Tracing and confiscating the proceeds of crime
| Published date | 01 April 2004 |
| DOI | https://doi.org/10.1108/13590790410809103 |
| Pages | 168-185 |
| Date | 01 April 2004 |
| Author | Nicholas Cribb |
| Subject Matter | Accounting & finance |
Journal of Financial Crime Ð Vol. 11 No. 2
Tracing and Con®scating the Proceeds of Crime
Nicholas Cribb
INTRODUCTION Ð WHY TRACE THE
PROCEEDS OF CRIME?
A restaurateur awaiting trial for charges of drug
dealing has had his assets con®scated under new
legislation. Anacleto Capetta is accused of supplying
cocaine and is being held in custody. His £1.3m
assets, which include his car and his restaurant, have
been put in the hands of an ocial receiver pending
the outcome of his trial. The order, granted at
Lewes Crown Court, is thought to be the ®rst
issued under the Proceeds of Crime Act 2002
(PCA).
1
Pro®t need not emanate only from oences
of such potential glaring criminality. Jonathan Du,
the ®rst solicitor to have been convicted for not
reporting a suspicion of money laundering, is one
person who found himself assisting in the retention
of illicit funds.
2
Du (D) pleaded guilty to charges
of failing to disclose knowledge or suspicion of
money laundering contrary to s. 52(1) Drug Track-
ing Act 1994 (DTA). D was the sole equity partner of
a ®rm of solicitors and had represented clients, G and
H, in connection with the purchase of property. In
March 1998, G and H were arrested and found
guilty of conspiring together in the importation of
cocaine and sentenced to 25 years' imprisonment. A
subsequent con®scation hearing concluded that G
and H had bene®ted from drug tracking to the
extent of £38m and a con®scation order was made
for £5.4m. Until the conspiracy charge was added,
D claims to have been convinced of their innocence
and only then began to have doubts particularly in
relation to two transactions in which he had been
involved. The ®rst transaction concerned a gift of
£60,000 in cash, given to D by G. D had opened a
client account in a ®ctitious name to hold his own
money. Accounts revealed a breakdown of income
and expenditure and the receipt of £60,000 from
`Gene', which was made up of a £50,000 gift and
£10,000 costs. The breakdown also indicated that
£40,000 of this money was credited to D's `®ctitious'
client account. D admitted to paying the £40,000
cash into the account at a branch where he would
not have been known, using a false name and
address in order to hide the money from the Inland
Revenue. The second transaction concerned the
investment of £10,000 into Talking Compensation
Ltd, a company set up to solicit personal injury
compensation for D. D was charged with failing to
disclose his joint interest in the company.
Following the convictions of G and H, D sought
legal advice on the interpretation of s. 52(1). The
advice given was that D was not under a duty of
disclosure. Section 52(1) only applied to persons
who knew or suspected that another person was
engaged in drug money laundering and failed to
report it. In October 1999, D was arrested and
ultimately pleaded guilty to the charges against
him, accepting that his interpretation of s. 52(1) was
wrong. The trial judge said that a clear message had
to go out to solicitors that oences of this kind
would not be overlooked. D was sentenced to six
months' imprisonment. The Court of Appeal
3
stated
that where a solicitor had been drawn into this sort
of oence it was necessary to look at the underlying
facts of the case including:
(1) the amount of cash (£70,000) received in such a
short space of time;
(2) the money had been put into ®ctitious names;
and
(3) the fact that D did not seek legal advice upon
becoming suspicious.
Therehave beensti penaltiesfor non-compliancewith
money laundering regulations but it is only rarely that
professionals have found themselves getting as far as
court, let alone prison, in respect of such breaches. It
has been reported that Du 'scase paints a `highly dis-
turbing' picture for professionals
4
and that Du was
`not an intentional launderer of criminal funds'
because he had `no intention of committing any
wrongdoing'.
5
A closer look at the evidence in
Du reveals clear evidence from which a reasonable
inference could be drawn that at the relevant time
D must have at least suspected G and H were drug
trackers. In particular:
D was not an ordinary member of the public, but
the sole equity partner in a ®rm of solicitors who
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Journal of Financial Crime
Vol.11,No. 2, 2003,pp.168 ±184
#HenryStewart Publications
ISSN 1359-0790
would have received all appropriate warnings
from the Law Society about large cash transac-
tions being suspicious.
G and H had been arrested and charged in con-
nection with the importation of cocaine valued
at £5m.
In interview D stated that:
(a) The evidence against G and H was over-
whelming at the time they were arrested.
(b) After their arrest, D's ®rm may have been
involved in money laundering.
(c) Capital Bank had informed D that they
would not accept cash to discharge the
®nance on G's property, as they were
concerned that he was being investigated
for drug tracking and fraud.
D admits to receiving £149,000 in cash from
G within a four-month period approximately
one year prior to G's arrest. This comprised
£60,000 for D and £89,000 for a yacht.
D admits to receiving a `gift' of £50,000 in cash
in April 1997, £40,000 of which D paid into an
account at a branch that would not recognise
him, using a false name and address.
D did not `unintentionally commit an oence by mis-
understanding [his] obligations',
6
rather the cause of
his professional demise was a clear ¯outing of the
rules in some highly suspicious circumstances. These
circumstances go a long way in explaining the
length of his sentence.
It has been stated
7
that the case creates a problem
where a ®rm acting for a private client is accused of
having obtained money unlawfully. If the ®rm is
suspicious then it will have to report its client. The
commentator's
8
worries stem from the fact that as
such the `upholder of the client's interests' is obliged
to become the `secret accuser'. In reality if a ®rm is
suspicious of the source of their client's wealth and
there is evidence, which makes them suspicious, as
in Du, under the DTA they did owe a duty to
become the `secret accuser'. Now, under the PCA,
all that is required is a reasonable ground for suspi-
cion. The ®rm/D would now be judged on what
they ought to have noticed: ie large transfers of
money between accounts within a short space of
time.
The problem for professionals is actually greater
than Du might indicate. First, the PCA has
repealed s. 52 of the DTA and encompasses the
laundering of the proceeds of all crime, not just
drug-related crime.
9
In addition, the Money Laun-
dering Regulations 2003 will come into operation
in early 2004.
10
If professionals have had such a crushing duty to
report foisted upon them, they may indeed be wise
to `check the daily lists of defendants in the criminal
courts, just in case the name of an existing or
ex-client appears'!
It must be remembered that pro®t motivates most
criminals. Leaving illegal pro®ts in the hands of
criminals damages society. First, their assets can be
used to fund further criminal activities, leading to a
cycle of crime that plagues communities. Secondly,
arrest and conviction are not enough to clamp
down on crime; criminals are left to return to their
enterprises or continue their `business' from prison.
And thirdly, it is not right that millions of law-
abiding people work hard to earn a living, while a
few live luxurious lifestyles funded by crime.
Oenders employ a variety of tactics including
complex money laundering ploys to conceal their
wealth, thereby amassing huge returns.
Due to its very nature, estimates of the total cost of
crime in the UK are not accurate. The Home
Oce
11
estimates that costs are around £50bn per
year.
12
The Oce for National Statistics
13
(ONS)
recently estimated that illegal drugs transactions in
the UK could be as much as 1 per cent of GDP
(some £5bn per annum). A 1998 estimate
14
concluded
that between 7 and 13 per cent of the UK's GDP came
from crime. In not focusing on `pro®t', the criminal
justice system is overlooking a powerful weapon in
its war on crime. Removing proceeds also has an
important disrupting eect on illegal activities. It
cuts into pro®ts, reducing the availability of capital
for existing enterprises, and removes the reserve of
pro®ts for new criminal enterprises. In turn this
curtails the growth of criminal organisations. The
more reliant an enterprise is on pro®ts, the more
susceptible it is to disruption through asset depriva-
tion. Studies clearly indicate a negative association
between crime and the probability and severity of
punishment. The result may be regarded as a
rather ®rm corroboration of the deterrence
explanation obtained from the theory of rational
behaviour: an increase in the probability or
severity of punishment will decrease the expected
utility of criminal acts and thereby the level of
crime.
15
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Tracing and Con®scating the Proceeds of Crime
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