Serious Organised Crime Agency v Pelekanos

The Claimant, the Serious Organised Crime Agency (“SOCA”), applies for a civil recovery order under Part 5 of the Proceeds of Crime Act 2002 (“POCA”). It is made on the basis that the following property has been obtained through unlawful conduct:

The part of the claim which relates to property held or jointly held by Mr Pelekanos, has proceeded by way of a trial. That part of the claim which relates to the property held by Miss Lawrence and Miss Feander has proceeded by way of an application for summary judgment. The application made against Mr Robbins was adjourned by agreement.

Pursuant to the Practice Direction for Civil Recovery Proceedings a claim for a recovery order “must be made using the CPR Part 8 procedure” (4.1). Any disputed recovery order is likely to involve substantial issues of fact which makes the Part 8 procedure inappropriate. Whilst the Court may order the case to proceed under Part 7, in the present case funding difficulties meant that Mr Pelekanos was never in a position to make that application and the matter has come on for hearing under Part 8. The consequence has been that there has been no disclosure by SOCA, but merely the exhibiting of documents upon which they rely to their witness statements. In a case involving disputed allegations of fraud and other criminal conduct this is unsatisfactory. Had further disclosure been required the consequence almost certainly would have been an adjournment and much wasted costs. If that had occurred, it would to a significant extent have been the consequence of the rigid procedural requirements laid down by the Practice Direction.

This application for a civil recovery order arises from a criminal investigation which was initially commenced in 2004 by Hertfordshire Police into the activities of Mr Pelekanos. As part of that investigation searches were conducted at 1A Bridgewater Road and 6 Sheppards Yard. At the search of 1A Bridgewater Road compact disc cases bearing traces of cocaine and a plastic bag, containing seven ecstasy tablets, were uncovered. Ultimately a decision was taken not to prosecute Mr Pelekanos and the matter was referred to the Assets Recovery Agency (whose functions have since been taken over by SOCA).

The witness statement of Ms Amy Nixon, in support of the claim, describes how police intelligence provided an initial starting point for SOCA’s investigation. This intelligence was to the effect that Mr Pelekanos was involved in drug trafficking. SOCA contends that its subsequent investigation into Mr Pelekanos (and in particular his finances) demonstrates that the only inference which can sensibly be drawn from the evidence is that Mr Pelekanos derives his income through unlawful conduct. SOCA further contends that the evidence also demonstrates that it is more likely than not that this conduct is drug trafficking and money laundering. In addition SOCA contends that a further aspect of the claim is that, almost without exception, every mortgage application which Mr Pelekanos made contained false information as regards his income and the source of that income, and that this, of itself, constitutes further unlawful conduct and an alternative basis upon which a recovery order may be made. As the case has developed, mortgage fraud has increasingly become the central focus of SOCA’s case.

Section 240(1)(a) provides that the general purpose of Part V of POCA is to enable the enforcement authority to recover in civil proceedings before the High Court property which is, or represents, property obtained through unlawful conduct. Unlawful conduct is defined by section 241 which provides that:

“Conduct occurring in any part of the United Kingdom is unlawful conduct if it is unlawful under the criminal law of that part”.

Section 241(3)(a) provides that the court must decide on a balance of probabilities whether it is proved that any matters alleged to constitute unlawful conduct have occurred.

Section 242 defines what constitutes ‘property obtained through unlawful conduct’. Section 242(1) provides that:

“A person obtains property through unlawful conduct (whether his own conduct or another's) if he obtains property by or in return for the conduct.”

In determining what constitutes ‘property obtained through unlawful conduct’ section 242 provides that:

The general interpretation section (section 316) provides that what constitutes “recoverable property” is to be read in accordance with sections 304 to 310 of the Act. Section 304 defines recoverable property as:

“304 Property obtained through unlawful conduct

(1)

Property obtained through unlawful conduct is recoverable property.

(2)

But if property obtained through unlawful conduct has been disposed of (since it was so obtained), it is recoverable property only if it is held by a person into whose hands it may be followed.

(3)

Recoverable property obtained through unlawful conduct may be followed into the hands of a person obtaining it on a disposal by—

(a)

the person who through the conduct obtained the property, or

(b)

a person into whose hands it may (by virtue of this subsection) be followed”.

By virtue of section 305 property is also recoverable property if it represents property that was originally obtained through unlawful conduct:

“(1)

Where property obtained through unlawful conduct (“the original property”) is or has been recoverable, property which represents the original property is also recoverable property.

(2)

If a person enters into a transaction by which—

(a)

he disposes of recoverable property, whether the original property or property which (by virtue of this Chapter) represents the original property, and

(b)

he obtains other property in place of it,

the other property represents the original property.

It is this section which permits the tracing of, and the recovery of, any property which was obtained using property which was originally obtained through unlawful conduct.

Section 306 provides that:

“(1)

Subsection (2) applies if a person's recoverable property is mixed with other property whether his property or another's.

(2)

The portion of the mixed property which is attributable to the recoverable property represents the property obtained through unlawful conduct.

(3)

Recoverable property is mixed with other property if, for example, it is used,

…

Section 307 permits the recovery of accruing profits. It is this provision which provides for the recovery of rental income received from a property which is, of itself, recoverable property, although no such claim is made in the present case.

The Court’s jurisdiction to make a recovery order is provided for by way of section 266. Section 266 operates so that the making of such an order is mandatory (subject to the limited exceptions set out therein) if the Court is satisfied that the property is recoverable.

Sections 270-272 deal with associated and joint property and what is to happen where the entire property interest is not recoverable property.

In summary, to establish their claim to the properties in question SOCA has to prove that it is or that it represents property which has been obtained “by or in return for” “unlawful conduct”.

The “unlawful conduct” alleged in this case is drug trafficking and/or money laundering and/or mortgage fraud.

The burden of proof is on the claimant and the standard of proof is the balance of probabilities. However, the serious nature of the allegations being made and the serious consequences of such allegations being proved mean that careful and critical consideration has to be given to the evidence for the Court to be satisfied that the allegations have been established.

In In Re D [2008] 1 WLR 1499 at paragraph 27 Lord Carswell, with whose speech the other Law Lords agreed, said the proper state of the law on the topic had been summarised by Richards LJ in R(N) –v- Mental Health Review Tribunal (Northern Region) [2006] QB 468 [at paragraph 62]:

“62 Although there is a single civil standard of proof on the balance of probabilities, it is flexible in its application. In particular, the more serious the allegation or the more serious the consequences if the allegation is proved, the stronger must be the evidence before a court will find the allegation proved on the balance of probabilities.

Thus the flexibility of the standard lies not in any adjustment to the degree of probability required for an allegation to be proved (such that a more serious allegation has to be proved to a higher degree of probability), but in the strength or quality of the evidence that will in practice be required for an allegation to be proved on the balance of probabilities”.

The one qualification which Lord Carswell added was [at paragraph 28]:

“28 It is recognised by these statements that a possible source of confusion is the failure to bear in mind with sufficient clarity the fact that in some context or tribunal has to look at the facts more critically or more anxiously than in others before it can be satisfied to the requisite standard. The standard itself is, however, finite and unvarying. Situations which make such heightened examination necessary may be the inherent unlikelihood of the occurrence taking place (Lord Hoffmann's example of the animal scene in Regent's Park), the seriousness of the allegation to be proved, in some cases, the consequences which could follow from acceptance of proof of the relevant fact. The seriousness of the allegation requires no elaboration; a tribunal of fact will look closely into the facts grounding an allegation of fraud before accepting that it has been established. The seriousness of consequences is another facet of the same proposition; if it is alleged that a bank manager has committed a minor peculation, that could entail very serious consequences for his career, so making it the less likely that he would risk doing such a thing. These are all matters of ordinary experience, requiring the application of good sense on the part of those who have to decide such issues. They do not require a different standard of proof or a specially cogent standard of evidence, merely appropriately careful consideration by the tribunal before it is satisfied with the matter which has to be established”.

The authorities make it clear that although it is not necessary to prove the commission of a specific criminal offence, it is necessary to identify the kind(s) of unlawful conduct being alleged and to prove that the property was obtained by or in return for criminal conduct of an identifiable kind.

In R (Director of Assets Recovery Agency) v Green [2005] EWHC 3168 (Admin) Sullivan J was asked to decide as a preliminary issue:

“Whether a claim for civil recovery can be determined on the basis of conduct in relation to property without the identification of any particular unlawful conduct..” this first question to include whether the claimant can sustain a case for civil recovery in circumstances where a respondent has no identifiable lawful income to warrant the lifestyle and purchases of that respondent.”

He made a declaration in terms that [at paragraph 47]:

“1.

In civil proceedings for recovery under Part 5 of the Act the Director need not allege the commission of any specific criminal offence but must set out the matters that are alleged to constitute the particular kind or kinds of unlawful conduct by or in return for which the property was obtained.” [paragraph 47].

As Sullivan J further explained [at paragraphs 17; 50]:

“17 I readily accept Mr Crow's submission that sections 240 and 241 are framed so as to make it clear that the Director need not allege the commission of a specific criminal offence or offences. I further accept that Part 5 proceedings are not limited, as were the earlier forfeiture proceedings, to any particular kind or kinds of criminal offence, for example, drug trafficking, money laundering, et cetera, but it does not follow that the Director is not under any obligation to describe the conduct which is alleged to have occurred in such terms as will enable the court to reach a conclusion as to whether that conduct so described is properly described as unlawful conduct. For the purposes of sections 240 and 241(1) and (2) a description of the conduct in relatively general terms should suffice, “importing and supplying controlled drugs”, “trafficking women for the purpose of prostitution”, “brothel keeping”, “money laundering” are all examples of conduct which, if it occurs in the United Kingdom is unlawful under the criminal law.

Sullivan J’s conclusion was endorsed in the following terms by the Court of Appeal in The Director of Assets Recovery Agency v. Szepietowski & Ors [2006] EWHC (Admin) 3228 [per Moore-Bick LJ]: -

“107… It is sufficient in my view for the director to prove that a criminal offence was committed, even if it is impossible to identify precisely when or by whom or in what circumstances and that the property was obtained by or in return for it. In my view Sullivan J was right therefore to hold that in order to succeed the Director need not prove the commission of any specific criminal offence in the sense of proving that a particular person committed a particular offence on a particular occasion. Nonetheless, I think it is necessary for her to prove that specific property was obtained by or in return for a criminal offence of an identifiable kind (robbery, theft, fraud or whatever) or, if she relies on Section 242 (2), by or in return for one or other of a number of offences of an identifiable kind. If, as I think, that is what the judge meant in paragraph 50 of his judgment, I respectfully agree with him”.

In Green Sullivan J was asked to decide “whether the claimant can sustain a case for civil recovery in circumstances where a respondent has no identifiable lawful income to warrant the lifestyle and purchases of that respondent.”

He made a declaration as follows:

“2.

A claim for civil recovery cannot be sustained solely on the basis that a respondent has no identifiable lawful income to warrant his lifestyle.”

This has been elaborated upon in subsequent judgments, and in particular emphasis has been placed on the limitations of the qualification made by the word “solely”.

In Olupitan v ARA [2008] EWCA Langley J commented as follows [at paragraph 23]:

“23….I think there is a danger in seeking to identify absolutes where questions of proof are in issue. The question in this case is whether Mr Olupitan obtained the property in issue through the unlawful conduct alleged. The test is whether it is more probable than not that such is the case. The evidence has, as one would expect, covered a number of matters, some more compelling than others, and including oral and documentary evidence from both Respondents. It is the whole picture which has to be balanced. For example, it is one thing to point to an unexplained lifestyle, it may be another if an explanation is offered but rejected as untruthful; and taken with other evidence either might be more or less persuasive.”

The importance of looking at the whole evidential picture has been emphasised in other cases.

In ARA v Jackson and others [2007] EWHC 2553 King J endorsed Langley J’s approach. He stated [at paragraphs 115-116]:

“115 I also echo what Langley J. said on the emphasis to be put on the qualifying adverb “solely” in the context of proof of obtaining property through unlawful conduct, by reference to a comparison between lifestyle and identifiable sources of income. Such a comparison will not in itself be sufficient but as in Olupitan so in the present case the Claimant is entitled to ask the court to look at the totality of the evidence and the whole picture which emerges. As Langley J. said at paragraph 23 it is one thing to point to an unexplained lifestyle, it may be another, “if an explanation is offered but rejected as untruthful; and taken with other evidence either might be more or less persuasive”.

116 I equally reject the submission made on behalf of the Respondent that I am not entitled to take a global approach to the issue of proof that the property in issue is recoverable within the meaning of the Act. The question is whether the Respondent obtained the property through the unlawful conduct alleged or whether the property in the Respondent’s hands is representative of property so obtained. The test is whether it is more probable than not that such is the case. It is as was said in Olupitan the whole picture painted by the totality of the evidence which has to be balanced. I see nothing wrong in the court ultimately concluding that any significant asset of the Respondent has been obtained by or represents the proceeds of his criminal conduct as particularised by the Claimant in the terms set out at paragraph 51 above, if the court is satisfied on the evidence that this is more probable than not. I do not consider it essential that the court considers each property transaction on an item by item basis in the sense that the Claimant has an obligation to show some particular unlawful actions by the Respondent at some particular time which enabled the particular transaction.”

In SOCA v Gale [2009] EWHC 1015 (QB) Griffith Williams J adopted a similar approach. He commented on Green in the following terms [at paragraph 14]:

“14 With respect to Sullivan J, I consider his second answer is too restrictive. While a claim for civil recovery may not be sustained solely upon the basis that a respondent has no identifiable lawful income to warrant his lifestyle, the absence of any evidence to explain that lifestyle may provide the answer because the inference may be drawn from the failure to provide an explanation or from an explanation which was untruthful (and deliberately so) that the source was unlawful”.

In order to demonstrate that property derives from crime for the purposes of proving money laundering it is legitimate to rely upon inferences drawn from the way in which the money was handled.

In ARA v Olupitan [2007] EWHC 162 (QB) Langley J summarized the position as follows [at paragraphs 65- 66]:

“65 A substantive offence of money laundering can be proved by inference from the way in which cash is dealt with and it is not necessary to prove the underlying offence which generated the cash: Rv El Kurd [2001] Crim. L.R. 234 ; and R v L,G,Q and M [2004] EWCA Crim 1579 . As Mr Eadie submitted, if money is handled in a manner consistent only with money laundering, “the inference is that it must be criminal property because no one launders clean money”. Mr Krolick submitted that it was a condition precedent to any allegation of money laundering that the property should be the proceeds of a criminal offence. He referred to the decision of the House of Lords in Rv Montila [2005] 1 Cr. App. R 26 . But what is required in law to establish money laundering and how that may be proved raise different issues. El Kurd was cited in Montila and referred to in the Opinion of the Committee with apparent approval and certainly without adverse comment on the question material to this case.

66 In this case, the evidence is, as the Director alleges, that around £195,000 cash (and £24,000 in unidentified credits) were credited to the accounts of Olupitan and Makinde in a period of some five and a half years. They remain unexplained and without any supporting documentation. Such explanations as have been offered have been rejected as untruthful. I accept Mr Eadie's submission that in the circumstances of this case as I find them to be it is a proper inference that money laundering has occurred”.

The judgment of King J in Jackson is to similar effect [at paragraphs 118-119]:

“118 I also consider that the court is entitled to take a commonsense approach to the inferences to be drawn from the manner in which the Respondent chose to store his accumulated cash and from the failure of the respondent to keep any business records in the context of the evidence as a whole.

119 Equally, as the Receiver said in evidence, one would expect any successful law abiding businessman to keep some sort of record no matter how simple, of what he was buying, what he was selling and the amounts of his overheads – if only to work out the sort of profit he was making and which were his most profitable items. The criminal dealer in, for example, illicit drugs will of course eschew any record by which his activities might be detectable.”

This approach was endorsed by Griffith Williams J in Gale [at paragraph 17]:

“17 I respectfully agree with and adopt the above cited observations of Sullivan J, Langley J and King J and if support is needed it is to be found in the decision of the Court of Appeal, Criminal Division in R–v- Anwoir & Others [2008] 2 Cr App R 36 at para 21 at page 539 that there are two ways in which the Crown can prove in money laundering offences that property was derived from crime - either by proving it derived from unlawful conduct of a specific kind or kinds or by evidence of the circumstances in which the property was handled, such as to give rise to the irresistible inference that it could only have been derived from crime (although in criminal proceedings the higher standard of proof is required)”.

In a number of cases it has been held that where a mortgage is obtained through a false statement being dishonestly made on a mortgage application form then the property purchased with the assistance of the mortgage can be said to have been obtained thereby and to be recoverable property under POCA.

In those cases all the funds provided for the purchase were found to be tainted funds and therefore no distinction fell to be drawn between purchase funds provided by way of the mortgage fraud and other purchase funds and a 100% interest in the property was held to be recoverable – see Olupitan; Jackson and SOCA v Olden [2009] EWHC 610.

However, if part of the purchase monies comes from untainted sources sources then a more complex analysis is called for. As pointed out by Carnworth LJ in Olupitan [at paragraphs 38-39]:

“38…if someone steals £100,000 cash and puts the whole sum to the acquisition of a house, it could be said in a broad sense that the house itself has been obtained by unlawful conduct. However, as I understand the scheme of the Act, the original “recoverable property” is the immediate product of the unlawful conduct, that is the £100,000 cash. The house only becomes recoverable property because it “represents” the £100,000 ( s 305 ). The distinction is immaterial if the whole purchase price is funded from unlawful sources. However, it becomes important, if, say, only £75,000 of the purchase price comes from unlawful sources, and the other £25,000 is untainted. In such a case it could no doubt still be said that the £100,000 house would not have been acquired “but for” the theft, and possibly, in ordinary language, that it was “obtained” by theft. However, the Act seems to me to require a more precise analysis. The original recoverable property is the stolen £75,000, which is then “mixed” with the lawful £25,000. Under section 306 , the recovery order can only bite on the “portion” of the mixed property which is attributable to the unlawful £75,000.

39 If in that example one follows the judge's approach, one is forced to treat the whole house as “recoverable property”. On that hypothesis sections 272 and 306 do not assist. The assumption underlying them is that the recoverable property is the product of unlawful conduct, and does not deserve or require protection. They provide protection respectively for “associated property”, which by definition excludes property which is “itself the recoverable property” ( s 245(1) ); and “other property”, that is, property other than the recoverable property which is mixed with it ( s 306(1) ).”

On this point Toulson LJ agreed with Carnworth LJ [at paragraph 52]:

“52 As to the first part, I agree that if a property is acquired in part with untainted money and in part with the proceeds of a mortgage fraud, it was not Parliament's intention that the purchaser should be deprived of the portion of the value of the property derived from untainted money. The object of s 306 (mixing property) is the opposite.”

This approach was confirmed by the Court of Appeal decision in R v Roach [2008] EWCA 2649:

That case concerned criminal confiscation proceedings in relation to a property which had been purchased as to half with tainted funds and as to half with untainted funds. However, the court confirmed that the approach should be the same as in a case of civil confiscation proceedings and that the purchaser should not be deprived of the portion of the value of the property attributable to untainted funds. As stated in the judgment of Toulson LJ [at paragraphs 18-24]:

“18 The appellant's argument is that since half the purchase price came from clean money, half the value of the property should be regarded as not representing the fruits of crime.

19 The prosecution's submission was that logically the entire property should be regarded as obtained by her as a result of or in connection with her criminal activities, but by way of concession it was prepared to allow a discount in the amount of the unsecured loan.

20 There is no authority which is directly binding on us on this point, but there is some statutory provision and authority of this court in relation to another part of the Act which provide a helpful pointer.

21 The overall purpose of the Act is to separate criminals from property and other benefits obtained as a result of their crime. This may be done through criminal confiscation proceedings, with which we are presently concerned, or through civil action brought by the director of the Asset Recovery Agency.

22 In relation to the latter, section 306 of the Act deals specifically with the position where property has been obtained through the use of mixed funds; that is to say, tainted funds and untainted funds. Section 306 provides as follows:

“(1)

Subsection (2) applies if a person's recoverable property is mixed with other property whether his property or another's.

(2)

The portion of the mixed property which is attributable to the recoverable property represents the property obtained through unlawful conduct.

(3)

Recoverable property is mixed with other property if, for example, it is used,

…

SOCA accepts that where clean funds/property have been mixed with funds/property obtained by unlawful conduct then the clean contribution is, as a matter of principle, to be treated as associated property.

However, SOCA contends that where, for example, the clean property takes the form of a deposit which was paid toward a property, a Respondent should not be entitled to anything more than the return of that deposit. They should not be entitled to any profit obtained through the application of that deposit with funds obtained through unlawful conduct (here mortgage fraud). To do otherwise, would still be to permit a Respondent to profit through the use of his unlawful funds - which the scheme of Part V is designed to prevent.

I do not accept this. When property is purchased with tainted and untainted funds one determines the portions of the value of the property derived therefrom at the time of the purchase. So, as in the example given by Toulson LJ, if half of the price comes from tainted money then half of the value of the property is to be regarded as derived therefrom. The object is to deprive the respondent of the portion of the value of the property which is attributable to his criminality. Any subsequent increase in the value of that half portion may be said to be attributable to the criminality, but no more. Conversely, it is not fair to deprive a respondent of the portion of the value of the property which derived from untainted funds. If so, it would be equally unfair to deprive him of the benefit of a subsequent increase in value of that half portion.

Another issue which arises in relation to mortgage fraud is what is required to establish that the mortgage has been obtained “”by or in return for” the fraud. In Jackson King J approached the matters as follows:

“I accordingly have no hesitation in concluding that the Respondent did knowingly supply to the mortgage provider false particulars on material matters in support of his mortgage application and thereby obtained the mortgage loan by deception and thus by fraud. I do not in the context of proceedings under the 2002 Act accept that such a conclusion is not open to me because I have not heard evidence directly from the mortgage provider. The notion that this false declaration of employment and income would not have materially influenced the decision to lend £50,000 on a property being purchased for £65,000 is fanciful. I am fortified in taking this approach by a similar approach taken by Langley J. in Olupitan at paras 29-36. I further infer that had the Respondent answered the questions on the form truthfully he would not have obtained a mortgage. By putting forward false particulars the Respondent was patently seeking to avoid disclosing the truth which he was anxious to conceal from the lender. As will be seen below the overwhelming probabilities are that at this time the Respondent was not conducting any legitimate trade of significance – not least because had he been so doing he would have informed Mr Matto of such trading, which on my findings he did not”.

This suggests that it is necessary to establish that the fraud “materially influenced” the decision to lend. This is consistent with the law of misrepresentation which requires proof of inducement, which means showing that the misrepresentation was one of the inducing causes of making the contract, but not that it was the sole cause – Edginton v Fitzmaurice [1885] 29 Ch D 459. It is also consistent with the test for obtaining a benefit from deception in the context of criminal confiscation, namely whether the deception was “an operative cause” of the obtaining – R v Carter and Others [2006] EWCA Crim Div 416 at paras 36-39.

In both Jackson and Olupitan it was held that it was not necessary to call evidence directly from the mortgage provider in order to prove the requisite causal link. Again, this is consistent with the law of misrepresentation. Once it has been shown that a misrepresentation is material in that it would be likely to induce the contract and that the contract has been entered into, then inducement may be inferred without the need for direct evidence – see St Paul and Marine Insurance Co Ltd v McConnell Dowell Constructors Ltd [1996] 1 All ER 96.

At the heart of SOCA’s application is the allegation that each of the properties in relation to which a recovery order is sought was purchased as a result of mortgage fraud (or funds obtained as a result of a prior mortgage fraud) and funds from unexplained sources which it should be inferred derive from unlawful conduct, namely drug trafficking and/or money laundering. In this connection SOCA places particular reliance on the alleged lack of explanation for Mr Pelekanos’ income.

In relation to their allegation of unlawful conduct SOCA relied on generalised evidence under two main headings: (1) intelligence and (2) associates.

Intelligence.

There is a body of intelligence set out in the witness statement of DCI Maghie which names Mr Pelekanos as being involved in drug trafficking and which details his associations with a number of individuals, also said to be involved in drug trafficking. Mr Pelekanos largely accepted the fact of these associations but denied any involvement in drug trafficking.

Intelligence has been relied upon by SOCA (or its predecessor ARA) in other cases. Intelligence evidence has been treated as admissible, the issue being the weight to be attached to it. For example in Gale, reliance was placed upon police intelligence material which revealed that Mr Gale was suspected of drug trafficking in the United Kingdom before he emigrated to Spain and on his return to the United Kingdom. The Court treated the intelligence in this way [paragraph 125]:

“The Receiver has been provided with a police intelligence report dated 15 April 1998 which reads “His [AS] mate was David Gary Cedric Moore … he featured in Customs operation Silver Wings in early to mid 1980s … AS then moved to Spain at about the same time as Moore who was forced to leave UK. He has associated with the likes of Ronnie Knight, a London gangster”. This evidence must be approached with considerable caution and care but the admission against interest of DG to the Portugese magistrate and evidence linking DG with Knights (see above) provide support for the information. I have concluded on the balance of probabilities that DG left the UK to avoid arrest for drug trafficking”.

Any such evidence must therefore be approached with “considerable caution and care”. There was no Civil Evidence Act notice or evidence explaining why DCI Maghie was not being called, although it may well be because he would not have been prepared to say anything more about his sources than is set out in his statement.DCI Maghie’s statement is based on documents which he has read, and the contents of those documents are said to be drawn from a variety of sources. DCI Maghie’s statement therefore itself relies on documents containing hearsay evidence, and quite possibility, since it is likely to record information entered by a police officer, an amalgamation of various other forms of hearsay evidence. DCI Maghie goes on to state;

“In order to protect police intelligence gathering methodologies and to ensure that there is no exposure of the identity of any covert human intelligence sources which may, or may not have been used, in a manner which would breach their Article 2 ECHR rights, it is vitally important that none of the sources of intelligence are expanded upon or revealed in any way.”

In effect SOCA are therefore seeking to rely upon unattributed multiple hearsay which must not under any circumstances be investigated. Whilst one can understand why DCI Maghie takes the position which he does, reliance upon such evidence puts the Respondent in a very difficult position. As Ms Nixon accepted in cross examination, such evidence is effectively unchallengeable. In all the circumstances I take the view that the evidence, which is in any event of a very generalised nature, is of no real weight.

Associations.

SOCA also sought to place reliance upon Mr Pelekanos’ relationships with the following individuals and his acceptance that there was a link between him and people who had been in trouble for drugs.

Mark Bavington.

Peter Judge

In my judgment the mere fact of Mr Pelekanos’ association with these individuals proves little, if anything. If there had been evidence linking him to a drug dealing offence committed by one of these individuals then it might be different. However, there is no such evidence. All one has is an association with a number of individuals who have some drugs convictions, but convictions of varying kind and seriousness and in many cases of a historic nature.

Recovery is sought of 1A Bridgewater Road which was purchased by Mr Pelekanos on the 6^th November 2003 for £375,000. In the year 2003- 2004, Mr Pelekanos’ declared income was £1,250.

This property was purchased by the following means :

£90,000

174 Anchor Lane had been purchased by Mr Pelekanos on 4^th March 2003.

The property was purchased with a mortgage of £212,000. On the application form Mr Pelekanos declared that his income was £68,000. There was some confusion about this because there was a further copy of the form in which the income was stated to be £60,000. I accept the evidence of Mr Miles, the financial intermediary involved in arranging this and other mortgages, that the most likely explanation is that the final form was amended by him to reflect the higher figure based on information provided by Mr Pelekanos. This income was stated to be “PAYE and dividends” and the only business/employment identified on the form was Avebury Studios, of which Mr Pelekanos was stated to be a director and 50% shareholder. I find that the form represents that Mr Pelakanos has an annual income of £68,000 from earnings and dividends from this business. In Mr Pelekanos’ self assessment form for the same period (2002-2003) he had declared an income of £15,000.

Mr Pelekanos paid a deposit of £37,000 for Anchor Lane. This sum was paid into his account by a Mr Mark Gorman. SOCA relied on the fact that no convincing explanation was given in interview by Mr Pelekanos as to why Mr Gorman had paid him this money. However, in evidence he explained that it was a loan. The derivation of the funds was plain from Mr Pelekanos’ bank statements and was not concealed in any way. SOCA did not make any inquiries of Mr Gorman and he did not give evidence.

It is SOCA’s case that, in the absence of any convincing explanation as to the origins of the £37,000 deposit, the lack of any apparent legitimate income on his part and the lies that Mr Pelekanos told about his income (in particular to his mortgage provider), the inference to be drawn is that the property was purchased with the proceeds of drug trafficking and/or money laundering.

It is thus SOCA’s case that the proceeds of sale from 174 Anchor Lane represent recoverable property. They constitute recoverable property because the property was obtained through unlawful conduct namely mortgage fraud and drug trafficking and/or money laundering.

£22,000

In terms of the £22,000 figure SOCA drew attention to the following allegedly suspicious features as regards its origins:

£15,000 came from Thorne Barton (on 30^th October 2003) who were in fact the sellers of the property and an entity with whom Mr Pelekanos has had substantial dealings.

It has been stated on behalf of Thorne Barton that this payment was the return of the deposit for the property (£35,000). This explanation makes little sense given that the property had yet to be purchased.

SOCA has been unable to trace any payment of £35,000 from Mr Pelekanos to Thorne Barton which might represent this ‘deposit’.

£10,000 came from an unknown source which Mr Pelekanos was unable to explain or even remember in interview.

Mr Pelekanos’ evidence was that he was simply following instructions from the lawyers involved in the conveyancing and it was suggested that it may have been to do with the need to keep funds separate given that No 1 Brigdwater Road was being purchased from Thorne Barton at the same time on behalf of the Basement Construction Company.

£23,305.50

In terms of the £25,305.50 figure SOCA drew attention to the following allegedly suspicious features as regards its origins:

£249,975

In order to purchase 1A Bridgewater Road, Mr Pelekanos obtained a mortgage from Abbey National for £249,975). In that application it was stated that Mr Pelekanos was a self employed property dealer with a business called Property Management, that he had had the business for 7 years, that he had accounts and that his net profit in the last year was £173,331 and that he had no other income. I find that the form represents that Mr Pelekanos’ net income from his property dealing business was £173,331 and that he had no other income. Mr Pelekanos accepted that these details were incorrect. He had no business called Property Management and the income figure was substantially overstated. He claimed that the mortgage adviser, Mr Whitby of Lifetime Financial Management Ltd, got these details wrong. Although I did not hear evidence from Mr Whitby, all the other details in the form were correct and the overwhelming likelihood is that the income details were provided by Mr Pelakanos, and I so find. It is inherently implausible that Mr Whitby invented a figure of this precision, or indeed any figure. Mr Pelekanos accepted in evidence that after the event he did notice the figure quoted and although he knew it was inaccurate he did nothing about it. Mr Pelakanos’declared income was £1,250 for the same period.

Mr Pelekanos remortgaged 1A Bridgewater Road in November 2005. On the application form to remortgage Mr Pelekanos’ income was stated to be £72,550. This was represented as being derived from his business at AKA Travel and it was stated that he had no other income. His declared income for the period was £11,700. It is SOCA’s case that Mr Pelekanos obtained the funds from the remortgage through a fraud upon the mortgage provider and that this provides a distinct basis of claim as regards those funds.

Some £28,553.89 of the funds from the remortgage was put towards the purchase of a property at 5 Guards View, Windsor in the name of a Michelle Feander. This is one of the properties in respect of which SOCA seeks summary judgment.

The balance of the funds released through the remortgage were paid to Thorne Barton. Mr Pelekanos’ evidence was that this sum was to go towards the purchase of a further property (which did not proceed) and that Thorne Barton owe him this money, although this was disputed by Thorne Barton who blamed Mr Pelekanos for the project not proceeding. SOCA contend that no serious attempt has been made by Mr Pelekanos to recover the money he claims is owed to him by Thorne Barton and that this is surprising given Mr Pelekanos’ claims to have been in severe financial difficulties and given that he has faced repossession proceedings in respect of a number of his properties. Mr Pelekanos, however, explained that these financial difficulties, allied with the present proceedings, were the very reason why he was not in a position to take legal action against Thorne Barton in respect of the dispute with them.

This property was purchased together with 3 Sheppards Yard on 16^th August 2002. The seller was Thorne Barton. Mr Pelekanos’ sister (Nadia McDonald) purchased numbers 4 and 5 at the same time. Ms McDonald was originally a respondent in these proceedings but SOCA accepted her explanation as regards the origins of the funds she used in the purchase.

It was Mr Pelekanos who paid the total deposit of £70,000 on all four flats. Ms McDonald asserted that £40,000 represented the deposits on her flats and that she has repaid her brother using lawfully obtained funds.

Of the £70,000 which Mr Pelekanos paid, £20,000 was paid to Thorne Barton on 20^th November 2001 in cash. In interview and in his witness statement Mr Pelekanos gave no explanation as to where he obtained this cash from. In evidence he said that it was money paid to him for his share in the business of a barber’s shop, Zendens.

The balance of £50,000 was paid to Thorne Barton on 21^st December 2001. The origins of £40,000 of this sum paid by cheque was unclear. In evidence Mr Pelekanos said that this sum was in fact paid by Thorne Barton, that he was not sure why they did not just give him a discount, but that it may have been because it enabled them to say that the flats had been sold for their asking price.

Mr Pelekanos obtained mortgages for 3 and 6 Sheppards Yard, from Birmingham Midshires, for £104,000 in respect of each property. The application form for 3 Sheppards Yard stated that Mr Pelakanos’ income was £55,000. This income was stated to be “PAYE and dividends” and the only business/employment identified on the form was Avebury Studios, of which Mr Pelekanos was stated to be a director and 50% shareholder. I find that the form represents that Mr Pelakanos has an annual income of £68,000 from earnings and dividends from this business.

The form for 6 Sheppards Yard similarly states a £55,000 income figure but much of the rest of the form was left blank. Mr Miles explained that this was because the two applications were made at the same time and that rather than repeating all the same details in both forms he sent a covering letter explaining that the details were the same. Although he could not produce the covering letter I accept this explanation, which he said reflected his usual practice. I therefore reject the suggestion that the form in evidence was merely a draft. I find that the details to be entered into both forms were discussed with and confirmed by Mr Pelakanos, who also signed the forms. His declared income for this period was £15,000.

In respect of 6 Sheppards Yard, on 3^rd August 2003 Mr Pelekanos applied for a loan secured by the property and declared his income to be £80,000. This compares to a declared income for the same period of £1,250. Mr Pelekanos obtained £30,000 from the advance and appears to have dissipated this sum. SOCA alleged that using properties to raise loans, in this manner, is a means of obtaining clean funds through the properties.

This property is situated in La Quinta, Spain, and was purchased in 2004. This property was purchased by two payments which originated from the Basement Construction Company. The purchase of this property was funded from the sale of a property at 1 Bridgewater Road.

1 Bridgewater Road was purchased for £400,000 on 22^nd August 2003 from Thorne Barton. It was purchased using the following funds:

On the application form for this mortgage Mr Pelekanos declared an income of £50,000 from the Basement Construction Company. This compares to his declared income of £1,250 at this time.

Mr Miles explained in evidence that this mortgage provider was prepared to provide mortgages for start up companies with no track record. He confirmed that his understanding was that the income figure being provided was anticipated income rather than actual income. This was also the understanding of Mr Pelakanos and Mr Robbins, who, as the other sharheholder in the Basement Construction Company, provided a similar form. Mr Pelekanos’ evidence was that he could not recall completing this form and that he thought it had all been done by Mr Robbins. I find that the task of obtaining the mortgage was given to Mr Robbins but that Mr Pelekanos was nevertheless required to sign an application in his own name. However, I accept that the representation made in the form was as to anticipated income from the business rather than actual income.

SOCA claim that the statement made was false and that 1 Bridgewater Road was obtained through unlawful conduct, namely mortgage fraud. The basis for the recovery sought in respect of La Quinta is the fact that it was purchased with funds which can be directly traced to the proceeds of sale from 1 Bridgewater Road.

The amount attributable to the proceeds of sale from 1 Bridgewater Road is £118,259.99. The balance of the purchase price (which is unknown) was apparently provided by means of a mortgage from Banco Halifax Hispania. No details of that mortgage are known and there is no evidence that it involved a mortgage fraud.

SOCA seeks summary judgment in respect of 5 Guards View, held in the name of Ms Feander, in light of her failure, as the holder of the property, to contest SOCA’s claim. It is SOCA’s case that Ms Feander was simply used as a front for the purchase and that the beneficial owner of 5 Guard’s view is Mr Pelekanos (which he denies).

The circumstances of the sale of the property to Ms Feander are thus relied upon by SOCA in support of its claim for recovery of the property held by Mr Pelekanos. Specifically SOCA relies upon the transactions relating to 5 Guards View as demonstrating Mr Pelekanos’ concealment of his ownership property which they contend, in turn, supports the inference that he used such purchases to launder the proceeds of his unlawful conduct.

SOCA draws attention to the fact that Mr Pelekanos owned 5 Guards View at the time he purported to sell it to Ms Feander. It was initially purchased on 11^th September 2003 by the Basement Construction Company the Directors of which were Mr Pelekanos and Mr Robbins. Again, the seller was Thorne Barton.

The purchase price was £200,000. A mortgage for £100,000 was obtained from Capital Home Loans. The balance was paid to Thorne Barton directly:

£66,970.92 was paid on 2^nd July 2002.

£15,000 was paid on 4^th July 2002.

£20,000 was paid on 30^th July 2002

When asked about these payments, Mr Pelekanos said that the £66,000 might have come from the sale of a property at ‘Mulberry Court’. Although he had no interest in the property, he explained this was payment for him being bought out of the Avebury Studios business by his partner, Ian Constable. SOCA says that this is implausible given that Mr Pelekanos had said in his witness statement that the business was not making any money and that he continued to declare income from the business until 2004. Mr Pelekanos’ evidence was that Mr Constable thought that the business would do well and that this was why he was willing to pay a substantial sum for it.

The £15,000 derived from the remortgage of 5, Old House Road. As to the £20,000 Mr Pelekanos could not recall where this came from, although he said it came from an account.

An application for a mortgage (as regards the balance required for the purchase of 5 Guards View) was made to Capital Home Loans. As with the application for 1 Bridgwater Road, forms were filled out by both Mr Pelakanos and Mr Robbins stated an anticipated income of £50,000 from the Basement Construction Company. At the time Mr Pelekanos had a declared income of £15,000 from Avebury Studio.

The sale of 5 Guards View (for £215,000) to Michelle Feander took place on 11^th May 2006. Notwithstanding the fact that he was the seller of the property, it is undisputed that Mr Pelekanos paid the deposit on the purchase (some £68,500).

It is SOCA’s case that Ms Feander was used as a front for the purchase of this property, in order to disguise Mr Pelakanos’ ownership of it. They say that the fact that Mr Pelekanos funded the entirety of the deposit goes some way towards demonstrating this.

SOCA contends that Mr Pelekanos’s true interest in this property is also demonstrated by his apparent involvement in the mortgage application which Ms Feander made to Abbey National. In that application Ms Feander stated that she worked for AKA Travel Limited and earned £35,000 per annum. This was false. AKA Travel was a company owned by Mr Pelekanos and it is undisputed that, in fact, Ms Feander worked for a company called Medtronic and earned £20,012 per annum. In considering the significance of this, SOCA also relies upon the purchase of 20b Lower Road (in which Mr Pelekanos used a Ms Lawrence as a front for the purchase and asserted on her behalf that she was employed by AKA Travel).

SOCA also places reliance on the fact that the entire proceeds of the sale of 5 Guards View to Ms Feander went into the account of Ms McDonald (the sister of Mr Pelekanos). The explanation which Mr Pelekanos and Ms McDonald both gave is that he wished to conceal the proceeds of sale from the mother of his child.

This concealment, looked at in light of the circumstances of the purported sale to Ms Feander, is relied upon by SOCA as demonstrating prima facie evidence of money laundering on the part of the Mr Pelekanos.

SOCA also relies upon what happened to the money which was raised by the sale of 5 Guards View to Ms Feander and which was routed through Ms McDonald’s account. £40,000 went towards the purchase of a property by Mr Pelekanos at 53 Snatchup. £52,000 was paid to Mr EA Douglas who is a director of Thorne Barton. This money was paid to Mr Douglas by way of a cheque from Ms McDonald.

In interview and evidence Mr Pelekanos said that this was a repayment to Mr Douglas who had lent £40,000 towards the deposit monies which Mr Pelekanos used in order, ultimately, to assist Ms Feander to buy the property from him. The balance of £12,000 was said to represent repayment of further loan monies.

SOCA relies upon the circularity of this sale and the alleged inherent implausibility of Mr Pelekanos’ case that he was simply helping a friend to get on the property ladder:

SOCA contends that the ‘sale’ of 5 Guards View to Ms Feander is only explicable as an exercise in disguising Mr Pelekanos’ ownership of the property.

Mr Pelekanos’ explanation of the sale was that he wanted to help Ms Feander get on the property ladder and to release funds from the property. Although he funded payment of the deposit, net funds of about £65,000 were released.

3 Sheppards Yard was sold in March 2003. The proceeds of sale were used to purchase a property at 20b Lower Road. This property was purchased on 9^th February 2005 for £250,000. Summary judgment is sought in respect of 20b Lower Road, but SOCA says that the background to its purchase is relevant to the inferences to be drawn about Mr Pelekanos and his concealment of his ownership of property.

This property was purchased in the name of Tracey Lawrence and the sellers were again Thorne Barton. It is SOCA’s case that Ms Lawrence, like Ms Feander, was used as a device for the purchase of the property to conceal Mr Pelekanos’ true interest in the property. Ms Lawrence was his partner at the time of the purchase.

Although 20b Lower Road was purchased in the name of Ms Lawrence it is undisputed that Mr Pelekanos paid the entirety of the £75,000 deposit.

£15,000 of the £75,000 was paid in cash directly into Thorne Barton’s account. Mr Pelekanos was unable to explain in interview where this originated from. In evidence he said half of it was provided by his parents and that the balance was cash that he had in hand.

£60,000 was paid by way of a bankers draft from Mr Pelekanos’ Barclays account (50601438). This originated from a payment of £99,928 which was paid into the same account on 12^th September 2002.

Barclays Bank did not have details of where this payment came from. Mr Pelekanos asserted in interview that he did not know but that it probably came from the sale or remortgage of a property. This is likely to be the sale of a property at 5 Old House Road owned by Mr Pelekanos on 6^th September 2002.

This property was originally purchased by him on 30^th November 1999 for £60,000. The mortgage application, which was made in respect of this property has been traced to Capital Home Loans. On the application form, Mr Pelekanos stated that his income was £30,000 per annum from ‘Buffalo Bites’. This compares to his declared income which was £9,845 for the same period.

Additionally SOCA makes the point that if Mr Pelekanos had a legitimately earned income during this period, which was in excess of £9,845, then he might reasonably have been expected to have declared it. The same point is made as regards every false declaration as to earnings which he made.

SOCA submits that this evidence demonstrates that 5 Old House Road was purchased through a mortgage fraud and that the proceeds of sale (which derived from its sale on 6^th September 2002) are traceable into the purchase of 20b Lower Road.

Aside from the £75,000 deposit paid for 20b Lower Road, an application for a mortgage was made by Tracey Lawrence to The Mortgage Business. On the application form she stated that her income was £50,000. There is no dispute as to the falsity of this information.

20b Lower Road was remortgaged twice, purportedly by Ms Lawrence, after it was purchased. In the first remortgage application Ms Lawrence stated that her income was £62,000 from AKA Travel Limited. This information is fictitious; AKA Travel Limited is a company owned by Mr Pelekanos which Ms Lawrence has never worked for. She has never earned that kind of sum, as she acknowledged in interview. In interview and evidence Mr Pelekanos accepted that the overstatement of Ms Lawrence’s income was down to him.

In relation to the first remortgage, evidence that Ms Lawrence was employed by AKA Travel in the form of a false reference was provided to Halifax by Mr Pelekanos. SOCA contends that not only does this demonstrate a fraud beyond the misstatement of income on an application form, but it also equally demonstrates Mr Pelekanos’ interest in securing the remortgage.

This remortgage resulted in the release of £67,000. Part of this went towards the purchase of a property at 225a High Street which was paid via Ms Lawrence’s account.

The second remortgage was obtained on 13^th September 2007 from Barclays Bank. Again this remortgage was secured by way of a mortgage application form which contained information which was untrue about Ms Lawrence’s financial position (namely that she worked for AKA travel and earned £68,000 per annum).

Although it formed no part of the recovery claim, SOCA also places reliance upon the circumstances surrounding the purchase of a property at 225A High Street which it was submitted was a further instance of Mr Pelekanos using others as a front for his beneficial interest in a property.

225A High Street was purchased on 30^th January 2006, in the name of Michael Delaney, for £107,000. Mr Pelekanos funded part of the purchase of the land, however SOCA contended that his contribution was disguised by payments made by others. Almost £24,500 was paid, via Tracey Lawrence’s account, and a further £19,500 was paid by a Lisa Rodgers (an ex partner of Mr Pelekanos).

In addition, Mr Paul Robbins contributed £17,600 and a Lesley Bennett contributed £36,000.

The evidence is that Mr Delaney (by his own admission) had almost nothing to do with this property. By contrast SOCA contended that Mr Pelekanos:

Mr Delaney applied for a mortgage from The Mortgage Business, after the purchase of the land. In the application form he stated that he earned £35,000 from KAP Properties. KAP Properties is a company owned by Mr Pelekanos. Mr Delaney’s declared income was, in fact, nil. In evidence Mr Pelekanos said that Mr Delaney performed a number of building jobs for KAP Properties and that he could have earned this amount. This was not supported by Mr Delaney’s evidence in interview.

Mr Delaney never lived in the property and did not pay any utility bills.

The mortgage repayments were met from the £90,000 which was obtained by way of a mortgage (in order to build the house) and which was paid in full into Mr Delaney’s account. He did not contribute to the mortgage from his own funds. Mr Delaney would write Mr Pelekanos cheques from his account when money was needed.

The proceeds of sale from this property (which took place on 30^th April 2008) were deposited into the bank account of Ms Zoe Robbins (who is the daughter of Paul Robbins). £14, 892 of this sum was used to pay off the mortgage on La Quinta.

£23,670 was paid into the account of KAP Properties and SOCA contended that this payment was made to KAP Properties so as not to alert SOCA to the fact of this payment.

The lack of explanation for Mr Pelekanos’ income.

A major part of SOCA’s case is their allegation that there is no explanation for Mr Pelekanos’ income by reference to any legitimate means.

As appears from an analysis of the property transactions, Mr Pelekanos declared income bears little resemblance to the income he claimed to have in the various mortgage applications which he made.

SOCA’s Ms Nixon, from whom I heard evidence, analysed the rental income which was generated by the various properties which Mr Pelekanos owned (which he did not declare to HMRC). The fundamental point which she made was that taking into account Mr Pelekanos’ declared income and the income generated by rental income, in a number of years he could not have afforded to pay his mortgage liabilities (let alone his living expenses). This deficit was said to demonstrate that he must have had another source of income.

Mr Pelekanos challenged this and said that it did not take into account the funds realised by the sales and remortgages of his properties at various times. Ms Nixon carried out a further analysis which suggested that this was not borne out, but it is difficult to get a complete picture of all Mr Pelekanos’ sources of funds at any particular time.

Ms Nixon also analysed Mr Pelekanos’ bank accounts, which suggested that in a number of years he was in receipt of funds from unknown sources and that he had an income which was substantially greater than that declared to HMRC.

Mr Pelekanos challenged this on the basis that it was inconsistent with Ms Nixon’s own analysis of expected rental income and that it ignored the fact that much rental income would have been collected in cash. There is substance in both these points.

Taking the evidence set out above as a whole, SOCA contends that the inescapable inference to be drawn is that the properties purchased by Mr Pelekanos derived from unlawful conduct. They rely in particular upon their case that:

In addition, SOCA contends that the circumstances in which Mr Pelekanos purchased various properties point inexorably to the conclusion he was laundering the proceeds of crime through such purchases. In particular SOCA rely upon the following: