House of Commons - Explanatory Note
Proceeds Of Crime Bill - continued          House of Commons

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Clause 272: Associated and joint property: default of agreement

344.     This clause applies where no agreement can be reached under clause 271, but the court thinks it would be just and equitable to make provision concerning associated property or joint property. In such cases, the recovery order may provide for the associated property to vest in the trustee; for an excepted joint owner's interest in the property to be extinguished; or for an excepted joint owner's interest to be severed from the recoverable property (subsection (2)). Where the associated property vests in the trustee or the excepted joint owner's interest is extinguished, the order may provide for the trustee to make a payment in lieu, or for there to be conditions attached to the property in favour of the persons concerned (subsection (3)). There is also provision for the court to create interests in favour of the person with the joint interest or associated property interest. So, for example, the court might order that a joint owner's interest in a house be extinguished, but might at the same time create a right for him to live in the house for his lifetime (as well, perhaps, as ordering that he be paid compensation). In deciding what provision to make, the court must have regard to the rights of the persons and the value to them of the property, as well as the interest of the enforcement authority (subsection (4)). Where a person who holds associated property or is an excepted joint owner has suffered loss as a result of an interim receiving order or interim administration order applying to the property, the recovery order may require the enforcement authority to pay compensation of an amount which the court thinks reasonable (subsections (5) and (6)).

Clause 273: Payments in respect of rights under pension schemes

345.     Clause 273 allows the recovery of recoverable property from pension funds. In the case of other types of property, once the court has made a recovery order, recoverable property will be vested in the trustee for civil recovery, and will eventually be disposed of by the trustee, i.e. selling the property to raise money. However, rights in a pension scheme cannot be vested in the trustee for civil recovery in this way, as they cannot be transferred to another person and subsequently sold, as they are not a transferable or tradable commodity. Therefore, subsection (2)(a) provides that pension trustees or managers must pay to the trustee for civil recovery an amount equal to the value of the pension rights secured by the original payment or payments into the fund. Once such payment has been made to the trustee for civil recovery, the pension rights cease to be recoverable, under subsection (2)(b).

346.      Subsection (7) provides that the Secretary of State, after consultation with the Scottish Ministers, may make regulations on the calculation and verification of the value of pension rights. There is already a well established method for valuing the pension rights of members of pension schemes, for example where a person wants to transfer their rights to another scheme. The regulations for the calculation of the 'cash equivalent' in cases brought under this Part will broadly reflect the principles set out for calculating cash equivalents in other cases.

347.     When pension trustees or managers incur costs before a recovery order is made, or when complying with a recovery order, subsection (5) provides that such costs will be reimbursed, either by deducting the appropriate amount from the sum paid to the trustee for civil recovery, or in another appropriate manner.

348.     Pensions legislation and pension scheme rules contain provisions preventing any commutation, surrender or variation of pension rights. Clearly these provisions would be at odds with the Director's new powers of recovery. Subsection (6) therefore provides that these provisions, whenever and wherever present, will not frustrate the Director's ability to pursue recovery of the value of pension rights. Similarly, subsection (4) provides that a recovery order seeking to realise the value of pension rights overrides provisions of a pension scheme to the extent that the latter conflict with the provisions of the order.

Clause 274: Consequential adjustment of liabilities under pension schemes

349.     Where a recovery order has been made, subsection (1) provides that the liabilities of the scheme to provide the respondent with benefits shall be reduced by the amount recovered. Subsections (2) and (4) provide that the order must provide for such a reduction to be carried out in respect of the respondent's benefits. In some cases the liabilities of the scheme to provide the respondent with pension benefits will be reduced to nil. The maximum reduction would be the whole of the cash equivalent transfer value. The order may include specific provision for the reduction of liabilities or it may simply require the pension scheme to reduce the liabilities.

350.     Subsection (2) provides that the order must reduce the scheme's liabilities in respect of the respondent. It also provides that any contingent liabilities in respect of the respondent's dependants may also be reduced. For example if the pension scheme provides that pensions can be paid to survivors of the member, those liabilities can also be reduced.

351.     Subsection (5) provides protection for pension rights that have been acquired as a result of pension sharing. Part IV of the Welfare Reform and Pensions Act 1999 provides that the pension rights can be shared as part of the divorce settlement. The pension rights awarded to the former spouse can either be transferred to another scheme, or in some cases, retained in the member's scheme. Subsection (5) provides that where shared pension rights are retained in the member's scheme (and he is the respondent), those rights cannot be eaten into by a recovery order made against the respondent.

352.     Subsection (3) provides that the Secretary of State, after consultation with the Scottish Ministers, may make regulations about the calculation and verification of liabilities. Regulations would be based on the principles of cash equivalent transfer values.

Clause 275: Pension schemes: supplementary

353.     This clause defines which types of pension rights are amenable to a recovery order, and defines the terms pension trustee and pension manager.

354.     The pension provisions contain two powers to make regulations about calculation and verification in relation to pension rights. Subsection (1) provides that the power can be used by reference to guidance produced by a prescribed person, for example, the Institute of Actuaries in England and Wales and by the Faculty of Actuaries in Scotland.

Clause 276: Consent orders

355.     This clause provides for the enforcement authority to have the power to settle the proceedings at any time after the claim form, or in Scotland the application, has been issued and served. The court would still make a recovery order in such cases; in other words, the terms of the settlement will have to be endorsed by the court and there is no provision for settlements to be reached out of court. Court supervision will help to ensure that the enforcement authority's power to reach settlements with respondents will be used fairly.

356.     Any person who is a party to the agreement who is not already a party to the proceedings must be joined to the proceedings (subsection (1)). This is to ensure that the court can easily enforce a consent order whose terms are breached by re-instating the proceedings. Also, the parties to the agreement must include anyone who holds associated property which is subject to the proceedings (subsection (2)) or a joint tenant who is an excepted joint owner (subsection (3)).

357.     A recovery order made following an agreement must provide for the property to which it applies to cease to be recoverable (subsection (4)). Subsection (5) provides that where a recovery order is made under this clause, the property which is the subject of the recovery order may vest in the trustee, who will have the same powers as when property is vested under clause 267.

Clause 277: Limit on recovery

358.     Subject to certain safeguards described elsewhere (e.g. for bona fide purchasers), property is recoverable if:

  • it was obtained through unlawful conduct, or

  • it 'represents' property obtained through unlawful conduct.

359.     Under clause 303, property may come to 'represent' the original property where a person has disposed of the original property and has obtained other property in place of it. Moreover, property obtained in place of representative property may itself become representative property. Under clause 278, items of original and representative property are said to be 'related' property. If property is recoverable, it may remain recoverable after passing through several hands in a series of transactions. The right of the enforcement authority to trace its claim over the recoverable property is analogous to similar tracing rights in civil law proprietary litigation. Either original or representative property may be traced in this way.

360.     However, there is potential for a large family of related property to grow up as a result of such a series of transactions, comprising the original property and several items of representative property. Each of these items will potentially be recoverable. But if the enforcement authority were to recover the entire family of recoverable property, that would be disproportionate to its primary right to recover the original property.

361.     Clause 277 addresses this situation by providing a series of rules designed to ensure that if the enforcement authority seeks to recover items of related property, rather than confining itself to the original property, the court is able to limit its recovery order to what it thinks is necessary to satisfy the enforcement authority's right to recover the original property.

362.     For example, the provisions ensure that the enforcement authority cannot recover representative property in addition to the original property. If the enforcement authority pursues more than one avenue of recovery simultaneously, for example where the original property cannot be found, the court has some flexibility under subsections (3) and (4) as to how the enforcement authority's interest should be satisfied. The court may order full recovery of some items of the related property but not others; or it may order partial recovery of some or all of the items; or a combination of both.

363.     Nothing in this clause prevents a court, where it makes a recovery order in respect of property, from also ordering the recovery of any profits that have accrued in respect of that property (subsection (5)).

364.     If a forfeiture order has been made under clause 297 in respect of cash which was found to constitute recoverable property, it is to be treated for the purpose of this clause as though it were a recovery order, so that the limitations on recovery in this clause will apply (subsection (6)). This ensures that the proceeds of the same criminal conduct cannot be recovered twice, first through the cash forfeiture scheme in Chapter 3 and then again through civil recovery.

365.     Similarly, subsection (7) ensures that the enforcement authority cannot secure an order under the civil recovery scheme if the property that was obtained through the unlawful conduct concerned, or property which represents it, has already been recovered by the victim of the conduct in civil litigation. And subsections (8) and (9) make similar provision in respect of property which has been taken into account in deciding a person's benefit from criminal conduct for the purposes of making a confiscation order under Parts 2, 3 or 4 of the Bill or corresponding provisions.

Clause 278: Clause 277: supplementary

366.     Clause 278 defines original property and related property, as explained above in relation to clause 277. It also gives examples of circumstances in which the enforcement authority's right to recover property would be satisfied.

Clause 279: Applying realised proceeds

367.     This clause governs the use of sums in the hands of the trustee for civil recovery. The sums may have reached his hands because:

  • it was the proceeds of sale of non-cash property recovered under clause 267 or clause 276, or

  • it was itself vested under clause 267 or clause 276, or

  • it was paid under the provisions of clause 271 as a result of an agreement between the enforcement authority and other persons with non-recoverable interests in the property for them to 'buy out' the value of the recoverable property, or

  • it was an amount equal to the value of rights under a pension scheme, paid to the trustee under clause 273.

368.     The trustee must first make any payment required to be made by him following an order made under clause 272. Second, he must pay expenses incurred by a person acting as an insolvency practitioner which are payable under clause 417(10). The balance must be paid to the Director or the Scottish Ministers.

Exemptions etc.

Clause 280: Victims of theft, etc.

369.     Property which has been stolen (or is the result of some other unlawful conduct comprising the deprivation of a true owner of his property) is property obtained through unlawful conduct, and therefore potentially recoverable by the enforcement authority. But clause 280 gives the claims of a true owner precedence over those of the enforcement authority. Where civil recovery court proceedings have begun in respect of property, a true owner is entitled to request a declaration from the court that he has a valid claim to it because he was deprived of it (or of property which it 'represents') by unlawful conduct. This need not be the unlawful conduct on which the authority relies. So if, for example, a drug trafficker steals money from a person and invests it in drug trafficking, the enforcement authority may bring proceedings in respect of the property that the drug trafficker has obtained through the drug trafficking. But the victim would still be able to claim that part of the property belonged to him, even though the authority was relying on the drug trafficking, rather than the theft. The effect of such a declaration is that the property ceases to be recoverable by the Director or by the Scottish Ministers (subsection (4)).

370.     Subsection (3) makes clear that this exception only applies to the original true owner of property. It would not benefit someone who has for example stolen property from its original owner, but who in turn has had that property stolen from him. The property would have become recoverable when it was stolen from the original owner; the original owner will be able to request a declaration even if it is stolen again, whereas the person who first stole the property will not.

Clause 281: Other exemptions

371.     This clause provides for certain exemptions from civil recovery proceedings. Subsections (1) to (7) allow for certain types of persons and property to be exempt from civil recovery.

372.     Subsection (1) provides for a power to make an order ("an exempting order") to exempt a person, or a class of person, from having civil recovery proceedings brought against them. Under subsections (2) and (3), an order may also exempt property or a class of property from civil recovery, or do so in prescribed circumstances. The power to make exemption orders under this clause will be exercised by the Secretary of State, but the Secretary of State is to consult with Scottish Ministers before making the order. Any order made under these provisions will be subject to approval by both Houses of Parliament (clause 441(6)(a)).

373.     Under subsection (4), the Director or the Scottish Ministers may not take civil recovery proceedings in respect of cash unless they are simultaneously taking proceedings against other property held by the same person. Proceedings involving cash only may be brought under the summary proceedings in Chapter 3.

374.     Subsections (5) to (7) specify particular types of property and persons against whom proceedings may not be taken. These include property held by the Financial Services Authority (subsection (5)). The Authority may hold recoverable property, in the form of levies and civil penalties it may impose on people engaging in market abuse. The charges in subsection (6) relate to assets which are intended as security for financial markets. Subsection (7) protects a person acting as an insolvency practitioner from proceedings in respect of recoverable property he holds or has held in connection with his role as a practitioner.

Miscellaneous

Clause 282: Compensation

375.     This clause deals with the case where any property has been made subject to an interim receiving order, or in Scotland an interim administration order, but has not in the end been held to be recoverable or associated property, either because the court has so determined or because the claim or the application has been withdrawn. Subjection to the interim receiving order or interim administration order may, despite the duties of the interim receiver or interim administrator to preserve its value, have resulted in losses to the owners of the property.

376.     Under subsection (1), the person whose property it is may apply to the court for compensation for such losses; under subsection (5), the court may order the enforcement authority to pay compensation. Under subsection (2), no application for compensation may be made if the right of the victim has defeated that of the enforcement authority by virtue of clause 280, or if a recovery order has been made following an agreement by virtue of clause 276.

377.     An application must be made within three months of the date on which the court makes a decision the effect of which is that a recovery order cannot be made (subsection (3)); or, if the proceedings are discontinued, within three months of the date on which they were discontinued (subsection (4)).

378.     Subsections (6) and (7) provide for compensation for rights in relation to property which are affected by the property being vested under a recovery order.

379.     Subsection (8) provides for the measure of compensation to be at the court's discretion, having regard to the losses suffered and to all other circumstances. If therefore the claimant has himself contributed to the losses through delays, for example, that may be taken into account here.

Clause 283: Northern Ireland: interpretation

380.     The Bill relies upon procedural mechanisms contained in the Civil Procedure Rules for England and Wales. These do not apply in Northern Ireland. Further, the relevant rules of court in Northern Ireland have recently been the subject of a review and a number of changes have been recommended but not yet implemented. It is not therefore possible at this stage to specify the exact terms for the procedural mechanisms that will apply to civil recovery. Against that background it is necessary to provide that the expressions relating to the initiation and conduct of proceedings used in this Chapter of the Bill are to be read in accordance with rules of court made in Northern Ireland. Such rules of court would be made under section 55 of the Judicature (Northern Ireland) Act 1978.

Clause 284: Payment of interim administrator or trustee (Scotland)

381.     This clause makes provision for the payment of interim administrators and trustees for civil recovery in Scotland by the Scottish Ministers. No such provision is considered necessary in relation to England, Wales and Northern Ireland where it is envisaged such matters will be regulated by contract.

Clause 285: Scope of powers

382.     The clause provides that an order may be made in respect of a person whether or not he is domiciled, present or resident in the United Kingdom.

Clause 286: Financial threshold

383.     Subsection (1) provides that the enforcement authority may not take proceedings for a recovery order unless it reasonably believes that the total value of the recoverable property is not less than an amount to be specified in an order. This ensures that civil recovery will not be used in minor or trivial cases. The order will be made by the Secretary of State following consultation with Scottish Ministers (subsection (2)). The threshold applies only at the time the enforcement authority starts proceedings, or applies for an interim receiving order or interim administration order (subsection (3)). As long as the threshold is observed at the start of the proceedings, it will not matter if for example the Director subsequently discontinues proceedings in respect of certain property and the value of the remaining property is less than the amount specified in the order. The proceedings will be able to continue (subsection (4)).

Clause 287: Limitation

384.     Subsection (1) sets a limitation period within which proceedings for a recovery order must be brought, through an amendment to the Limitation Act 1980. Proceedings must be brought within twelve years of the original property being obtained through unlawful conduct.

385.     Subsections (2) and (3) make equivalent provision for Scotland and Northern Ireland.

Chapter 3: Recovery of cash in summary proceedings

Clauses 288-290: Searches; Prior approval; Report on exercise of powers

386.     Clause 288 is necessary in order to support the powers to seize cash that is the proceeds of unlawful conduct or intended for use in such conduct (clause 293). These new search powers will not be exercisable unless the suspect cash is thought to exceed the threshold set under clause 301. In chapter 3, cash has the meaning attributed to it in clause 288(6).

387.     The search powers will only be exercisable on private premises where the constable or customs officer has lawful authority to be present. In respect of a constable, this would be where he is exercising his powers of entry under the Police and Criminal Evidence Act 1984 and in respect of a customs officer where he is exercising such powers under the Customs and Excise Management Act 1979 or other enactment. In Scotland a constable or a customs officer would be exercising their powers of entry under common law or under a statutory warrant. By virtue of subsection (5)(b), a customs officer may only exercise the powers if he has reasonable grounds for suspecting that the unlawful conduct relates to an assigned matter within the meaning of the Customs and Excise Management Act 1979. This would cover such conduct as drug trafficking, money laundering and excise evasion.

388.     By virtue of subsection (3)(b), the search powers include the powers to search a person. However, this power does not extend to requiring a person to undergo an intimate or strip search (subsection (8)).

389.     Clause 289 provides the safeguard that the search powers in clause 288 may only be exercised where prior judicial authority has been obtained or, if that is not practicable with the approval of a senior officer. Clause 289(1) also recognises that there may be circumstances where it may not even be possible for a constable or a customs officer to obtain the approval of a senior officer. If judicial approval is not obtained prior to a search, and cash is either not seized or is released before the matter comes before a court, the constable or customs officer concerned must prepare a written report and submit it to an independent person appointed by the Secretary of State in relation to England and Wales and Northern Ireland and, in relation to Scotland, by the Scottish Ministers (subsection (8)). This report will detail why the constable or customs officer considered that he had the power to carry out the search and why it was not practicable to obtain judicial approval of the search.

390.     Clause 290 provides that the person to whom the reports are submitted is under an obligation to submit an annual report to the Secretary of State (or the Scottish Ministers in Scotland) drawing general conclusions about the matters reported to him, making any appropriate recommendations. This report will be laid before Parliament (or the Scottish Parliament in Scotland) and be published.

Clauses 291-292: Code of practice; Code of practice: Scotland

391.     In recognition of the sensitivity of search powers, clause 291 requires the Secretary of State to publish a Code of Practice setting out how the powers in clause 288 are to be exercised by a constable or customs officer. There will be a separate code of practice for constables in Scotland, issued by the Scottish Ministers; see clause 292.

Seizure and detention

Clause 293: Seizure of cash

392.     Chapter 3 expands and replaces the scheme set out in Part II of the Drug Trafficking Act 1994 which provides for the seizure and forfeiture of cash which is being imported into or exported from the United Kingdom, and which represents the proceeds of, or is intended for use in, drug trafficking. This scheme is expanded to include cash related to all unlawful conduct and also provides for the seizure of such cash inland. Clause 293 enables a customs officer or a constable to seize cash at the borders or inland if he has reasonable grounds for suspecting that the cash is recoverable property or intended for use in unlawful conduct. Clause 288(6) defines cash for the purposes of Chapter 3 and enables the Treasury to prescribe by order monetary instruments which can be readily realised in the form of cash or notes by a customs officer or constable. In order to guard against excessive use of the power, there is to be a threshold below which the powers will not be available; this is specified in an order under clause 301. A definition of unlawful conduct is to be found in clause 246, and of recoverable property at clause 302.

Clauses 294-295: Detention of seized cash; Interest

393.     The effect of clause 294 is that cash may not be detained for more than 48 hours except by order of a magistrate (or a sheriff in Scotland). A magistrate may make such an order if satisfied that there are reasonable grounds for the officer's suspicion and that the continued detention is justified for the purposes of investigating its origin or intended use. The magistrate may also make an order for continued detention if consideration is being given to the bringing of criminal proceedings, or if such proceedings have been commenced and not concluded. Monies detained would in most cases be paid into an interest bearing account as provided in clause 295 pending the outcome of proceedings.

 
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Prepared: 18 October 2001