The Court considers a claim for increased confiscation money in Attorney General's Reference (No 25 of 2001).
The Court considers a claim for increased confiscation money in Attorney General's Reference (No 25 of 2001).
The taxpayer was found guilty of cheating the public revenue and of making false statements with intent to defraud. The judge made a confiscation order representing the defendant's underpayment of tax plus interest. The Attorney General applied for leave to appeal against the original rejection of a submission made by the Crown that the whole of the defendant's undeclared profits from his business were liable for confiscation. The Court rejected this submission.
The background and facts
Frank Moran was a 54 year old market trader. For approximately twenty years he had understated his income when making tax and self assessment returns. After being found out, he was charged with cheating the public revenue and making false statements with intent to defraud. Subsequently, he pleaded guilty to both charges and was sentenced to nine months imprisonment.
Arrangements were made for a confiscation hearing and the judge made a confiscation order in the sum of £190,000, that being the amount of the underpayment of tax plus interest. In so doing, the judge rejected his submission made on behalf of the Crown that the whole of the undeclared profits, namely £386,584, was available for confiscation.
The Attorney General applied for leave to appeal against the order on the ground that it was unduly lenient. He contended that, in determining the amount of the order, the judge had misconstrued section 71(5), Criminal Justice Act 1988, which provided that where a person had derived a 'pecuniary advantage' as a result of or in connection with the commission of an offence, he was to be treated as if he had obtained as a result of or in connection with the commission of the offence a sum of money equal to the value of the pecuniary advantage. The Attorney General submitted that by virtue of that provision a confiscation order in the amount of the defendant's undeclared profits should have been imposed.
(David Perry and Robin McCoubrey for the Attorney General; Timothy Holroyde QC and Dennis Talbot for the defendant.)
The Court of Appeal judgment
It was common ground that the relevant statutory provisions were set out in sections 71 and 74, Criminal Justice Act 1988, as unamended by any legislation later than the Criminal Justice Act 1993. Paragraph 5 of section 71 states 'where a person derives a pecuniary advantage as a result of or in connection with the commission of an offence, he is to be treated for the purposes of this part of this Act as if he had obtained as a result of or in connection with the commission of the offence a sum of money equal to the value of the pecuniary advantage'.
Lord Justice Mantell went on to say that there was no doubt that, as with the procedures available regarding drug trafficking cases, Parliament intended to invest the Court with draconian powers calculated in turn to deprive wrongdoers of there ill gotten gains. The Criminal Justice Act 1988 must therefore be given a purposive interpretation. At the same time, the power to confiscate was penal in character and the provision by which it is conferred must be construed no more oppressively than was justified by the language used.
The judge observed that the Court had little help from authority. On the face of things, the pecuniary advantage would seem to be represented by the underpayment of tax which resulted from the failure to disclose profits fully. On the wording of the Act, the pecuniary advantage must be taken to include any interest accrued or investment returned upon that sum. Giving the words of the Act its ordinary and natural meaning, it was hard to see how the balance of the profits, which were the product of lawful trading, could be said to represent a pecuniary advantage which had resulted from or come about in connection with the commission of an offence.
In this connection Lord Justice Mantell rejected the argument of counsel for the Attorney General that where there had been systematic and persistent non-disclosure of profits, the whole enterprise was to be regarded as fraudulent and the proceeds liable to forfeiture.
The only authority on which the Court had to rely was R v Dimsey and Allen [1999] STC 846. In that case the Court of Appeal was concerned with a confiscation order made in respect of unpaid tax - not, it is to be noted, the undeclared profits upon which the taxes had not been paid - and the argument presented was that no pecuniary advantage had accrued because the offender remained liable to the Revenue for the outstanding amount.
That submission was rejected by Lord Justice Laws, who stated that 'Pecuniary advantage is not defined in the Criminal Justice Act and should, in our judgment, be accorded its ordinary meaning'. In the Dimsey and Allen case he went on to say 'the ordinary and natural meaning of pecuniary advantage must surely include the case where the debt is evaded or deferred'.
Lord Justice Laws then had to consider further submission of counsel for the Attorney General based on section 102(5), Criminal Justice Act 1988, which states 'references of this part of this Act to property obtained, or to a pecuniary advantage derived, in connection with the commission of an offence include a reference to property obtained or to pecuniary advantage derived, both in that connection and in some other connection'. The judge had some difficulty in dealing with that subsection, but he observed that Parliament was contemplating a benefit or pecuniary advantage stemming from connected activities, as for example where an offender commits a criminal offence and then sells his story to a newspaper.
In the view of the Court of Appeal, the judge who made the original confiscation order was correct and accordingly the Court of Appeal declined to interfere.
Decision for the taxpayer
(Reported at [2001] STC 1309).
Commentary by John T Newth
Following the case of Re Charlton [1996] STC 1418 it has become clear that Crown counsel and judges in the criminal courts are not necessarily going to take any notice of the niceties of tax law and practice.
Fortunately, the judges in the Court of Appeal took the view that the only pecuniary advantage that the taxpayer had taken was non-payment of tax over many years and the interest accrued on the underpaid tax. The business of the market trader himself had in no way been challenged as being fraudulent and the whole proceeds therefore liable to forfeiture. This is therefore an important judgment on the meaning of the phrase 'pecuniary advantage', which will undoubtedly be a benchmark for later cases.
