In January 2016, the Home Affairs Select Committee launched an Inquiry into the effectiveness of the UK's proceeds of crime regime. It is anticipated that the Inquiry will hone in on the legal concept of 'criminal benefit' and how the UK enforcement authorities broadly define this concept when assessing the benefit obtained by defendants as a result of their crimes. The practical effect of this broad approach has been that a significant number of defendants have been unable to discharge their confiscation orders, a reality attracting increasing media attention in the UK.
The High Court's recent confiscation ruling in Serious Fraud Office v Tom Hayes highlights the difficulties with the wider interpretation of criminal benefit, and also signifies a troubling expansion of the broad-brush approach, which is likely to adversely affect future defendants.
Under section 76(4) of the Proceeds of Crime Act 2002 [LINK to], a person "benefits from [criminal] conduct if he obtains property as a result of or in connection with the conduct". Therefore there must be a causal link between the offending behaviour and the benefit received. It is this link which was the subject of some reinterpretation in the Hayes ruling. By way of example, the Court determined that 35% of Hayes's signing on bonus (termed the "golden hello") paid to him by Citi Bank fell to be confiscated on the basis that it was the defendant's prominent reputation as a successful trader (obtained as a result of his manipulation of LIBOR submissions at UBS) which directly resulted in him being hired by Citi Bank. In short, Mr Hayes would not have received this offer of employment 'but for' his previous criminal activity at UBS and therefore the causal link required by section 76(4) was established. This finding appears to be stretching the causal relationship to its limits in order to recoup sums which ordinarily would be out of the reach of the confiscation process.
Perhaps the Hayes ruling is in itself unique given that it is the first benchmark manipulation case to go through the confiscation process and there may be an argument that the complexity of the underlying offence warrants a higher level approach to the confiscation question. This is hinted at in the course of Mr Justice Cooke's ruling in Hayes where he comments that there is "no way" in which it is possible to determine the difference that Hayes's attempts to manipulate LIBOR actually made to the published rate on any given day, and therefore the Serious Fraud Office had not sought to "quantify the unquantifiable" for the purposes of confiscation.
What does the Hayes ruling denote for the future? If the interpretation of section 76(4) continues to be applied broadly by the UK courts, defendants may well find themselves burdened with a heavy obligation to pay a higher sum than that which they actually obtained from their crimes. Lawyers should bear this in mind when advising clients, especially those facing allegations of serious and complex fraud.
In addition, those advising should be mindful that the desire to avoid a harsh confiscation process through co-operation with the state e.g. through a SOCPA agreement, may be a powerful incentive for some offenders. However, prosecuting agencies are likely to be conscious that public confidence in the criminal justice system may be damaged if criminals are routinely allowed to keep the profits of their criminal activities in return for co-operation.
Until the Home Affairs Committee reports on its findings, the lay of the land is uncertain, and lawyers should proceed with caution when advising in this arena.
23 March 2016