Civil Fraud Quarterly Round-Up: Q1 2021
A recent appeal ruling in the Supreme Court has led to the Serious Organised Crime Agency (SOCA) discontinuing a number of civil recovery cases under Part 5 of the Proceeds of Crime Act 2002 (POCA). This ruling has already resulted in a successful outcome for one of our clients.
Part 5 of POCA enables the courts to seize assets (or value equivalent to those assets) where they are believed to be the proceeds of criminal conduct.
However, in contrast to the criminal confiscation proceedings set out in Parts 2 - 4, there is no requirement in Part 5 proceedings that anyone be convicted of a criminal offence before the assets may be seized. Furthermore, as the cases are decided in the civil rather than criminal courts, they must only be proved to the civil standard (the balance of probabilities), rather than the criminal (beyond reasonable doubt).
The Supreme Court case, Perry and others v SOCA  UKSC 35, concerned an Israeli citizen, convicted in Israel of a number of offences relating to the operation of a pension scheme.
The appeal was made against the granting of two of the orders available to the courts under Part 5 of POCA: a property freezing order, which purported to freeze the Appellant’s assets in Israel; and a disclosure order, which purported to compel him and his family to disclose the value and location of a range of assets and classes of assets wherever held, with criminal sanctions for non-compliance.
The Property Freezing Order
In relation to the property freezing order, SOCA argued (and two of the nine-member panel agreed) that while Part 5 might be poorly drafted, the definition of recoverable ‘property’ was clear. Rather than limiting SOCA to assets within the jurisdiction, it expressly included assets "wherever situated”. SOCA argued that this definition was sufficient to extend the scope of the legislation internationally, subject always to the laws of the individual state concerned.
Lord Phillips (Lady Hale, Lords Brown, Kerr, Wilson, Reed, and Sir Anthony Hughes agreeing) rejected this view, ruling that the Strasbourg Convention, which extends the reach of asset-seizure orders internationally, relies on there being criminal proceedings underway in the jurisdiction in which the order is made.
In an unusually robust paragraph, he held that:
“Part 5 proceedings in respect of property outside the jurisdiction would involve the assertion of an exorbitant jurisdiction in personam without any basis in international law. They would also be likely to prove ineffective.”
The order was overturned by 7 to 2, Lord Reed adding detailed explanation as to why the baffling Section 286, (which Lord Phillips christened ‘the enigma’) should be ignored altogether.
The Disclosure Order
The panel were united in overturning the disclosure order, as it was made against a defendant outside the jurisdiction, and threatened criminal sanctions.
Lord Phillips held that to allow courts of one country to criminalise conduct of citizens of another who are located outside the jurisdiction would be a “particularly startling breach of international law”.
He reserved particular criticism for the drafting of the order in this case, describing it as “general and speculative”, and noting that such orders should only be made against property whose existence has already been specified.
Perry and others radically alters the landscape for civil recovery where assets and defendants are located outside the jurisdiction.
When wishing to freeze or seize, SOCA now appears to have few options beyond notifying the authorities in that country, and hoping that they pursue the matter themselves.
Even within the UK, SOCA may now find that efforts to engage in ‘fishing expeditions’ by means of disclosure orders will be resisted.
It remains to be seen whether Parliament will agree with the Supreme Court’s interpretation of Part 5, or whether further legislation will follow.
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