which the defence team may wish to consider, either when instructing an expert or when undertaking the accountancy work themselves. These issues are detailed further below.

Why is accountancy work typically required in confiscation orders?

The nature of confiscation order proceedings, whereby the defendant has already been convicted of a crime, means that the emphasis is on the defence team to rebut the value of asset recovery sought by the Crown.

Indeed, in many such cases, the Crown will only provide a brief case summary setting out the benefit of the crime for which the defendant has already been convicted and listing the assets disclosed by the defendant. If there is a significant difference in value between the benefit and claimed value of assets, then the Crown may allege that there are 'hidden' assets, the existence of which it is then for the defendant to disprove.

However, on other occasions, the Crown will provide a detailed report in respect of the amounts it is seeking to recover. This is especially likely to occur where it is claimed that there are hidden assets or that the defendant has enjoyed a criminal lifestyle. Where a criminal lifestyle is being alleged, the Crown will typically take the view that all receipts into the defendant's bank accounts, where the source is not immediately identifiable, arise from crime. However, this may not be a reasonable assumption.

Where such a report is served by the Crown to substantiate the claimed benefit and available amount, it has normally been prepared by an internal 'expert' on behalf of the prosecuting body.

There can often be questions concerning the independence of these 'experts', as they are typically long-term employees of the body concerned, as well as the extent of their qualifications and experience. It is therefore advisable that any work undertaken by the defence be subject to a thorough and detailed check to ensure its accuracy.

Moreover, these reports can be less than user-friendly in the presentation of their findings and conclusions. As a result, an expert accountant can often assist the Court in facilitating understanding by taking the prosecution's findings and presenting them in a more readily comprehensible and logical format. Without undertaking this work, it can be difficult to establish and understand, let alone rebut the Crown's case.

The issues surrounding the independence of experts in criminal cases are particularly relevant given Part 33 of the Criminal Procedure Rules, which states that an expert must given an objective, unbiased opinion. Paragraph 33.5 of the Criminal Procedure Rules also allows for a pre-hearing discussion between the experts and this provides the opportunity for the expert accountants to prepare a statement for the Court on the matters on which they agree and disagree.

However, regardless of whether a detailed report has been prepared by the Crown or not, the majority of accountancy work required in confiscation order proceedings relates to analysing the flow of monies through various bank accounts to find its ultimate destination or use, as well as tracing what has happened to various financial assets held at some point by the defendant.

Whilst this analysis work can often be undertaken by instructing solicitors and counsel, forensic accountants are able to make use of electronic data interrogation tools to facilitate the analysis of large volumes of financial information. In particular, the level of work required can be dramatically reduced where the Crown has already prepared detailed schedules in electronic format which can be disclosed to the defence team.

It is often possible to reconcile movements through bank accounts to third-party documentation, which can include sales and purchase invoices, financial statements and accounting records. This can assist in demonstrating the use and destination of monies, particularly where there has been dissipation of funds.

The commercial knowledge and experience of accountants, gained from working in practice and understanding the typical modus operandi of companies, can also be a major advantage. Very often, the internal experts relied upon by the Crown have only worked in the public sector and may therefore make inaccurate or inappropriate assumptions about the defendant's business activities, which can have a significant knock-on effect on the quantification of the benefit.

Finally, accountants can help consider the potential usefulness of any disclosure which has not been relied upon by the Crown, but which may nonetheless assist the defence work. In particular, there may be documents which were disclosed in connection with the original trial (for example accounting records) which may also be relevant to the confiscation proceedings.

Case study

The areas discussed above, can be illustrated with reference to an actual case study which related to an individual who had pleaded guilty to being knowingly concerned in the importation of a controlled substance.

A total benefit of over £900,000 was being claimed by HM Revenue and Customs (HMRC), of which approximately £400,000 related to particular criminal conduct and £500,000 related to general criminal conduct. The benefit from particular criminal conduct relied upon the valuation of narcotics and was therefore outside of the expertise of an accountant and the available amount was subject to factual rather than expert evidence.

Our instructions were in respect of the value being placed upon claimed general criminal conduct, whereby HMRC was alleging that all 'unidentified' receipts into bank accounts associated with the defendant were the proceeds of crime.

We were immediately able to identify that the Crown had missed a number of transfers between bank accounts associated with the defendant which therefore represented double counting of the claimed benefit. Moreover, the Crown had treated a number of regular and small-value receipts as proceeds of crime, when common sense appeared to dictate that this was an unreasonable assumption.

However, the material weakness in the Crown's report was in respect of the defendant's business. Prior to his conviction, the defendant had operated a legitimate haulage company for a number of years. Not only were copy sales invoices available, but company accounts had been prepared by a third-party chartered accountant and there were documents to support the purchase and sale of vehicles by the business.

Detailed analysis revealed that the majority of sales invoices reconciled to the turnover figures shown in the company's accounts. A large proportion of the 'unidentified' receipts could therefore be shown to be genuine bona fide receipts from customers paying specific invoices further to haulage carried out by the company.

In addition, the defendant operated his company in such a manner that there was often overlap between the company and his personal bank accounts. For example, on occasions he would pay receipts from customers into his own bank accounts whereas on others he would meet company expenses out of his own accounts if the company had insufficient funds. Amounts had also been regularly transferred between bank accounts to facilitate working capital management. This type of behaviour, which can be typical of small owner-managed businesses, had not been considered or even mentioned by HMRC in its report.

As a result of our work, it was possible to approximately halve the amounts being claimed by the Crown under general criminal conduct. There were potentially further reductions, depending on whether the Crown accepted a number of representations made in witness statements.

Resources are often limited

As shown in the above example, accountancy work can significantly assist in confiscation order proceedings.

However, in the majority of cases, the work is publicly funded through the Legal Services Commission (LSC) and there are typically cost restraints. It is unlikely that sufficient prior funding will be approved to allow a full analysis of the defendant's financial affairs for the whole of the relevant period.

It is therefore essential to prioritise early on in the proceedings exactly what accounting work should be undertaken and, if an expert is to be instructed, to clearly set out the instructions for their appointment.

If an expert is to be appointed, then request a detailed fee budget from them, breaking down the total estimated hours into as much detail as possible and explaining why each area of work is required. This should assist in making an application to the LSC.

If the work initially undertaken by the expert shows a significant deviance from the amounts claimed by the Crown, it may then be possible to obtain further funding on the basis of these initial findings.

Useful documents

There are various documents which may prove useful to the defence team, regardless of whether an accountancy expert has been instructed.

Bank statements for all personal and business bank accounts connected with the defendant during the relevant period are likely to be required. If these can be obtained in electronic format, it is likely to reduce the work required to be undertaken.

The destination of cheques paid out of bank accounts, as well as the source of funds received are also often key areas requiring further examination. Whilst the obtaining of copy cheques or paying-in slips can be costly, it can be a useful exercise to undertake for at least a sample, to demonstrate the source or destination of large-value amounts. Chequebook and paying-in book stubs may be available, but there is a reliance on the accuracy of the description written onto the stubs which may not be appropriate.

If the defendant had a business or a company, then it will be necessary to obtain financial statements as well as sales and purchase invoices and any financial records such as nominal ledger printouts, sales daybooks or management accounts. If an accountant is to be instructed, then they may be able to reconstruct the business's financial history if electronic accounting records are available.

Any other third-party documentation which is able to support the individual transactions shown passing through the defendant's bank accounts, such as credit card statements, loan agreements and correspondence is also likely to be of assistance. Where such documents are not available, third-party witness statements may be able to provide some level of explanation as to the nature of certain transactions.

Appointing an independent expert

Ultimately, appointing an independent expert accountant to prepare a credible report may provide comfort for both the defence team in negotiating a settlement and to the Crown in respect of the independence and quality of the work carried out.

This is particularly relevant in the context of Part 33 of the Criminal Procedure Rules, which for the first time sets out the form that expert evidence should take in criminal cases.