Proceeds of crime legislation – five years in
On 1 December 2014, the Criminal Proceeds (Recovery) Act 2009 (Act) will have been in force for five years. The dividing line from its predecessor, the Proceeds of Crime Act 1991, is that a conviction is no longer required for civil forfeiture. Another significant change is that legal fees cannot be met from restrained property. Alongside these departures, concepts such as undue hardship and having effective control over property remain largely the same. Five years in we are beginning to see a defined body of case law and the Act is functioning well. Decisions are not unduly burdened by trying to work out what Parliament intended – by and large, the Act means what it says.
The Act’s “primary purpose” is to establish a regime for the forfeiture of property derived directly or indirectly from significant criminal activity or that represents the value of a person’s unlawfully derived income (section 3(1)). To this end, the Act has three primary forfeiture orders:
- Instrument forfeiture, where a person has been convicted of a qualifying offence and property has been used in commission of the offence. Instrument forfeiture is discretionary where certain circumstances are met;
- Assets forfeiture, whereby property tainted by significant criminal activity is forfeited to the Crown. Proceedings are civil and forfeiture is mandatory where certain circumstances exist; and
- Profit forfeiture, by which a person’s untainted property is forfeited to the Crown where the person has unlawfully benefited from significant criminal activity and has an interest in property. Again, proceedings are civil and forfeiture is mandatory where certain prerequisites exist.
Each forfeiture order has an associated restraining order. Restraining orders are discretionary and the test for restraint is easier for the Commissioner of Police to satisfy than that for forfeiture. This is understandable given that restraint is a temporary and protective mechanism, or a “holding device” (Commissioner of Police v Vincent  NZHC 2581 at ) whereby property is placed into the Official Assignee’s custody and control until its disposition is finally determined.
Importantly, at restraint the court is not reaching final determinations. As the Court of Appeal put it in Vincent v Commissioner of Police  NZCA 412 at , “[t]he judge is not required to make a finding that the relevant property is tainted property or that the particular person did in fact unlawfully benefit from significant criminal activity.” Under section 24 for example (restraint in contemplation of an assets forfeiture order), the court is not making a determination that property is tainted. This is its function under section 50 in making an assets forfeiture order. On restraint, the court must determine whether it is satisfied it has reasonable grounds to believe that any property is tainted property.
The Act provides for without notice restraint under section 22 which may be granted where “there is a risk of the proposed restrained property being destroyed, disposed of, altered, or concealed if notice were given …”.
It is not uncommon for a respondent to consent to restraint and to dedicate its resources to opposing forfeiture. Strategically, opposing restraint might provide further fodder for the Commissioner’s investigations and some respondents will want to avoid this.
The instrument forfeiture regime is primarily dealt with under sections 142A to 142Q of the Sentencing Act 2002 as part of sentencing. Section 10B of the Sentencing Act requires the court to take into account any relevant instrument forfeiture order in sentencing the defendant. The reduction in sentence can be significant. In R v Brazendale, for example, Cooper J ordered forfeiture of the defendant’s house (valued at $465,000) and convicted and discharged him. But for the forfeiture order, the defendant would have received a sentence of 18 months’ imprisonment (R v Brazendale HC AK CRI 2009-092-17133 20 August 2010). Brazendale was appealed and Cooper J’s decision upheld (Brazendale v R  NZCA 494) and the Supreme Court declined leave to appeal (Brazendale v R  NZSC 149).
Section 10B is silent on proportionality between the value of the property forfeited and the reduction in sentence. Alongside this, the courts have generally adopted the approach that “the greater the loss suffered by an offender … the greater the discount on sentence ought to be” (R v King  NZHC 3296 at ).
Civil forfeiture orders are made by the High Court in its civil jurisdiction. The Court must make an assets forfeiture under section 50 where it is satisfied on the balance of probabilities that specific property is tainted property. A profit forfeiture order is mandatory under section 55 if the Court is satisfied on the balance of probabilities that the respondent has unlawfully benefitted from significant criminal activity within the relevant period of criminal activity and has an interest in property. Property subject to a profit forfeiture order does not need to be tainted. For both order types, a respondent’s property may be excluded on the basis of undue hardship.
“Tainted” property for the purposes of an assets forfeiture order is property which has wholly or in part been acquired as a result of significant criminal activity or directly or indirectly derived from significant criminal activity (section 5). Significant criminal activity is an activity that, if proceeded against as a criminal offence, would amount to offending consisting of or including one or more offences punishable by a maximum of at least five years’ imprisonment or from which property, proceeds, or benefits of a value of $30,000 or more have, directly or indirectly, been acquired or derived.
The courts have adopted an expansive application of “tainted” property. For example, in Commissioner of Police v Ranga  NZHC 745, it was found that property may be partially tainted where renovations to a former property sold to purchase a new property increased the former property’s value and hence sale price. Collins J found at :
“I am very satisfied that at the very least, the $127,082.00 worth of renovations done to 133 Paetawa Road came from the proceeds of sales of Class B controlled drugs. These renovations caused an increase in the property's value, which was realised upon its sale and used to purchase Telford Way. Therefore, at least $127,082 of the purchase price of Telford Way came from money obtained from the sale of Class B controlled drugs.”
When applying for a profit forfeiture order the Commissioner must state, amongst other matters, the amount by which it is asserted the respondent unlawfully benefitted from significant criminal activity (a respondent may rebut this amount under section 53(2)). Again, the Act’s considerable reach is seen in that it is the sum received rather than the profit which is the relevant figure. Further, an unlawful benefit will generally not be apportioned between respondents and it does not matter what a respondent subsequently did with funds received.
The Act cannot easily be circumvented. For example:
- having effective control over property can equate to having an interest in it for the purposes of the Act;
- orders or applications can be recorded on the title of property;
- certain dispositions with restrained property can be set aside or varied; and
- arrangements to avoid operation of the Act or Sentencing Act 2002 may be set aside in whole or in part.
The Act’s power is confined by its relief provisions which apply variously to respondent and non-respondent. The Act has protective, procedural requirements designed to help ensure that people with an interest in property are fully alert to proceedings. The exercise of powers, functions, and duties by the Commissioner, Official Assignee, and police are subject to judicial supervision, prescriptive provisions, or extraneous statutes such as the Search and Surveillance Act 2012 and its associated body of case law.
Several themes commonly emerge where a respondent faces allied criminal proceedings. Typically, civil proceedings will be adjourned until criminal counterparts are finally disposed of, even though the Act is predicated on the independence of civil forfeiture from any criminal proceedings. Intricate evidential issues can arise such as whether evidence excluded by a court exercising criminal jurisdiction on the basis that it was improperly obtained can be adduced by the Commissioner in civil forfeiture proceedings. The High Court encountered this issue in Commissioner of Police v Marwood  NZHC 1866. In Marwood, Cooper J found that the Commissioner could not rely on evidence ruled inadmissible in criminal proceedings at .
The Commissioner’s powers of civil forfeiture – without the need for a criminal conviction – can surprise respondent and practitioner alike. The nature of the underlying significant criminal activity pursued is diversifying. There is no conceptual limit to the property that can be restrained, even though it is primarily houses and bank accounts: it ranges from designer handbags to the symbols of gang activity that the Act was designed to target such as fast bikes and modified cars.
Dr Heather McKenzie is a Crown prosecutor at Raymond Donnelly & Co in Christchurch. Her main areas of practice include regulatory prosecution and proceeds of crime.
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