We are encountering an increasing number of cases in which Local Authorities seek to utilise the provisions of the Proceeds of Crime Act 2002 (POCA) against landlords found to be in technical breach of planning regulations. This growing trend sees Local Authorities obtain Confiscation Orders under POCA against landlords who have committed offences under the Town and Country Planning Act 1990. These Orders allow a Local Authority to claim not only any profit resulting directly from the regulatory breach, but, sometimes, much greater sums based on what they allege was the landlord’s ‘general criminal conduct’.
The purpose of POCA
POCA was introduced to deny criminals the benefit of their proceeds of crime. It criminalised the use of any assets – including money, property, shares and goods – gained from criminal conduct. Under POCA, prosecuting authorities can obtain ‘Confiscation Orders’ allowing them to reclaim the proceeds of crime through civil proceedings.
POCA has been successful in curtailing illegal activity, with millions of pounds being seized since its implementation. However, it has also resulted in some arguably unintended consequences. Whilst POCA was enacted to provide authorities with greater power over career criminals involved in organised criminal activity for a substantial profit, its provisions are such that it applies to any offence. As a result, many Local Authorities now utilise the legislation to recover significant sums from landlords prosecuted for breach of planning legislation. The sums claimed often dwarf any fines imposed for similar activity, and the criminality aspect carries an unfortunate stigma for those involved, who are treated in the same way as organised criminals such as drug dealers and people traffickers. The impact on a Defendant can, therefore, be far reaching and severe.
Frenkels Forensics Chartered Accountants advise landlord in POCA Confiscation Proceedings
We were recently approached by a solicitors’ firm acting for a Defendant being prosecuted by the Local Authority under POCA. We were asked to advise on the quantum aspect of the Local Authority’s case, having been recommended by Counsel for the Defendant, who had previously worked with us on numerous POCA matters.
The Defendant was ‘ZA’, a businessman in his 70’s. ZA was issued with an enforcement notice relating to a property he had converted into three rental studio flats without proper planning permission. The notice required him to return the property to how it was before conversion.
When ZA failed to comply with the enforcement notice, he was prosecuted under the Town and County Planning Act. ZA pleaded guilty and proceeded to take steps to restore the property back to its original state.
The Local Authority subsequently issued confiscation proceedings against ZA under POCA. The Authority sought the profit directly attributable to his planning breach and additional sums they alleged came from ‘general criminal conduct’.
In determining the extent of the profit allegedly made by ZA from his breach, the Local Authority (in the Greater London area) relied on the investigation and analysis of their in-house Financial Investigator. He had obtained and analysed ZA’s bank accounts and assessed his criminal benefit at £7.3 million. Accordingly, a recovery under POCA would result in a considerable windfall for the Local Authority.
The £7.3 million figure included approximately £120,000 from 92 rent receipts which could be directly attributed to the studio flats. The remainder was a combination of:
• The value of other properties which were “assumed” to have been purchased using criminal cash;
• Rent receipts linked to the other properties referred to above;
• Unexplained transfers and cash paid into ZA’s bank accounts.
Being an elderly and successful businessman, ZA owned a number of properties, the first of which he had purchased in the 1990s. These properties were generating significant income, which ZA was reinvesting in further properties for his adult children and their families.
ZA disputed the POCA case against him and we were instructed by his solicitors to assist. Working closely with ZA and his legal team, we prepared a report challenging the Financial Investigator’s inclusion of many properties purchased prior to the indictment period, as criminal benefit. We asserted that the benefit figure should be limited to the value of the rent received by the Defendant for the studio flats, i.e., the £120,000 referred to above.
The Local Authority did not accept our position. They, in fact, increased the figure claimed from £7.3 million to £8.9 million following receipt of details and valuations of further properties purchased by ZA for his family.
The matter proceeded to a Confiscation hearing. However, on the morning of the hearing, the case was settled by negotiation. The Defendant agreed to a settlement figure of £280,000 comprising:
• £120,000 for the rent received;
• £130,000 for unexplained cash deposits;
• £30,000 costs.
In our view, common sense should prevail, and the extent of the criminality should be limited to the illegal rent receipts, being the only identifiable ‘proceeds of crime’. However, ZA was keen to avoid the unpredictability of a contested hearing and was happy with the result, being a settlement of some £8.5 million less than the figure sought by the Local Authority.
We are working on an increasing number of cases where landlords face Compensation proceedings under POCA following regulatory breaches. In all these cases, the landlords are subjected to the same level of scrutiny as drug dealers, fraudsters and modern slave masters. Local Authorities often seek large sums of money under the assumption of “general criminal conduct”, when in fact, the relevant offence has usually resulted in a clear and identifiable financial benefit.
With our expertise in financial and data analysis, experience in POCA matters and strong understanding of the relevant law, we are well positioned to provide forensic accountancy and analysis in cases involving criminal gains. We can handle vast amounts of digital evidence and will swiftly identify those sums that are directly attributable to the regulatory breach as opposed to other, potentially legitimate, sources.
For assistance with any matters involving proceedings under POCA, please contact us on 0330 118 8200 or email firstname.lastname@example.org.