Telli v Revenue and Customs Prosecutions Office

The appellant has completed that proportion of a total of 22 years’ imprisonment, which he was required to serve for drug trafficking offences. But he remains in prison serving a default term for failure to pay the whole of the sum of £3,458,806, which he was required to pay by virtue of a confiscation order. The default term was originally 10 years’ imprisonment, reduced on appeal to 8 years, and further reduced, pursuant to s.79 of the Magistrates Court Act 1980, on payment of a portion of the total sum ordered, to a period of approximately 5.6 years.

On 6 December 2005 the appellant, who calls himself David Telli, sought a Certificate of Inadequacy pursuant to s.17 of the Drug Trafficking Act 1994 (the 1994 Act). The basis of this application was that a 2000 year-old statue of Dionysus which formed part of the property held to be available to meet any confiscation order, on 16 October 2002, had been repatriated by the Turkish Government as a stolen antiquity. In the absence of any possibility of realising the value of that statue, the appellant contended that his realisable property was inadequate for the payment of the amount outstanding. A Receiver, appointed on 4 October 1996, had managed to realise £1,332,701.20 and, by virtue of other sums credited, the outstanding balance is about £1.9 million. Precise calculation of these figures is irrelevant to this appeal.

The process by which the Crown Court ordered recovery under the confiscation order in the particular sum of £3,458,806 is fundamental to the resolution of this appeal. The applicant contends that the property valued for the purposes of quantifying the amount which might be realised consisted only of assets, including the statue, which had been identified. Once the statue was no longer available for realisation, the court was bound to grant a Certificate of Inadequacy.

The confiscation order of 3 July 1996 was made as the result of an agreement between the Crown and Mr Telli. Accordingly, the Crown’s response is to rely upon the fact of that agreement. Mr Telli, so it contends, agreed to pay the sum of £3,458,806 without any agreement as to the assets which he held, and which, accordingly, were to be realised to meet that sum. It was on that basis that Collins J, on 18 August 2006, refused a certificate of inadequacy. The essence of his judgment is that the order was based upon the compromise which was reached:-

“…under which the applicant recognised that £3,458,806 was what he would have to find by way of confiscation.”

Thus, Collins J’s refusal of the certificate of inadequacy uses the language of compromise, as if the agreement could be regarded as analogous to the compromise of a civil action. But this appeal raises the issue as to whether that analogy can be drawn in the context of the statutory scheme under which the confiscation order was made and the certificate of inadequacy sought.

It is, therefore, necessary to start with the statutory scheme.

The 1994 Act has now been repealed by the Proceeds of Crime Act 2002. But its provisions are relevant not only to Mr Telli’s application but, so we were told from the Bar, to a number of outstanding cases.

The Crown Court was required to determine, firstly, whether the defendant had benefited from drug trafficking (s.2(2)). Once satisfied that he had benefited (within the meaning of s.2(3)) the court was required to quantify the amount of the benefit by the application of s.4:-

“(1)

For the purposes of this Act –

(a)

any payments or other rewards received by a person at any time (whether before or after the commencement of this Act) in connection with drug trafficking carried on by him or another person are his proceeds of drug trafficking; and

(b)

the value of his proceeds of drug trafficking is the aggregate of the values of the payments or other rewards.”

It was required to make certain assumptions including an assumption that property held by him since his conviction had been received by him as a payment or reward in connection with drug trafficking (see s.4(3)(a)). If that assumption was shown to be incorrect, the court was required to state its reasons for not making that assumption (see s.4(4)).

The process by which the court assessed a defendant’s proceeds of drug trafficking under s.4 is to be distinguished from the process for assessing the amount to be recovered under a confiscation order. S.5 provides:-

“5.(1) Subject to subsection (3) below, the amount to be recovered in the defendant’s case under the confiscation order shall be the amount the Crown Court assesses to be the value of the defendant’s proceeds of drug trafficking.

(2)

If the court is satisfied as to any matter relevant for determining the amount that might be realised at the time the confiscation order is made (whether by reason of the acceptance of an allegation made in a statement given under section 11 of this Act or made in the giving of information under section 12 of this Act, or otherwise) the court may issue a certificate giving the court’s opinion as to the matters concerned, and shall do so if satisfied as mentioned in subsection (3) below.

(3)

If the court is satisfied that the amount that might be realised at the time the confiscation order is made is less than the amount the court assesses to be the value of his proceeds of drug trafficking, the amount to be recovered in the defendant’s case under the confiscation order shall be –

(a)

the amount appearing to the court to be the amount that might be so realised; or

(b)

a nominal amount, where it appears to the court (on the information available to it at the time) that the amount that might be so realised is nil.”

S.6 defines the expression the amount that might be realised at the time a confiscation order is made, used in the opening words of s.5(2):-

“6.(1) For the purposes of this Act the amount that might be realised at the time a confiscation order is made against the defendant is –

(a)

the total of the values at that time of all the realisable property held by the defendant…”

Realisable property, the expression used in s.6(1)(a), is defined in s.6(2):-

“(2)

In this Act ‘realisable property’ means, subject to subsection (3) below –

(a)

any property held by the defendant…”

S.7 requires the value of the property to be assessed according to the market value of the beneficial interest of the person holding the property.

These provisions establish the context in which the court’s confiscation order was made. Prima facie, the court is required to order recovery of the full value of the defendant’s proceeds of drug trafficking. The court has no power to make an order for any lesser sum unless it is satisfied that the total of the values at the time the confiscation order is made of all the property held by the defendant is less than the value of his proceeds as assessed according to s.4.

If a defendant fails to satisfy a court of the value of that realisable property then the court is bound to make a confiscation order in the full value of his proceeds. This is of significance in the instant appeal. A defendant should not, if the statutory scheme is properly followed, be able to avoid an order recovering the full value of his proceeds unless he identifies the realisable property he holds. If he refuses to do so then the court has no option but to order the full amount.

It is not open to the Crown or to a defendant to reach an agreement which purports to confer upon the Crown Court an authority inconsistent with the court’s obligations imposed by s.5. That is not to say that the Crown and the defendant cannot reach any agreement as to the matters which form the foundation of a confiscation order. Indeed, it must be acknowledged that it would be disastrous if it were otherwise. Throughout the period of operation of the 1994 Act, agreements have been reached between prosecuting authorities and defendant without which proceedings in the Crown Court would grind to a halt. But it is important to emphasise that any agreement must be within the framework of the statutory scheme and not inconsistent with it. This is of importance in this case where, by reason of the passage of time and of the destruction of transcripts, it is not possible to ascertain with any precision the course of the hearing on 3 July 1996.

The purpose of seeking to discover what had occurred at the hearing on 3 July 1996, absent the existence of any transcripts, was to find out whether, as the appellant contended, the value of the statue formed part of the valuation of all the realisable property at the time the confiscation order was made. None of the counsel appearing in the appeal was party to the original confiscation proceedings. Collins J sought to do the best he could on the basis of junior counsel’s handwritten notes made at the time of the hearing. Understandably, they are an inadequate record. In my view, those notes do not provide an appropriate basis for resolving the issues which arise in the instant appeal. That is not because they are not a complete record, still less because, after this passage of time, they are, in places, unclear. Rather, it is because of the statutory obligations imposed upon the court under s.5. Firstly, the court is obliged to order recovery of the full value of the defendant’s proceeds of drug trafficking unless it is satisfied that the total values at that time of all the property held by the defendant is less than the amount of the proceeds. If the court is so satisfied, it is obliged to issue a certificate giving the court’s opinion as to any matter relevant for determining the amount that might be realised at the time the confiscation order is made (s.5(2)). Relevant matters include the property and the values taken into account in determining the amount that might be realised. An order under s.5(3) for recovery of an amount less than the value of the proceeds of drug trafficking must be accompanied by a certificate setting out the matters relevant for determining the total of the values at the time of the confiscation order of all the property held by the defendant. The statutory scheme relies upon the certificate to explain how the court reached the conclusion that the realisable amount was less than the proceeds of drug trafficking.

It follows that in order to identify the realisable property which formed the valuation of the amount that might be realised it is necessary to look at the certificate. S.5(2), in the words in parenthesis, acknowledges that the source of information might either be the prosecution’s statements, pursuant to s.11, or the statement a defendant may be required to give to assist the court in carrying out its functions pursuant to s.12. S.5(2) makes it clear that the court is not confined to such sources. It is to the certificate, accordingly, I am obliged to turn to see whether the appellant can make good his contention rather than to junior counsel’s exiguous notes recorded by Collins J in his judgment.

In the instant application the confiscation order recorded that the defendant was ordered to pay £3,458,806 and stated that a confiscation certificate was enclosed with the order. The confiscation certificate, also dated 3 July 1996, records the appellant’s conviction and certifies that:-

“The value of the defendant’s proceeds of drug trafficking is £6,000,000.”

The certificate then deletes words to indicate that that is the amount which might be realised at the time of making the confiscation order and continues:-

“The amount which might be realised at the time of making the confiscation order is less than the amount by which the defendant has benefited from drug trafficking and is set at £3,458,806.”

The certificate deletes the following words:-

“The following matters were relevant in the determination of the court as to the amount which might be realised”

and continues:-

“Relevant information regarding amounts to be obtained from Alexander Charles McCallion, HM Custom (sic) and Excise Drugs Financial Branch.”

It is signed by an officer of the Crown Court.

Thus the certificate provides that the basis of the court’s conclusion under s.5(3) is to be found in relevant information provided by McCallion. The only source of that information at the time was his s.11 statement. In my view, therefore, the only source consistent with the statute for determining the property which formed the basis of the valuation is that which is contained in the s.11 statement.

As one would expect, this statement deals with two distinct issues, namely, the proceeds the defendant had obtained from drug trafficking and the value of all his realisable property. This leads to confusion. The essential function of the prosecution’s s.11 statement is to determine whether the defendant has benefited from drug trafficking and to assess the value of his proceeds (see s.11(1)). It is not part of the prosecutorial function to quantify the value of realisable property. That is because it is for a defendant to satisfy a court that the total value of realisable property held by him (including gifts he has made) is less than the total value of his proceeds.

For that reason, the prosecutor’s statement under s.11 need do no more than assess the full value of the proceeds, leaving the defendant to persuade the court that his realisable property is to be valued at a lower figure. The fact that a s.11 prosecutor’s statement condescends to identify property held by the defendant and quantify its value does not in any way alleviate the burden placed by the statute on the defendant to satisfy a court that the value of the realisable property is less than the proceeds of his drug trafficking. The confusion arises because the prosecution will, generally, seek to identify property held by the defendant at any time since conviction for the purposes of the required assumption under s.4(3). Although the property identified for that purpose is likely to be identical to the property identified for the purpose of assessing the value of realisable property under s.6 the two purposes are distinct: firstly, under s.4, for quantifying the proceeds of drug trafficking and secondly, under s.6, for quantifying the value of realisable property.

McCallion’s statement, pursuant to s.11, set out the financial enquiries undertaken describing the appellant’s affairs as widespread and complex. A number of bank accounts in a number of countries were identified into which it was asserted that the appellant had transferred “vast sums of cash”. Enquiries in Switzerland identified him as the beneficial owner of the statue of Dionysus, insured for £2.2 million. The s.11 statement recalls that the appellant said in his affirmation, dated 20 June 1995, that he had acted purely in the capacity of broker in relation to the purchase of the statue. The following year he repeated that assertion during the course of an interview at Belmarsh prison with McCallion on 10 May 1996.

Not only was there a dispute about the beneficial interest in the statue, there was also uncertainty as to its value. The preponderance of the reports to which McCallion refers suggests a valuation lower than the amount for which it was insured. The keeper of the Greek and Roman department of the British Museum suggested a market price between £1-1.5 million.

It is, however, important to appreciate that the primary purpose of the references to the antique statue was not to quantify the assets available to satisfy any confiscation order but rather, pursuant to s.4, to determine the amount Telli had received as proceeds of drug trafficking. McCallion’s opinion, after forty-nine pages identifying bank accounts in eight different jurisdictions, property, and the statue, is that Telli had benefited from drug trafficking and that the minimum sum by which he had benefited was £3,458,806. In the event, however, the court assessed the value of his proceeds at £6 million.

It is of particular importance, therefore, to record that the sum which eventually was to be found in the confiscation certificate which the court recorded as the amount which might be realised at the time of making the confiscation order is a sum identical to that which McCallion estimated as being the minimum amount of the proceeds from drug trafficking.

Earlier in the same paragraph dealing with the topic of minimum proceeds of drug trafficking McCallion observed:-

“Based on information given by Dogancioglu (a co-conspirator) and admissions made by Telli it appears that Telli was responsible for collecting between £2,700,000 and £7,000,000 from the sale of heroin within the United Kingdom and for the possible redistribution of those funds to not only the suppliers of the drugs in Turkey but to additional bank accounts in Switzerland, Germany, USA, and Turkey and to persons in Germany and Turkey through which he purchased valuable antiques.”

In his conclusion, the customs officer dealt with the amount of heroin handled by Telli and the period during which the drug trafficking was undertaken. McCallion expressed the view that although he had admitted being responsible for handling approximately £2,800,000, Telli was responsible for collecting and retaining much more than that sum. But he concludes:-

“I suggest that a more realistic drug trafficking benefit figure for David Telli is at least the £3,458,806 identified above in paragraph 26 (the paragraph to which I have already referred dealing with minimum benefit).”

It seems, therefore, that the final figure which counsel for the prosecution and for Telli agreed was based on the figures which the co-conspirator admitted handling rather than the minimum figure identified by McCallion in his s.11 statement. But it is important to recall that all of this discussion related to the amount of the proceeds and not to the amount of realisable assets.

The realisable assets were dealt with in four short paragraphs in the statement. The officer refers to his earlier reference to valuable assets within the United Kingdom and abroad, which he had discussed in the process of quantifying Telli’s proceeds of drug trafficking. He referred in particular to property and to the statue. But he also referred to evidence of Telli’s attempt to purchase other property in London. During the course of negotiations Telli had indicated that he had available cash to the value of between £900,000 and £1,000,000. The officer comments:-

“I, obviously, have not located any account with such a sum deposited therein.”

That is important because it is powerful evidence of hidden assets. But the statement does not stop there, McCallion continues:-

“The claims made in 1977 by Mrs Telli to her bank manager that her husband could bypass Turkish exchange control regulations and had accounts in Switzerland and Germany and the methods used by Telli in recent years to transfer funds via accounts such as (they were detailed)…convinced me that assets, either in cash or disposal antiques, are secreted abroad.”

This information is of particular significance in the resolution of this appeal. It demonstrates that in quantifying the assets available to satisfy any confiscation order, the officer contended that Telli had assets available for realisation which the officer could not identify. He concluded:-

“I ask the court to make a confiscation order in the sum that is assessed by the court to be Telli’s proceeds from drug trafficking. In this case valuable assets have been identified which could be used, in part, to satisfy any order the court made. Enquiries are continuing to establish if accounts are held in Turkey, Germany, Israel or the United Kingdom in the names of suspected aliases or in code names used to open specific accounts controlled by David Telli.” (My emphasis)

Accordingly, it appears that McCallion did not accept that the realisable amount was less than the proceeds of drug trafficking for the purposes of s.5(3). On the basis of this statement, Mr Johnson QC, on behalf of Telli, identified sixteen assets, cash, property and the statue, either from the prosecutor’s statement or identified by the Receiver who was appointed subsequently. He has valued those assets and reaches a total of £3,737,241. Included within that schedule is a valuation of the statue of Dionysus at £2.2 million. Accordingly, he contends that the total valuation of the realisable property for the purposes of s.5 and s.6 of the 1994 Act was £3,737,241 and was based on a valuation of assets which had been identified in the s.11 statement.

I disagree. Two factors are of paramount importance. Firstly, the value given for the statue of £2.2 million is not justified by the contents of McCallion’s s.11 statement. As I have already sought to record, the valuation differed between that figure and the figure given by Dr Williams of between £1-1.5 million. Secondly, it is clear that the customs officer did not accept that the realisable assets were only those he had managed to identify. He was of the view that there were assets which Telli had hidden, either in the United Kingdom or abroad.

I should stress the significance, in the statutory scheme, of the customs officer’s conclusion that by no means all of Telli’s realisable assets had been identified. As has so frequently been observed, the extent of realisable assets at the time of conviction is likely to be peculiarly within a defendant’s own knowledge (see Lord Lane CJ in R v Dickens [1990) 2AB 102 at 105E). The statute requires a defendant, if he can, to prove, for the purposes of s.5(3) that the amount which might be realised at the time the confiscation order is made, is less than the amount to be assessed to be the value of his proceeds of drug trafficking. Accordingly, if a defendant is found not to have disclosed the nature and extent of his realisable assets, a correct view of the statutory scheme is that he cannot satisfy a court that the total value of all his realisable property is less than the value of the proceeds of his drug trafficking. The court ought not, therefore, issue any certificate pursuant to s.5(3). In the instant case, if the court accepted the information given by McCallion in his s.11 statement it ought not to have issued a certificate certifying that the amount which might be realised was less than the amount of the benefit. However, given the agreement of leading counsel, it is plain that that is what the court concluded. Absent any appeal, that conclusion cannot be overturned or unravelled (see in Re McKinsley [2006] EWCA Civ 1092 2006 1 WLR 3420 paragraphs 31 and 43). This court must proceed on the basis that the total value of Telli’s realisable property was less than the value of the proceeds of his drug trafficking. That is what the certificate provides pursuant to s.5(2) of the 1994 Act. However, his application for a certificate of inadequacy must be considered in the context that the total of the value at the time of his conviction of all the realisable property included not only the assets which McCallion had identified but also those which Telli had managed to hide.

My analysis of the statutory scheme has an impact on the judgment of Collins J. As I have already indicated, Collins J’s judgment was founded upon the conclusion that the prosecution and defence had reached an agreement as to the amount which Telli would pay without any identification of the assets, the valuation of which formed the total of the value at that time of all the realisable property held by him. The statutory scheme does not permit of such a conclusion. For the reasons I have given, absent identification of all the realisable property held by him, a defendant normally will be unable to satisfy the court that the amount that might be realised at the time the confiscation order is made is less than the amount assessed to be the proceeds of his drug trafficking. Assets which he hides from the gaze of Customs and Excise may, for all anyone knows, be equal to or in excess of the value of his proceeds of drug trafficking. For that reason, no court should be satisfied that they are to be quantified at a lesser amount.

I suspect that, for many years now, agreements have been reached according to which a judge has assessed the value of realisable assets as less than the benefit of drug trafficking without proper identification of the assets which form part of that valuation. The Queen on the application of Customs and Excise v L [2007] EWHC 1191 (Admin) is an example of this. By the time a High Court judge is called upon to consider a certificate of inadequacy he is bound by the conclusion of the Crown Court, even though it may have been based upon an impermissible agreement: impermissible, because of the very fact that realisable assets had not been identified. Of course, if the identified assets equal the amount of the assessed proceeds of drug trafficking, an agreement as to the amount which should be confiscated would not be inconsistent with the statutory scheme. The objection arises only where the realisable assets are agreed to be less than the value of the proceeds without proper identification of those assets. This observation, however, cannot determine this appeal since, as I have already indicated, Collins J and this court are bound by the terms of this certificate which represent a conclusion of the Crown Court judge which cannot be overturned.