Castillo, R. v

LORD JUSTICE LAWS: On 16th July 2009 before His Honour Judge Higgins at the Southwark Crown Court this appellant was convicted by a unanimous jury of an offence of conspiracy to cheat the public revenue. On 20th July 2009 he was sentenced to 10 years' imprisonment. The 291 days spent on remand were ordered to count towards sentence. He was disqualified under section 2 of the Company Directors Disqualification Act 1986 for 10 years.

On 9th May 2011 Judge Higgins made a confiscation order against the appellant in the sum of £3 million pursuant to the relevant terms of the Criminal Justice Act 1988 (as amended) to be paid within 12 months or 10 years' imprisonment consecutive in default.

There were two co-defendants who were convicted of the same offence and both sentenced to six-and-a-half years' imprisonment. A £10,000 confiscation order was made in respect of Denise Westmoreland and £40,000 in respect of Jonathon Baigent. The appellant now appeals by leave of the single judge against a 10 year default term of imprisonment attached to the confiscation order.

The conspiracy in question was a massive enterprise which ran between May 2001 and August 2003. It was what is called a carousel or missing trader fraud. It involved an artificial and dishonest trade in mobile phones purchased VAT free in other Member States of the European Union, engineered so as to facilitate the making of entirely bogus claims for the refund of millions of pounds worth of Value Added Tax from the Customs. The estimated loss to the Exchequer was over £250 million. The conspiracy was brought to book through a major investigation called Operation Euripus.

The investigation led to 45 arrests; 96 sets of premises were searched; 260 computers and 500,000 documents were seized. Invoices and banking documents showed that 42 United Kingdom VAT registered companies - these were the so-called missing traders - were used to buy telephones VAT free from other companies registered for VAT in the Republic of Ireland, Holland, France, Finland and Spain. 529 trading chains were identified. They all highlighted the artificial nature of the transactions. In particular they showed that in about half of the examples there was a circular trading pattern and in all the examples there was a missing trader which did not account for the relevant VAT.

The appellant lived in Barcelona. He was the director of a number of European Union suppliers and was signatory to those companies' bank accounts. A substantial part of the stolen VAT - over £300 million - went through his company bank accounts. He played a pivotal role in the conspiracy and in the laundering of its proceeds. The turnover of his companies during the period covered by the investigation amounted in all to just under £383 million. The VAT element in relation to the transactions was about £58 million. Funds were transferred from London accounts to sister accounts in Spain in the total of £1,900,000-odd. He was also involved in about 268 transactions which took place over a two year period. The Crown submitted, unsurprisingly perhaps, that he was at the centre of the fraud.

In the confiscation proceedings against the appellant the benefit figure was agreed at £30,791,277.25. The Crown contended that the appellant's minimum profit from the conspiracy was £4 million. The appellant, who gave evidence in the confiscation proceedings, asserted that it was only £2 million. But that was a bare assertion. The judge (see the confiscation proceedings transcript, page 7B to C) accepted the Crown's figure. The appellant sought to persuade the judge that he had dissipated the funds he had obtained from the conspiracy. He claimed he had spent the money on a woman for whom he had formed a deep attachment, on cocaine and prostitutes, generally on high living and also on the purchase of a property as regards which on the judge's finding (12C of the transcript) he had made mortgage payments to the tune of €240,000. The judge found that save for the mortgage payments the appellant's account of his expenditure was fanciful (page 11C).

The Crown accepted that in arriving at the figure for realisable assets the judge should make some deduction from the £4 million to reflect expenditure which could not be recovered. It was submitted that 25 per cent or £1 million was a reasonable figure. The judge was satisfied that the appellant's minimum profit was £4 million and that there were available hidden assets in the sum of £3 million (transcript 17C). That then was the amount of the confiscation order, as we have indicated.

The judge heard submissions on time to pay and on the appropriate sentence in default. As regards the default sentence, the judge concluded as follows:

Confiscation orders are now dealt with under the provisions of the Proceeds of Crime Act 2002. However, given the dates, May 2001 to August 2003, between which this conspiracy was perpetrated, the governing provisions are those of the Criminal Justice Act 1988. Section 75(1) of the 1988 Act provided that a confiscation order "shall have effect as if that amount were a fine imposed on him by the Crown Court." By section 75(6) the same applies in relation to confiscation orders made in this court.

Imprisonment for default in the payment of a fine was first provided for by statute in section 31 of the Powers of Criminal Courts Act 1973. By section 31(3)(a) the default period was limited to 12 months irrespective of the amount of the fine. A sliding scale of maximum default sentences fixed by reference to the amount of the fine was first introduced by section 31(3A) of the Powers of Criminal Courts Act 1973 which was added by the Criminal Justice Act 1982. The scale has been revised from time to time. The table current at the time of this conspiracy showed that for a fine or of course a confiscation order exceeding £100,000 but not exceeding £250,000 the maximum default period was three years; where the amount exceeded £250,000 but not £1 million it was five years and where the amount exceeded £1 million without upper limit, the maximum default period was 10 years. Thus as the judge below acknowledged, the maximum default sentence was imposed in this case.

The administration of this regime has been considered in a number of decisions of this court: Szrajber (1994) 15 Cr.App.R (S) 821; French (1995) 16 Cr.App.R (S) 841; Smith [2009] EWCA Crim. 344; Piggott [2009] EWCA Crim. 2292; Price [2009] EWCA Crim. 2198; Whiteway-Wilkinson [2010] EWCA Crim. 35; Pettitt [2010] EWCA Crim. 1884 and Young [2011] EWCA Crim. 1176. These following principles emerge for the guidance of courts fixing a period of imprisonment to be served in default of payment of a confiscation order:

Those are the principles which with respect emerged from the cases. We would add this. Although the court has insisted that the requirement of proportionality has to be respected, that does not imply what in sentencing parlance may be called a "tariff". The purpose of the default term is not punishment for the achievement of retributive justice. It is rather to secure satisfaction of the confiscation order and so deprive the criminal of the fruits of his crime. In that endeavour, the demands of proportionality are much weaker than where the court is punishing the offender. Although retributive justice is by no means the only aim of sentencing, it remains a first condition of criminal punishment that the offender should get no more than his just deserts. Proportionality is thus at the centre of the process. By contrast, the ancillary regime of asset recovery is established on an altogether different footing. Its first condition is effectiveness.

However, in this context too proportionality, as we have shown, commands some attention especially in the top bracket where there is no maximum amount for the confiscation order. A sum of £2 million to £3 million is not far above the top bracket's floor of £1 million when one considers that the same bracket would contain an order for, say, £100 million. The largest order so far seems to have been for £92.3 million: Ahmed and Ahmad 5th July 2010. In setting the default term for an order of £2 million to £3 million, some heed should be paid to the fact that the maximum would be the same for an order five times as great or more; and consideration should be given to fixing a somewhat shorter period, otherwise the court's process looks and therefore is capricious and unjust. But in this context proportionality does not define the right order. It merely adjusts what would otherwise be a wrong one.

We believe this approach is in line with earlier authority. We propose to apply it in the present appeal. In this case the appellant is a Spanish national based in Spain during the period of the conspiracy. On the judge's finding, which is not challenged, he has deliberately hidden £3 million worth of ill-gotten gains. He has obviously hidden them outside the United Kingdom. When at length he returns to Spain it may well be relatively easy for him to gain access to the funds. In Whiteway-Wilkinson a default term of 10 years was reduced to eight for a confiscation order of £2,137,500. The figure in this case is about 30 per cent higher. In our judgment, the effect of the proportionality principle, although it needs to be respected, is very weak in this case. In all the circumstances, we consider that the right order would have been a default term of nine years' imprisonment. We quash the order for 10 imposed by the judge and substitute nine. To that extent the appeal succeeds.