Regulatory Disputes and Money Laundering in the UK

A new approach to stripping criminal assets. 

The City of London Police are about to start a pilot scheme that could transform the face of the money laundering regime in the UK.

Part 5 of The Proceeds of Crime Act 2002 (“Part 5 POCA”) introduced a mechanism to allow the authorities to recover criminal property by the use of civil court procedures.  There is no need for criminal proceedings to even start and the recovery of money and assets is in no way dependent upon a criminal conviction being secured.

So, what has changed in August 2016 to change things so dramatically?  Quite simply, it is the decision to introduce potentially expensive private law firms and asset recovery firms to act on behalf of the City of London Police in order to deprive suspected criminals of their property.

This news article looks at why the introduction of the profit motive has many observers thinking there will be a significant increase in the use of Part 5 POCA powers in this area of regulatory disputes.

Won’t the instruction of expensive lawyers be a drain on the resources of the Police?

Not necessarily.  The Police will have every motive to ensure that the lawyers it instructs act on a either a “no win no fee” or a “no win low fee” basis or some other basis, to ensure that (a) the lawyers have an incentive to win the case, and (b) that the exposure of the Police is minimised in the event that the case is lost.

There should be no misunderstanding that there are many highly skilled, heavyweight, law firms that would be eager to act on this basis.  Large regional and city firms already act on behalf of Government departments, such as the Insolvency Service, at rates far below their normal commercial rates.  When you add into the mix the prospect of recovering a “pot of gold” at the end of proceedings it is not difficult to see the potential attraction of Part 5 POCA cases.

Doesn’t  retaining law firms in this way just erode the “bottom line” for the Police?

There may be some justification to this claim.  With the introduction of the new scheme the Police may go from a situation of pursuing (using its own in-house lawyers), say, 20 cases with a recovery of £10m to the State, to pursuing 100 cases with a similar recovery to the State after the fees of external lawyers and asset recovery firms are taken into account.

So why even bother if there could be no significant benefit to the State in the amount it recovers?  The answer is that the purpose of Part 5 POCA is to deprive criminals of their property.  Take a look at the Introductory Text to the Proceeds of Crime Act 2002, which makes it clear that the purpose of the Act is to:

“…allow the recovery of property which is or represents property obtained through unlawful conduct or which is intended to be used in unlawful conduct,”

The bottom line is that if the police can (a) significantly increase the number of Part 5 POCA cases it pursues, (b) to deprive many more alleged people of the proceeds of crime, (c) for it not to cost the State any more money to pursue these cases, and (d) potentially recover more money for the State, then to use a colloquial phrase, it is a “no-brainer”.

Aren’t these cases just criminal cases but in the civil courts?

No, this is definitely not correct.  Whilst the starting point for the State is to prove that the property in regulatory disputes represents the proceeds of unlawful conduct, the main battle ground in these cases usually involves the skill set only to be found with a specialised commercial litigator.  What then are the issues that are likely to be dealt with?

  • Frozen Property

Part 5 POCA provides for the appointment of Interim Receiving Orders.  An Interim Receiving Order will preserve the asset pending resolution of the regulatory dispute.

The operation of these Orders and the responsibilities of an Interim Receiver require the skills of experienced insolvency litigators to dispute their operation and performance.  The assets in question can be the assets of trading businesses, stock, cash or real property.

  • Disclosure, the requirement for formal Pleadings and interlocutory costs

Disclosure is likely to be a key issue as it may give invaluable insight to what the State thinks about the originating alleged unlawful conduct.

However, the rules relating to disclosure in Part 5 POCA cases, are governed by the Civil Procedure Rules and not the relatively informal regime that exists in the criminal courts.

Similarly, formal pleadings require a degree of precision and candidness that is alien to criminal lawyers.  The natural tendency of criminal lawyers is to “ambush” the prosecution with the late disclosure of defence evidence.  This approach can work well in the criminal courts, notwithstanding the requirement for production of Defence Case Statements.

However, in the civil courts this approach will be a recipe for disaster.  In the civil courts written evidence stands as “evidence in chief”, meaning that your own barrister rarely has the ability to ask you detailed questions – you are handed over for cross examination after having confirmed the accuracy of your witness statement.

The prospects for a commercial settlement

The introduction of commercial litigators in pursuing these regulatory dispute cases on behalf of the State will only increase the likelihood that sensible commercial settlements will occur, applying a rigorous cost / benefit analysis.

The reality is that the basis of settlement is framed following the production of pleadings and defence evidence.

Regulatory Disputes

The NDP regulatory disputes team is highly experienced in defending clients faced with regulatory problems. If you are faced with a regulatory dispute, or would like to discuss this article and its implications further, please contact us or call us on 0121 200 7040.

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