Partner John Binns explains the way civil recovery works under the Proceeds of Crime Act 2002 (POCA).

Civil Recovery: The Basics

A confusing regime

As with everything else in the Proceeds of Crime Act 2002 (POCA), Part 5 (Civil Recovery) is almost hopelessly confusing. The fact that its six chapters are numbered 1 to 4 is only the start of it.

Chapter 1 starts promisingly, with a clear statement of purpose: to enable law enforcement agencies (such as the police) to recover property that was obtained by ‘unlawful conduct’, or that represents such property. But there are two twists to come.

Four systems, two courts

The first twist is that there are systems in two different courts, one in the High Court, and three in the magistrates’ courts. In the latter, the agencies can also recover property that is ‘intended for use’ in unlawful conduct.

In either court, the fact that the proceedings are civil is important. It means that the standard of proof is ‘the balance of probabilities’ (not ‘beyond reasonable doubt’), and that there is no need for a criminal conviction.

What is ‘Unlawful Conduct’?

Conduct overseas

The conduct can have happened outside the UK. But where it did, it must have been both:

- against the law where it happened; and

- conduct that would have broken UK law, if it had happened in the UK.

The ‘Magnitsky clause’

The second twist is that ‘unlawful conduct’ can also include (in either court) a ‘gross human rights abuse or violation’, anywhere in the world, whether it broke the local law or not.

This is a provision added to POCA by the Criminal Finances Act 2017 (‘the CFA’), and which was designed to pay tribute to the murdered Russian lawyer, Sergey Magnitsky.

Gross human rights abuses

The definition of a ‘gross human rights abuse or violation’ in the Magnitsky clause is far more specific than it sounds, and must have (broadly speaking):

1. involved the torture (or ‘cruel, inhuman, or degrading treatment’) of someone who has sought to expose illegal activity by a public official;
2. been a consequence of such conduct; and
3. been committed by or on behalf of a public official.
Arguably, though it made an effective political statement, this is a clause without much practical utility.

In the High Court
Chapter 2 of Part 5 is about the High Court system, which can be about any kind of property at all. Among other things, it has complex provisions about:

1. ‘associated property’, which broadly speaking is about where ‘clean’ and ‘dirty’ assets are hard to separate (like joint-owned properties or bank accounts);
2. ‘Property Freezing Orders (PFOs)’, which can be imposed where the court decides the agency has a ‘good arguable case’; and
3. the use of interim receivers.

In the Magistrates’ Courts
The advantages of ‘summary proceedings’

The next three chapters are about ‘summary proceedings’ in the magistrates’ courts, which:

- are much cheaper, quicker, and less formal than those in the High Court;
- are also generally more favourable to law enforcement (among other things, the agency will rarely have to pay the costs of a successful respondent); and
- apply to particular types of property – cash, ‘listed assets’, and funds in certain accounts (with banks, building societies, and e-money or payment institutions).

Cash forfeiture

Chapter 3 (originally the only summary system that existed) is about cash. It enables bank notes, coins, cheques, and the like to be seized, detained, and then forfeited, either by notice or by order.

The timing of, and thresholds for, the various steps are important.

- initially, an officer (or a financial investigator) can seize and detain cash if they have ‘reasonable grounds for suspecting’ that it is either ‘recoverable’, or ‘intended for use’ in unlawful conduct;
- within 48 hours (not counting weekends or bank holidays), the court can authorise the detention of the cash for up to six months at a time (and up to two years in total), if there are such grounds, and either:
  1) the detention is justified while an investigation goes on, or while a decision is made about whether to prosecute a person with whom the cash is connected; or
  2) such a prosecution is ongoing; and
- ultimately, the cash can be forfeited if the court decides that it is recoverable (or intended for use in unlawful conduct), or if a notice is served on the person it was seized from, and they don’t object.

Listed assets

Chapter 3A is very similar, but applies to ‘listed assets’, which currently includes:

- precious metals;
- precious stones;
- watches;
- artistic works;
- face-value vouchers; and
- postage stamps.

It was added into POCA by the CFA, which is why its section numbers run, offputtingly, from 303B to 303Z.

Account Freezing and Forfeiture Orders (‘AFFOs’)

Chapter 3B has rapidly become the most important of the civil recovery systems, and concerns funds in ‘certain accounts’ (initially bank or building society accounts, and later expanded to electronic money and payment institutions). It was also added by the CFA, which is why its section numbers, even more offputtingly, run from 303Z1 to 303Z19.

Like the cash forfeiture provisions, the AFFO system has distinct stages:

- the process starts where an officer (or an FI) has ‘reasonable grounds for suspecting’ that funds in an account are either ‘recoverable’, or ‘intended for use’ in unlawful conduct;
- they can then apply to the court, which can (if it agrees) make an order to freeze the account for up to two years;
- during that time, the court can set aside the order or vary it, including to make exclusions for living expenses, business purposes, or legal expenses; and
- ultimately, the funds can be forfeited if the court decides that they are recoverable (or intended for use in unlawful conduct), or if a notice is served on the account holder and they don’t object.
 

What is ‘Recoverable Property’?
 
Chapter 4 defines ‘recoverable property’ as property ‘obtained through unlawful conduct’ and contains complex provisions about tracing and mixing.

Importantly, it also provides (in section 308(1)) an exception for people who obtain such property ‘in good faith, for value, and without notice’.

Unexplained Wealth Orders (‘UWOs’)

What is a UWO?

Further on (in Part 8) of POCA, another set of provisions added by the CFA (sections 362A to 362T) create ‘Unexplained Wealth Orders (UWOs)’, by which the High Court can force a person (the ‘respondent’) to explain their interest in property and how it was obtained, ultimately for the purposes of Part 5 civil recovery.

Requirements for a UWO

To make an order, the court must be satisfied that:

1.) there is ‘reasonable cause to believe’ that:
     - the respondent holds the property; and
     - the value of it is over £50,000;
2) there are ‘reasonable grounds for suspecting’ that the ‘known’ sources of the respondent’s ‘lawfully obtained’ income ‘would have been insufficient for the purposes of enabling [them] to obtain the property’; and
3) either:
     - the respondent is a ‘Politically Exposed Person (PEP)’; or
     - there are ‘reasonable grounds for suspecting’ that they are, or have been, involved in ‘serious crime’ (or are ‘connected’ with such a person).

There are then provisions to define ‘lawfully obtained’, ‘known’, ‘PEP’, ‘serious crime’, and ‘connected’.

Effect of non-compliance

The effect of failing to comply with a UWO, without reasonable excuse, is that the property is assumed to be recoverable under Part 5, unless the holder can prove otherwise.

In other words, the point of a UWO is to enable the agency to obtain either valuable information to assist them to make a case, or a reversal of the burden of proof in civil recovery proceedings.

The Effect of the CFA on Part 5
 
Political or practical?

There can be no doubt that the sections inserted into POCA by the CFA have added to the significance of the civil recovery provisions in Part 5.

While the ‘Magnitsky clause’ and UWOs have been the more eye-catching, politically charged innovations, it is the sections about listed assets and (most importantly) AFFOs that have made the most practical difference.

AFFOs: good news?

From the agencies’ point of view, it is undoubtedly good news that, where the property involved is funds in an account, they no longer have to pursue civil recovery in the High Court, but can do so in the magistrates’ courts instead.

The news is less good for account holders (and others with interests in frozen funds) who find themselves caught up in the AFFO system, which can (along with the rest of Part 5, and POCA in general) be confusing and difficult to deal with.


Civil Recovery Now

Are these criminal cases?

In a time of limited resources, agencies may also prefer to use Part 5 instead of arrests and prosecutions, in cases that might once have been classed as criminal.

Provided the case stays civil in nature (which is not guaranteed), the property owners (and others) can at least be assured that they are not facing convictions or imprisonment.
 
A challenge for justice

For many, though, thanks either to the amounts involved, or the nature of what the agencies are saying about the property, this may be very cold comfort indeed.

The complexity of the law can make it difficult for people to assess whether, when, and how to fight their corner. In those circumstances, it is vitally important to break that complexity down, and give them the tools they need to respond.