McIntosh & Anor v R.

This Court gave leave to the two appellants, on 31 March 2011, to argue that HHJ Alexander QC misdirected himself in law when concluding that neither appellant had satisfied him that the amount that might be realised at the time he made the confiscation orders was less than the agreed amount of benefit, a sum of £3,668,990. The appeal raises the issue as to the correct approach a court should adopt to determine realisable amounts and, in particular, the proper interpretation of dicta in Telli v Revenue and Customs Prosecution Office [2008] 2 Cr App R (S.) 48, in the light of R v May [2008] 1 AC 1028 and Glaves v Crown Prosecution Service [2011] EWCA Civ 69.

In the course of argument it emerged there was little dispute as to the law; the substance of the argument turned on a correct reading of the judge’s judgments. But this appeal does afford an opportunity to revisit certain dicta, for which I must take responsibility, in Telli and to underline the importance of the statutory framework within which judges must work in order to assess the amount that might be realised.

It is important to stress, at the outset, that it was agreed that each of these two appellants had obtained property as a result of or in connection with missing trader intra community fraud (MTIC) in the sum of £3,668,990 and, thus, that that was the benefit which s.71(4) of the Criminal Justice At 1988, as amended by the Proceeds of Crime Act 1995, attributed to each of them . We underline that this was, in both cases, an agreed sum. The cases of both Marsden and McIntosh were dealt with separately: on 12 December 2008, the judge gave judgment in Marsden’s case and on 15 December 2008 in the case of McIntosh. Those confiscation order hearings, in which both appellants failed to satisfy the court that the amount which might be realised in their cases was less than the benefit for the purposes of s.71(6) of the 1988 Act, followed a judgment given by the judge in the case of a co-defendant, Moen, (25 November, 2008) in which the judge had ruled that the realisable amount in his case was substantially less than the amount of benefit. He made other confiscation orders in relation to other co-defendants, none of which are relevant to these appeals.

The judge was particularly well-placed to assess the comparative responsibilities of those who had participated in the MTIC fraud, and appreciate its extent, since he had presided over the lengthy trial in 2005, lasting some four months, between May and August. These two appellants were convicted of conspiracy to cheat the public revenue on 3 August 2005 at Northampton Crown Court. They played but a part in a conspiracy which lasted between 31 December 2001 and 23 July 2002, a period of only six months, in which the loss to the public revenue was estimated to have been in excess of £35 million.

McIntosh had recruited Marsden to the fraud. Marsden set up Mars Enterprises Inc, with banking facilities with the Royal Bank of Scotland. Marsden opened the account and used it to launder money and, later, to receive money from the transactions into which Mars Enterprises entered as a ‘buffer company” in the chain used to commit the missing trader frauds. The ‘buffer’ transactions were carried out on instructions from McIntosh, who was above Marsden in the command hierarchy but beneath the main organisers. The amount of the agreed benefit represented the amount of £847,750 paid into the Mars Enterprises account in connection with Mars’ money laundering activities and £2,821,240 representing VAT paid into the account in the course of the ‘buffer’ transactions. We should recall that the appellants had sought to challenge the amount of benefit, but their applications to appeal in connection with the figure of £3,668,990 were refused.

These appeals concern the proper approach the court should take where a defendant is found not to have told the truth about his realisable assets. The essence of the appeals of both appellants is that the judge failed correctly to apply the provisions of s.71(6) of the 1988 Act. The appellants contended that they had no realisable assets. The judge disbelieved both of them. He concluded that they had concealed their assets. It was at that point, so it was argued, that he misdirected himself in law: the judge regarded his finding that the appellants had hidden assets as compelling him to make a confiscation order in the full sum of the benefit figure. On the contrary, submitted the appellants, a court is not required to make an order in the full amount of the benefit figure merely because it concludes that a defendant has not told the truth about his realisable assets. A court may reject a defendant’s evidence that he has no assets or reject his evidence that he has some assets, but of insufficient value to meet the full benefit figure. In neither case, so it was argued, is the court bound to make an order in the full amount of the benefit.

S.71(6) provides:-

“Subject to subsection (1C) above the sum which an order made by a court under this section requires an offender to pay shall be equal to –

(a)

the benefit in respect of which it is made; or

(b)

the amount appearing to the court to be the amount that might be realised at the time the order is made,

whichever is the less.”

This provision requires the court to assess what amount appears to the court to be realisable. It is now settled that the burden of proving that the amount that might be realised is less than the benefit rests on the defendant. In R v Barwick [2001] 1Cr App R (S) 129 the rationale advanced by Auld J in Rees (19 July 1990, unreported) was adopted: the nature and value of his assets are essentially within a defendant’s personal knowledge. But it should be noted that in Barwick the judge, at the confiscation hearing, disbelieved the defendant but nevertheless concluded that his realisable assets were less than the amount of the full benefit figure (“doing as broad a justice in this case as I feel able to do”, cited paragraph 8). While this court counselled against any assumption that a defendant would invest the proceeds of crime (paragraph 39), it upheld the factual conclusions of the judge and thus his acceptance that the realisable assets were less than the full amount of the benefit, notwithstanding that the defendant’s evidence hid the truth.

In May (q.v. supra) Lord Bingham, in giving the opinion of the Committee, identified the objective of the statutory scheme: to deprive defendants of the benefit from their criminal conduct, “within the limits of their available means” (paragraph 48 B). It would, he said, be unjust to imprison a defendant for failure to pay a sum he cannot pay (paragraph 35). But Lord Bingham stressed the need to focus on the statutory regime in which no discretion survived, save in relation to the application of the statutory assumptions (paragraph 43). Accordingly, although he acknowledged Lord Steyn’s reference in R v Revzi [2002] 2 Cr App R 2 to the need for “standing back and deciding whether there is or might be a risk of serious injustice”, that approach could only be adopted within the confines of the statute itself (paragraph 43). Lord Bingham made it clear that the injustice in ordering a defendant to pay more than he was able was recognised by and catered for in the provisions of the statute itself:

“It has also been recognised that it would be unjust to imprison a defendant for failure to pay a sum which he cannot pay. Thus provision has been made for assessing the means available to a defendant and, if that yields a figure smaller than that of his aggregate benefit, making a confiscation order in the former, not the latter, sum.” (our emphasis) (May, paragraph 35)

Accordingly, there is no room, outwith the statute, for any residual discretion in the court to relieve a defendant, who has failed to prove that his assets are less than the full amount of the benefit. Mr Farrell QC, on behalf of McIntosh, argued that the court should always bear in mind the injustice of ordering a defendant to pay more than his resources permitted. He drew attention to Lord Steyn’s dicta in Revzi (cited above) and Toulson LJ’s emphasis, in Alan Glaves v Crown Prosecution Service(q.v. supra) on the need for justice and proportion (paragraph 56). Toulson LJ drew on Pill LJ’s reminder in Re O’Donoghue [2004] EWCA Civ 1800, that however uncooperative or dishonest a defendant may be, the court must retain a sense of justice and proportion.

But that approach can only be deployed within the statutory scheme. The court must strive to achieve justice and proportionality within the confines of the statutory scheme. The court can and should exercise those judicial virtues at the time when it answers the statutory question posed by s. 71(6), namely, whether it appears to the court that the realisable amount is less than the amount of the benefit.

When Toulson LJ recognised that a defendant may be ordered to pay more than he has, he was not imposing a third, extra-statutory test for assessing the realisable amount. On the contrary, he was recognising that the statutory scheme may lead to a result where:-

“a confiscation order is properly made in a larger sum than the defendant in truth is able to pay.” (paragraph 52)

O’Donoghue and Glaves were cases in which an appellant sought a certificate of inadequacy, but the courts’ dicta were relevant to the statutory scheme in relation to confiscation. Telli was also such a case but Mr Farrell suggested that courts had been applying dicta of mine in a rigid and unlawful manner, in those cases where a court concluded that a defendant had failed to disclose the true extent of his current assets. In Telli, a case under the Drug Trafficking Act, 1994, I said:

“10.

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.

11.

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.

30.

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 C.J. in Dickens [1990] 2 A.C 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).”

This rigid statement of principle was qualified at 31:

“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.”

The dicta in Telli,so Mr Farrell told us, have been adopted as the source of a requirement to make a confiscation order in the full amount of the benefit in any case where a defendant fails to persuade the court that he has revealed the true current extent and true value of his assets. In any case where a defendant has been found to have lied and diminished or hidden their true value, the court is bound to make an order in the full amount of the benefit.

The Crown submitted in Glaves that it was not open to adefendant to persuade a court that his assets were inadequate once it had been found that he had failed to disclose their full extent. This submission was rejected on the basis that Telli does not go that far; it must be confined to the circumstances of that case where it was plain that the assets which Telli had failed to reveal may, for all the court knew, have been ample to meet the full value of the benefit despite the loss of the statue of Dionysus.

In the light of Glaves and May there is no principle that a court is bound to reject a defendant’s case that his current realisable assets are less than the full amount of the benefit, merely because it concludes that the defendant has not revealed their true extent or value, or has not participated in any revelation at all. The court must answer the statutory question in s.71(6) in a just and proportionate way. The court may conclude that a defendant’s realisable assets are less than the full value of the benefit on the basis of the facts as a whole. A defendant who is found not to have told the truth or who has declined to give truthful disclosure will inevitably find it difficult to discharge the burden imposed upon him. But it may not be impossible for him to do so. Other sources of evidence, apart from the defendant himself, and a view of the case as a whole, may persuade a court that the assets available to the defendant are less than the full value of the benefit.

There was little dispute as to the correct legal principles; the real issue was whether the judge had applied them. The appellants asserted that the judge’s view was that he was bound to make an order in the full amount of the agreed benefit once he had rejected the appellants’ case that they had no realisable assets. The appellants focussed on the following passages. In Marsden’s case the judge quoted paragraphs 10 and 11 in Telli and said:

“In my judgment it follows that once the benefit under the 1988 Act is established if a defendant refuses or fails to identify all his realisable assets or fails to satisfy the court on the balance of probabilities that he has no hidden assets the court has to make a confiscation order for the full value of the benefit.” (our emphasis)

The judge said that McIntosh’s case should be read in conjunction with his judgment in Marsden and concluded:

“The consequences of my findings are that I am not satisfied on the balance of probabilities that Mr McIntosh has established that he has no assets with which to pay the criminal benefit attributed to him and in accordance with the judgment in Telli v RCPO, the only order I can make is confiscation in the sum of £3,688,980.” (our emphasis).

As we have already recalled, these two cases were considered by the judge a fortnight or so after he had ruled in the case of a fellow conspirator, Moen. In that case he found that the defendant had not been frank and honest about his assets, and that the full value of the benefit to Moen was £2,013,495 but nevertheless made an order in the much lower sum of £96,429. He said Telli was authority for the proposition that :

“If the defendant does not satisfy the evidential burden then the court has no power to make a lesser order than in the amount of the benefit so found”.

But he later continued:

“While he has not been frank and honest about what assets he does and should have, even the Crown do not suggest that he would have sums anything near that and despite what is said in Telli it would be wholly wrong for me to make an order in that sum.”

Thus the judge demonstrated the correct approach, an application of justice and proportionality in the view he took about the extent and value of Moen’s assets despite the finding that Moen was not himself a reliable source of evidence. The source of potential error, attributable to my dicta and not to the judge, perhaps lay in the proposition we have cited earlier, that there is no power to make a lesser order once the defendant has failed to satisfy the evidential burden imposed on him. That is correct so far as it goes. But it must always be recognised that a just and proportionate view of the facts as a whole may enable a defendant to satisfy that evidential burden even when his own evidence proves to be an untruthful and unreliable or even non-existent source of the nature and extent of his current assets.

Of course, the mere fact that the judge adopted the correct approach in Moen does not mean he did so in the following cases. But it would be surprising if having applied the statute correctly in that case, he so shortly after adopted a different and incorrect approach. In our view he did not.

McIntosh contended both at the confiscation hearing and on appeal that the amount of the agreed benefit was far higher than the reward he received from his participation in the conspiracy and that any assessment of the amount of his assets available to be realised must, on any fair and proportionate view, have been far less. Accordingly, even if the judge rejected his case that he had no assets available, the amount ordered should have been substantially less than the agreed full value of the benefit.

The judge’s carefully reasoned ruling, which he explicitly required to be read with his ruling in Marsden, demonstrates the basis on which he rejected that submission. The judge’s starting point was a rejection of the contention that McIntosh could only have received a small proportion of the total value of the benefit of £3,668,990. He took the view that the Crown had, at an early stage, mistakenly limited the agreed benefit in McIntosh’s case, to that figure. He rightly accepted he was bound by that agreement. But in considering the rewards McIntosh received from involvement in the conspiracy he was entitled to have regard to the much larger sum of £19,000,000 which had been paid into the Mars account. As the judge pointed out in his ruling in Marsden’s case, the Crown did not know how the profits were divided amongst the participants, but any assessment based on reward was bound to take into account the fact that the reward would not have merely been based upon the figure of £3.6 million. He concluded that McIntosh would have been well paid as the organiser, Sanders’s trusted lieutenant.

The judge focussed on a previous submission of wealth in a detailed account McIntosh provided to a bank in April 2001. This disclosed assets of over £800,000. McIntosh said that was designed to deceive the bank, although why the accounts were submitted was not explained. The judge concluded that McIntosh had a holiday flat, although its size and location were unknown, and £300,000 in what was described as an offshore venture in the 2001 account of the assets he did have available. He found that McIntosh was a dishonest crook, in the world of finance, before engaging in an enormous MTIC fraud.

All of those findings were made by the judge before the passage (cited above at paragraph 17), now impugned. They form the factual basis for the finding that his realisable assets did not appear to be less than the full value of the benefit. Those findings form a sufficient basis for the conclusion whereby he rejected McIntosh’s case that he had no assets with which to pay the full amount of the benefit. Having made the factual findings the judge set out, the confiscation order was, indeed, the only order the judge could make. We reject McIntosh’s appeal.

In Marsden’s case, the judge analysed that defendant’s role within the conspiracy and his recruitment by McIntosh, first as money-launderer through his account with the Royal Bank of Scotland under the name of Mars Enterprises and then his use of that company as a buffer in the MTIC fraud.

The judge described Marsden as a manipulator of the facts and of the truth. The judge analysed the extent and value of Marsden’s assets within the United Kingdom and decided certain disputed issues in his favour. But HHJ Alexander QC focussed on property and a bank account which, in an interview in July 2002, Marsden said he owned in Brazil.

The judge concluded that he was not satisfied that Marsden no longer held such property there or elsewhere. He found that the value of what he has abroad is totally unknown. This was a crucial finding. Once the judge had reached that conclusion, there was no basis on which he could conclude that the value of Marsden’s realisable property was less than the value of his benefit, in the light of Marsden’s role in so lucrative a conspiracy. There was no justification for valuing his available assets as being less than the full value of the benefit, even accepting the modest style in which he lived.

The judge’s conclusion that the “only order” he could make was in the full value of the benefit in the passage which is now challenged as a misdirection, was an order made, as the judge said “in these circumstances”. The order followed the factual findings the judge had made, particularly in his rejection of Marsden’s claim that he no longer had property in Brazil. Neither justice nor a sense of proportion demanded that the judge should conclude that assets abroad, the extent and value of which were unknown, should be assumed to be of lower value than the full value of his benefit. We dismiss his appeal.