Chahal: All expenses paid crime

Following the majority decision of the Supreme Court R v Waya [2012] UKSC 51, practitioners
may have been forgiven
for assuming that the
approach to the calculation
of benefit in confiscation proceedings might soften by importing a general concept
of proportionality, or at least
by encouraging a calculation based on the real benefit that finally settled in the hands of the defendant.

However, any such misconception will now have been removed by the recent case of R v Jaspal Singh Chahal and Harbans Singh [2015] EWCA
Crim 816.

Mortgage fraud

In Waya, the Supreme Court recognised that even where the assumptions in the legislation were met and properly applied with regard to confiscation proceedings under the Proceeds of Crime Act 2002 (POCA), if the end result was disproportionate, a judge should refuse to
make an order. In essence, the confiscation scheme must be given effect in a manner that is compliant with article 1 of the first protocol to the European Convention on Human Rights (ECHR) (the right to peaceful enjoyment of possessions).

The case involved a
mortgage fraud whereby
Mr Waya had obtained money from a lender by giving false information about his earnings. The residential property he purchased with these funds jumped significantly in value before the fraud was detected and prosecuted.

Waya was originally ordered
to pay the majority of the increased value of the property, even though the party he had defrauded (the original building society) had suffered no loss, and had been repaid in full when he had legitimately remortgaged before the fraud had been detected.

It was eventually decided by the Supreme Court that this would be disproportionate, essentially because the loan itself did not increase in size as the value of the property had increased. The loan itself was a fixed liability, and the increase
in value resulted from the increases in the property market, not by the operation of the original fraud.

Missing trader

The case of Chahal, on the other hand, involved a missing trader intra-community (MTIC) fraud,
as a result of which the two appellants were convicted of conspiracy to cheat the public revenue. The illegal scheme featured several companies
in a chain, making claims for repayment of VAT. Goods were imported by a UK company
that then went missing without accounting to HMRC for the VAT. The goods were passed through a chain of purchasers or ‘buffer companies’, each of which would claim as an input the VAT paid to the previous vendor, before being exported by a ‘broker’ company.

Following conviction, proceedings under POCA
were initiated based upon
the assessment of benefit.
At first, the prosecution argued the benefit figure should include the total sum generated by the scheme, despite the fact the defendants were only involved in one of the companies in the chain.

The judge held that the proper approach was to include only the total input claims made along the chain in the benefit figure, recognising that a calculation of benefit based on total turnover of the entire scheme would cause a serious risk of injustice under section 10(6)(b) of POCA.

This assessment was challenged in the Court of Appeal on the basis that the benefit should simply have been regarded as the loss to HMRC that was the aggregate of the amounts claimed by the exporter. It was argued that even if this was wrong as a matter of interpretation of POCA, the application of article 1 of protocol 1 of the ECHR meant that the benefit should be limited to that sum in any event.

During argument, the appellants claimed the benefits obtained (the repayments from HMRC) were to keep the fraud going, and therefore these sums should be discounted from the benefit figure because they were used to finance the next fraudulent transaction – in essence, these sums were the expenses of the fraud.

The Court of Appeal disagreed, first explaining that
it did not regard the calculation of benefit espoused by the trial judge as causing any serious risk of injustice. It was no argument against the inclusion of the sums as benefit to submit that they were simply reinvested in the fraud because they still amounted to benefit from criminal conduct.

Second, the court held that, unlike Waya, this was a case where the defendants had a ‘criminal lifestyle’, so that the attempt to avoid liability for
the sums raised across the scheme would be ‘equivalent
to the cocaine dealer claiming that he should be allowed to deduct the expense of acquiring the cocaine, and that his benefit is not the sum he charged his customers, but the profit he made’.

It seems that we have reached a point where the landscape
is settled once more: the concept of proportionality of benefit should be regarded as highly case specific and the confiscation regime remains largely as draconian as was originally intended. SJ

Paul Lazarus is an associate solicitor at Sonn Macmillan Walker specialising in Crown Court advocacy

@SMW_Law