POCA SHOCKER - Confiscation orders for licensing offences and the Proceeds of Crime Act 2002
The Proceeds of Crime Act 2002 (“POCA”) does not appear to have pinged across the radars of many licensing practitioners. A search for the Act on the Institute of Licensing's website produces zero hits; a thumb through of back issues of the Journal of Licensing draws another blank; consult Paterson’s Licensing Acts and you will find only a handful of footnoted references to a single Crown Court decision of 2011.
To the uninitiated, POCA is for gangsters, drug dealers and money launderers. Serious criminals - so other people, or other people’s clients. Not something for licensors to worry about it.
However, perhaps not for much longer. Recent appellate case-law, a growing realisation by regulators of the potential applicability of POCA to their roles, and the increasing encroachment of crime in a wide sense into licensing, are conspiring to bring POCA applications into matters that previously might have been disposed of within a “pure” licensing environment.
POCA is the latest iteration of a regime with the stated purpose of ensuring that criminals do not profit from their crimes. It is intended to send a strong deterrent message. It is deliberately designed to be severe.
It brings the prospect of draconian financial orders, applied for without warning, imposed by judges with no discretion to refuse to do so, with payment encouraged by terms of imprisonment in default and a raft of enforcement powers.
In the licensing field, the risk is not confined to the organisers of illegal raves, underground gambling den bosses and others who simply ignore the necessity for licenses. Au contraire, established, bona fide and ostensibly reputable operations such as high street bars, takeaways and social clubs can find (and have found) themselves on the receiving end of POCA applications.
In any situation where breaches of the licensing regime have occurred, practitioners should consider whether there is a POCA risk, and advise accordingly. On the other side of the fence, regulators should appreciate (if they do not already) that there is a fearsome (and potentially profitable) weapon in their armoury.
A confiscation order does not provide for “confiscation” in the sense that a schoolboy recently deprived of a copy of Razzle would understand. Nor is it a fine. Rather, it is an order for the payment of a sum of money designed to deprive a defendant of the benefit gained from criminal conduct, whether not that benefit has been retained, within the limits of his available means. So, if the benefit has been done away down the boozer, it matters not: if there are assets in the defendant’s hands, that sets the upper limit of a potential order at the time it is made (but watch out lottery winning defendants, they can come back for more).
Although early legislation was confined drug trafficking offences, the regime has been extended to cover general criminal conduct. A conviction (and for a confiscation order, there has to be a conviction) for any criminal offence brings into play the possibility of a confiscation order. This includes summary only offences.
Judicial discretion is largely absent. So, per Lord Walker:
The Crown Court no longer has any power to use its discretion so as to mould the confiscation order to fit the facts and the justice of the case, even though a confiscation order may arise in every kind of crime from which the defendant has benefitted, however briefly. The Crown Court has encountered many difficulties in applying POCA’s strict regime. Many of the complexities and difficulties of confiscation cases, arising from the extremely involved statutory language, would undoubtedly be avoided if a measure of discretion were restored, but whether to restore it, and if so in which form, is a matter for Parliament and not for the courts.
The process is instigated upon prosecutorial request. This is either upon conviction in the Crown Court, upon committal by the magistrates to the Crown Court for sentence, or, crucially in the licensing context, at the point of conviction in the magistrates, when the prosecutor can ask for the defendant to be committed to the Crown Court with a view to confiscation order being made. If the prosecutor asks, the magistrates have no discretion but to commit the defendant. And the prosecutor does not have to give notice to the defendant of his intention to make such a request.
Here is a potential trap for the unwary. A licensing breach, a licensing review, but also - for some reason - a prosecution? Perhaps (see below) for 4 or more separate offences? Is there much harm to pleading guilty, and being sentenced to what will probably be nominal fines? Well, potentially yes, because POCA could be waiting in the wings. Following conviction it will be too late to argue the prosecution itself was an abuse of process or - obviously - to mount a defence to the charges that hitherto were not seen as worth the fight.
Note also that prosecutors have a financial incentive in the confiscation process because under the Home Office’s Asset Recovery Incentivisation Scheme (“ARIS”) they take a cut of the proceeds recovered (18.75% as prosecutor and a further 18.75% if they also investigated the offence).
Once asked, the Crown Court has no discretion but to proceed. The first question it must consider is whether the defendant has a criminal lifestyle. For the uninitiated one might imagine this involves looking at the defendant’s lifestyle: Tony Montana’s household being funded on state benefits. But no, it has nothing to do with lifestyle. Like many things in POCA, the test is mechanical and easily satisfied. There are three routes to the Crown Court finding the defendant to have a criminal lifestyle.
(1) He can be convicted of a specified offence. This includes the offences you might imagine would be specified (so drug trafficking, money laundering, counterfeiting etc.), but there also some surprises. So, for example: importing a psychoactive substance with intent to consume it; copyright offences, including making or dealing in unauthorised decoders contrary to s.297A of the Copyright, Designs and Patents Act 1988; unauthorised use of a trade mark under s.92(1), (2) or (3) of the Trade Marks Act 1994.
(2) If the offence of which the defendant is convicted “constitutes conduct forming part of a course of criminal activity”. Conduct forms part of a course of criminal activity if the defendant has benefited from the conduct in question in the sum of at least £5,000 (in Scotland, the equivalent threshold is only £1,000) and, in the proceedings in question, he has been convicted of 4 or more offences constituting that conduct (or he has been convicted within the last 6 years on 2 separate occasions of similar offence). So, watch out for a summons with 4 or more counts, and check for antecedents. And, if you are a prosecutor, you might want to pick your charges carefully.
(3) If the offence is committed over a period of at least 6 months and the defendant has benefitted from the conduct which constitutes the offence. Again the benefit (widely defined as being not just the benefit from the offence but benefit from any other conduct which forms part of the course of criminal activity which constitutes the offence of which the defendant is convicted) must be at least £5,000 (£1,000 in Scotland).
All factual questions as to benefit are decided on the balance of probabilities.
If the Court decides that the defendant does have a criminal lifestyle then it must go on to decide whether he has benefited from his general criminal conduct. For this, the s.10 assumptions apply. It is presumed that money and assets that have passed through the defendant’s hands or come under his control in the last 6 years is his benefit from general criminal conduct unless he shows otherwise or there would be a serious risk of injustice if making that assumption were made. So defendants with complex and intricate financial affairs watch out; indeed rich people may want to think carefully about holding lots of licences.
If the Court decides the defendant does not have a criminal lifestyle, then instead it should consider whether the defendant has benefitted from the particular criminal conduct: that is, from the offences he has been convicted of and any others taken into consideration.
The confiscation order is arrived at by finding the benefit (be it from the general or particular criminal conduct as applicable), valuing it, and then valuing the available amount. The recoverable amount in which the order will be made is the value of the benefit subject to a cap of the available amount (which can be varied if there is a later change in financial circumstances).
POCA provides a very loose causal test for “benefit”. A person benefits from conduct “if he obtains property as a result of or in connection with the conduct”. In further wide drafting, property is obtained by a person “if he obtains an interest in it”.
A confiscation order may, legitimately and proportionately (1) require the defendant to pay the whole of a sum which he has obtained jointly with others; (2) require several defendants each to pay a sum which has been obtained, successively, by each of them; and/or (3) require the defendant to pay the whole of a sum which he has obtained by crime. This is justified on the basis that otherwise criminals would reduce or avoid liability by essentially asserting that “fings ain’t wot they used t’be in the old crime game”: the margins in the cocaine business are being squeezed, the prices of bribes are going up, and they got done over by their associates, etc. etc. Benefit is therefore typically assessed as turnover rather than profit, and what a civil lawyer might consider to be “double counting” is not a bar to the making of an order.
Early suggestions that regulatory offences are in some special cosy POCA-free category have now been firmly scotched by a series of Court of Appeal decisions.
Firstly, in R. v. Del Basso, the enterprising Mr Del Basso, a property developer who had also become chairman of Bishop’s Stortford Football Club, saw a way of rescuing the club’s financial fortunes by running a park and ride business from its grounds (being handily placed at the end of Stansted Airport’s runway). Alas, planning permission was not forthcoming for this operation, but, unbowed, the business carried on despite a flurry of enforcement notices. Rejecting Mr Del Basso’s appeal against a confiscation order in the sum of £760,000, Leveson L.J. endorsed the trial judge’s remarks that:
Those who choose to run operations in disregard of planning enforcement requirements are at risk of having the gross receipts of their illegal businesses confiscated. This may greatly exceed their personal profits. In this respect they are in the same position as thieves, fraudsters and drug dealers.
Secondly, in Sumal & Sons (Properties) Limited v. Newham LBC the Court of Appeal rejected an argument that regulatory offences were in some sort of special category. It held that whether or not an offence was “regulatory” was not the issue. Rather it was “the terms of the statute or regulations creating the offence, read with the terms of [POCA] and set out in the context of the facts of the case”. Here the defendant landlord had rented a property in an area where selective licensing applied without troubling to obtain a licence. The confiscation order was quashed on the basis that the statute expressly provided for rent to be payable notwithstanding a failure to licence, and gave powers to the tribunal to make a rent recovery order. The receipt of rent was not, therefore, obtained “as a result of or in connection with criminal conduct”.
Then thirdly came the combined appeals of R. v. McDowell and R. v. Singh in 2015. Each defendant was to all intents and purposes a legitimate businessman, conducting a lawful business, but in breach of regulatory provisions.
Mr McDowell was an arms dealer based in Henley. He had arranged for the sales of aircraft and ammunition from China to Ghana. The Trade in Goods (Control) Order 2003 makes it an offence to be knowingly concerned in the supply of such goods, but this is subject to an exception for those granted licences by the DTI, authorising what would otherwise be a prohibited acts. Mr McDowell’s company applied for and obtained a licence. Alas, it did so half way through the transaction in question, and the licence did not have retrospective effect. As the commission was paid in instalments, about half was received before a licence was in place. Mr McDowell was found guilty of offences contrary to the 2003 Order, and, in dealing with the prosecution’s request for a confiscation order, the trial judge found the benefit to be a little over £2.5m, and, Mr McDowell having assets available of £292,499.60, he was ordered to pay that latter sum.
Mr Singh ran a catalytic converter recycling business in Leicester. At the time, the provisions of the Scrap Metal Dealers Act 1964 required him to register with the local authority as a scrap metal dealer. He omitted to do so, was prosecuted, and pleaded guilty to an offence under the 1964 Act. Upon committal to the Crown Court he was fined £350 and made subject to a confiscation order of £176,218.11, being the amount he had available, and being less than the benefit assessed at £965,838.84.
In hearing the appeals together, the Court of Appeal said that Del Basso and Sumal demonstrated the importance of identifying the criminal conduct of the offender at the first stage of assessment. Pitchford L.J. said
It is not sufficient to treat “regulatory” offences as creating a single category of offence to which POCA is uniformly applied. We respectfully agree with the conclusion of the court in Sumal that the question whether benefit has been obtained from criminal conduct must first depend upon an analysis of the terms of the statute that creates the offence and, by that means, upon an identification of the criminal conduct admitted or proved. It may be that, as in Sumal, the wider statutory context of the offence will assist to answer the critical question: what is the conduct made criminal by the statute—is it the activity itself or is it the failure to register, or obtain a licence for, the activity? In our judgement, there is a narrow but critical distinction to be made between an offence that prohibits and makes criminal the very activity admitted by the offender or proved against him (as in Del Basso) and an offence comprised in the failure to obtain a licence to carry out an activity otherwise lawful (as in Sumal).
This “narrow but critical” distinction was then demonstrated by the Court’s decision, which was to reject Mr McDowell’s appeal but allow that of Mr Singh. The 2003 Order prohibited the transaction engaged in by Mr McDowell. Having a licence was an exception to the prohibition. As Mr McDowell did not have a licence for the first half of the transaction, his acts to that point were prohibited, and he obtained a benefit as a result. Mr Singh, on the other hand, carried on in business as a scrap metal dealer in contravention of a requirement to register with the local authority. His criminal conduct was not carrying on in business as a scrap metal dealer; it was failing to register as such. The benefit he had obtained from carrying on in business was not as a result of or in connection with his criminal conduct.
Applying McDowell and Singh to Licensing Act offences
S.136(1)(a) of the Licensing Act 2003 provides that it is an offence to carry on a licensable activity on or from any premises otherwise than under or in accordance with an authorisation. It is apparent that this is a McDowell type offence rather than in the Singh category. The activity itself is criminal unless it is permitted by the authorisation. And of course, if there is an authorisation but the activity is not conducted in accordance with it (so if a condition is breached), the activity is still criminal.
It is not difficult to see the far reaching-consequences of this. CCTV hard-drive broken down? Condition on the premises licence that recordings be kept for 28 days? Then some carefully chosen charges and a subsequent request for a confiscation order, and things could get very expensive. If nothing else, the potential consequences make it all the more important to limit conditions on a licence to those that are precise, proportionate and achievable.
The harshly robotic operation of POCA has been mitigated to an extent by the Supreme Court’s decision in R. v. Waya. It held that POCA had to be read subject to the provisions of Article 1 of the First Protocol of the European Convention on Human Rights (“A1P1”), and that it was the responsibility of the trial judge to refuse to make an order if and in so far as it would be disproportionate to do so. It This ruling has since been expressly incorporated into POCA by an amendment to s.6(5).
The Supreme Court was at pains to suggest this was not discretion by the back door. There might be a confiscation order arrived at under POCA regime which the judge did not like, and would not make if he had discretion, but if it was not disproportionate, he would have to make it.
The difficulty of knowing both what the benefit is and whether an order was correspondingly disproportionate was demonstrated by the findings in Waya, a mortgage fraud case, where the trial judge, the Court of Appeal, the majority of the Supreme Court and the minority came up with four different assessments of benefit.
Of interest in licensing is the discussion in Waya as to the possibility that an order relating to turnover rather than profit might be held to be disproportionate in an “unlawful trading case”. Lord Walker gave an example of :
... the defendant who, by deception, induces someone else to trade with him in a manner otherwise lawful, and who gives full value for goods or services obtained. He ought no doubt to be punished and, depending on the harm done and the culpability demonstrated, maybe severely, but whether a confiscation order is proportionate for any sum beyond profit made may need careful consideration.
This passage came too late for Mr Del Basso (who had only benefited from a quarter of the sum he was ordered to pay), but was seized upon by Mr McDowell, on the basis that had incurred disbursements in Ghana as part of the deal to sell jets there. However, the evidence he gave of the expenses paid to his “business partner” in that country was sketchy, and the Court of Appeal said even if, in principle, it was prepared to countenance quantifying benefit in terms of profit rather than turnover, he had not discharged the burden of proof.
Abuse of process
Prior to the recognition that proportionality applied to the POCA regime, the absence of judicial discretion had lead to abuse of process applicants, often finding favour with Crown Court judges who otherwise have no choice but to make what they saw as unfair orders. Waya may result in fewer such applications, but it is still a possible line of defence for practitioners to consider.
Of encouragement to defendants is R. v. Adaway (Glen), a trades description case where the authority’s written policy was not to prosecute save in cases of fraud or deliberate statutory breaches. There was no evidence that Mr Adaway’s conduct was either fraudulent or deliberate. The Court of Appeal quashed his conviction on the basis that the prosecution was oppressive and should have been stayed, and gave a strong warning to the institution of prosecutions for “strict liability trades descriptions offences” outwith a policy. There seems to be no reason why that principle should be confined to trades description offences.
Of discouragement to defendants is Wandsworth LBC v. Rashid where Adaway was somewhat dismissively confined to its facts, the Divisional Court stating that the underlying principle was that it was for prosecutors to decide when to prosecute, and that they were not required to go through each of the other possible courses of action in order to justify that decision. A similar view as to prosecutorial discretion was taken in Sumal, which also confirms that discretion is engaged both to prosecute and to seek a confiscation order.
Written policy is commonplace in licensing, and indeed is required in the Licensing Act 2003 and Gambling Act 2005 regimes. Furthermore, by virtue of s.22 of the Legislative and Regulatory Reform Act 2006, any person exercising a regulatory function must regulators must have regard to the provisions of the Regulators’ Code 2014, which provides for published service standards. What is less commonplace is policy that deals with the thorny question is the extent to which a desire to obtain a confiscation order (and indeed the desire to obtain a share of the proceeds of that confiscation order) should motivate the decision to prosecute (for without conviction there can be no confiscation order). It is a moot point whether the deliberate framing of charges for the to bring defendants within the criminal lifestyle provisions is an abuse.
Experience shows that if regulators are given powers, they tend to use them. So, when the amendments providing for summary reviews were made, it was intended that there would only be handful each year: there are scores.
No doubt there are individuals who set out to breach licensing laws for profit who would richly deserve to be deprived of their gains through a confiscation order. They may not have been unduly troubled by lesser enforcement measures.
But the sheer breadth of the powers, the relentless mechanics of the Act, the lack of judicial discretion, and the prospect of financial advantage for regulators, brings with it a concern that POCA may feature in matters where - as with Singh - the breaches of the legislation were entirely inadvertent, easily rectifiable and did not result in any identifiable harm to anyone. Whilst Singh fell on the right side of the “narrow but critical distinction” identified by Pitchford L.J., on the same facts today, under the provisions of the Scrap Metal Dealers Act 2003, he would be liable for an order, and, absent any abuse of process stay, confined to arguing about whether he should be surrendering turnover or profit on the basis of proportionality.
Whilst the courts have said that it is not for a defendant to complain that the prosecutor is taking a sledgehammer to crack a nut, for both in the interests of justice to the individual, and the wider social and economic benefit that arises from businesspeople running their businesses without undue regulatory interference, it can only be hoped that POCA is restricted to cases where it is use is justified.
(This article first appeared in the Journal of Licensing)
 As opposed to crime directly arising from the licensable activity (such as alcohol related disorder). See by way of example paragraphs 11.27-11.28 of the guidance issued under s.182 of the Licensing Act 2003 and East Lindsey District Council v. Hanif  EHWC 1265 (Admin).
 Per Lord Walker in R. v. Waya  1 AC 294 at  citing Lord Steyn in R v. Rezvi  1 AC 1099 at .
 Per Lord Walker in R. v. Waya at 
 As confirmed in Sumal & Sons (Properties) Ltd v. Newham LBC  EWCA Crim 1840 per Davies L.J. at .
 R. v. Waya at .
 S.70(2) POCA.
 Sumal & Sons (Properties) Ltd v. Newham LBC at .
 S.6(1) POCA 2002.
 S.75 POCA 2002.
 There is a list in Schedule 2 of the Act.
 As the leading textbook, Mitchell, Taylor and Talbot on Confiscation and the Proceeds of Crime quite candidly puts it: “... the selection of charges is crucial to the shape of the confiscation case. A prosecutor faced with extensive assets but limited criminality will be seeking to charge offences which are either Schedule 2 offences or those from which £5,000 worth of benefit has been obtained”.
 R. v. May  A.C. 1028, R. v. Waya  1 A.C. 294 at .
  EWCA Crim 119.
 At .
  EWCA Crim 1840.
  EWCA Crim 173.
 At 
 At 
  EWCA Crim 281.
  EWHC 1884. An appeal where only the local authority was represented.
 See also R. v. Shabir  EWCA Crim 1809.
 Sumal at .