Forfeiture of the proceeds of drug trafficking
The Hodgson Committee in its report on "The Profits of Crime and
Possible changes in United Kingdom law
Specific recommendations of the Hodgson Committee
Author: N. NAGLER
Pages: 21 to 29
Creation Date: 1984/01/01
Home Office,London, United Kingdom of Great Britain and Northern Ireland
Their Recovery", which is being examined by the Government of the
United Kingdom of Great Britain and Northern Ireland, made a number of recommendations relating to forfeiture and confiscation of the proceeds of crimes. The Committee, inter alia, recommended that the criminal courts should have the power to order the confiscation of the proceeds of crimes but that there should be a prescribed minimum amount below which no confiscation order could be made. This article comments on those recommendations relating to the proceeds of drug crimes, and suggests three possible ways of developing international cooperation to secure the tracing or confiscation of illegally acquired assets held abroad. The alternatives suggest either extending national laws to deal with these problems, in accordance with the provisions of the Single Convention on Narcotic Drugs; or following the example of Canada, where it is understood to be an offence to receive or possess the proceeds of crime irrespective of whether or not that crime took place in Canada; or developing a more extensive extra-territorial jurisdiction, for which there are precedents in the field of terrorism. One of the two annexes to this article describes recent initiatives within the Council ofEurope to promote co-operation in tracing, freezing and confiscation of assets arising from drug trafficking, and the other provides an example of bilateral agreement (Cayman Islands) on disclosure of banking arrangements.
This article discusses a number of changes which are in prospect in United Kingdom law as regards the tracing, seizing and confiscation of assets derived from drug trafficking. Annex I describes briefly work in progress in the Council of Europe Co-operation Group to Combat Drug Abuse and Illicit Trafficking in Drugs (the Pompidou Group); and annex II summarizes a recent agreement between the United States of America and he United Kingdom of Great Britain and Northern lreland on access to banking information in the Cayman lslands.
* The views expressed in this article are those of the author and do not necessarily reflect the views of the United Kingdom Government or of the Pompidou Group.
An article in a recent issue of the Bulletin on Narcotics [ l] described the getting up of the Hodgson Committee and referred to the imminent publication of its report on "The Profits of Crime and Their Recovery".That report has now been published [ 2] and is being examined by the United Kingdom Government. The Government had announced in December 1983 hat it intended to introduce legislation on this question within the next few years. The recommendations in the Hodgson report are therefore to be taken not consideration in drafting legislation, although it should be stressed that no decisions have been taken yet as to the scope and content of that legislation. The comments on the Hodgson recommendations in this paper there fore no more than a record of some initial reactions to those recommendations.
The terms of reference of the Hodgson Committee required it to consider wider issues than simply the profits of drug trafficking. lt was concerned with all types of criminal activity and also with restitution of goods to their rightful owner and with compensation to victims. The following paragraphs in this article are however concerned solely with the more limited issue of proceeds of drug trafficking, including such questions as : confiscation, which the Committee defined as the depriving an offender of the proceeds or profits of his crimes; forfeiture, which was defined as taking property immediately connected with the offence; and the pre-trial retention of such items.
The criminal courts should have the power to order the confiscation of the proceeds of an offence of which the defendant has been convicted or which has been committed to the jurisdiction of the courts. There should be a prescribed minimum amount below which no confiscation order could be made. General application of such a power in respect of all offences would be wasteful in relation to minor contraventions and, in some cases, possibly unjust; it might result in a substantial and unacceptable increase in penalties; a list of offences in respect of which confiscation was appropriate would be wholly impracticable; limiting confiscation to "serious crime", defined perhaps as offences carrying a possible prison sentence, would exclude many profitable regulatory offences (the terms of reference of the Committee went beyond drug cases alone). An upperlimit could be safely left to the discretion of the judge.
A power to order confiscation would need to cover conspiracy and other inchoate offences; the definition of proceeds may need careful examination to ensure that it covers tangible and intangible assets, however mixed, which derive from criminal activity.
Particularly in drug trafficking, there may often be no direct link between a particular offender and those who derive financial benefit from the offence. Should there be a power to confiscate assets even if no criminal conviction has taken place? It may be possible to identify assets as illegally acquired, even though the holder of those assets cannot himself be proved to have committed a particular offence. Alternatively, the defendant may be acquitted in court on a technicality even though the court is satisfied that he has acquired assets by illegal means.
If confiscation is to depend upon a prior conviction, there may be a strong case for making it an offence for a person knowingly to receive or possess the proceeds of crime or illegally obtained property. The creation of such an offence might also catch the financial institution which accepts and launders the money. Although the Committee was doubtful whether the concept of United States civil procedures for confiscation would provide a useful precedent for the United Kingdom, their ""in rem "character makes it possible to secure the assets even where the offender is not or cannot be penalized.
The prosecution should give the defence notice in advance of trial if a confiscation order is to be sought.
This seems appropriate if the interests of natural justice are to be served. But if the recommendation is not to negate the effect of the confiscation powers, it will have to be possible to freeze or seize the assets first.
The confiscation order should seek to restore the status quo ante the offence and, therefore, to reach only the net profit made by the defendant. Any expenses actually paid would be deductable, and consideration should be given to requiring the offender to identify the payee.
Should the law make it economically safe to leave the offender with no financial risk? There is obvious advantage to the investigatory authorities in encouraging a defendant to identify a payee, but help of this kind might be better rewarded by a reduction in sentence than by a reduction in the volume of seized assets.
The calculation of proceeds should be made by the trial judge with assistance from an other judicial official in complex cases. Sentence should be deferred pending such an enquiry, except that, if an immediate sentence of imprisonment is appropriate, it should bei posed at once. At the resumed hearing, the judge might take account of the defendant's co-operation or lack of it, but not by imposing or lengthening a prison sentence.
Drug trafficking cases almost always result in imprisonment. Is a reduced sentence the appropriate response to co-operation? A defendant might prefer not to disclose assets and accept a longer sentence.
On the other hand, with holding a reward would act as a sanction against failure to co-operate, and some such sanction would certainly be desirable. This recommendation emphasizes the need to take into account the likelihood that seizure, particularly in large-scale offences, will prove a complex business. Some provision needs to be made for expertise to be made available to the court.
A defendant convicted of whole sale supply of the most dangerous drugs to a street value of 100,000 or more should have the burden of proving that assets acquired after the date of the first proven offence were legitimately obtained. Property not shown to be legally obtained might be made the subject of confiscation orders and illegal profits might be traced into the hands of others. But the defendant should be immune from prosecution in relation to any offences disclosed by him during such proceedings.
Reversal of the burden of proof is a delicate question. But here it is not being applied to a pure question of guilt or innocence. Guilt will already have been established for a heinous offence, and it may be argued that a convicted offender who has to prove the origin of his assets is getting his just deserts. Should an offender be immune from prosecution for offences uncovered under this procedure? A person should not be required to incriminate himself, and barriers should not be put in the way ofan offender,s co-operation. On the other hand, serious offences may be uncovered which should not be allowed to go unpunished.
On the application of the prosecutor, a High Court judge should have the power to grant, on appropriate terms, an order freezing specific assets or the defendant,s assets generally, if there is a prima facie case that he has committed an indictable offence and it appears to the Court likely that on conviction the court of trial would impose a fine or a confiscation or compensation order totalling 10,000 or more (the Misuse of Drugs Act provides for an unlimited fine for drug trafficking offences). The time for seeking such an order would be at, or shortly before, the time of arrest. The restrained assets would be supervised by a receiver where necessary
Enforcement of such an order will be difficult. The prosecuting authority will have to know where the defendant,s assets are held, and some ready machinery for freezing them will be essential. Further, such an order ought perhaps also to cover any assets which the defendant holds jointly with another person. Administration of the assets until a final court order is made could be difficult and require considerable expertise.
The defendant should be at liberty at any time to apply to have the order discharged or revised, so that he can realize assets for his living expenses or the cost of his defence. Also, the judge should have power to order compensation for an acquitted defendant in relation to any loss incurred through the freezing of his assets.
Once an order has been made, there should be wider powers for requiring further information from third parties who are thought to hold assets. But there should not be a general power to require a defendant to disclose the whereabouts of his assets; this would breach the privilege against self-incrimination and would be difficult to enforce.
Both these recommendations would seem to weaken the power to trace assets. It could be argued that a power to trace through third parties before the order is made, and a power to force disclosure by the defendant afterwards, are both essential if a restraint order is to be satisfactorily applied.
The Committee made a number of recommendations to protect third party interests. The Courts should have the power to restore prohibited goods(such as stolen drugs) to their rightful owner, but only if the owner was permitted to hold them (e.g. a hospital). In other cases, the property interests of third parties should be forfeited only if, before the commission of the offence, the party concerned knew or suspected the property would be involved. The rights of third parties should be determined by the courts, but innocent third parties should be protected from confiscation.
Care would have to be taken to ensure that a defendant does not use the protection given to innocent parties as a device to protect his assets by making non-recoverable "presents" to a third party.
The Committee made no recommendations on international questions. Some means will have to be found to prevent the dissipation of assets held overseas. This might be achieved, for example, by empowering a court to make a personal order for the payment of compensation or for a pecuniary penalty on the assumption that this can be paid out of foreign assets, with a term of imprisonment in default. Some means needs to be found to enable other countries to secure the tracing or confiscation of assets held in the United Kingdom, but this would present problems. For example, how could resources be freed in the United Kingdom to maintain a business abroad? How would third parties be heard before United Kingdom courts? One way of dealing with these problems might be to extend those laws in various countries which, in accordance with the Single Convention on Narcotic Drugs [ 3] , make it an offence within a particular country to take part in the commission outside that country of an offence which is illegal in that country. Another course might be to follow the example of Canada, where it is understood to be an offence to receive or possess the proceeds of crime irrespective of whether or not that crime took place in Canada. A third possibility might be to develop a more extensive extra-territorial jurisdiction, for which there are precedents in the field of terrorism.
The report of the Hodgson Committee has not answered all the questions involved in this complex subject. But it has proved a most helpful stimulant to discussion. lt is hoped that this summary of its recommendations will prove similarly useful in stimulating discussion and perhaps some answers to those questions.
As part of the activity "European co-operation in the control of illicit drug traffic", approved by the ministers of member countries of the Council of Europe Co-operation Group to Combat Drug Abuse and Illicit Trafficking in Drugs (the Pompidou Group), the Group held an ad hoc technical conference at Strasbourg from 8 - 10 November 1983. The Customs Co-operation Council and the United Nations Division of Narcotic Drugs were represented by observers.
The conclusions and recommendations of the meeting were split between those applying at national and those applying at international level.
Each country concerned should, on a national level, promote a more effective use of the existing possibilities for tracing, freezing and confiscation of assets arising from drug trafficking. In particular, more specific training and information should be given to law-enforcement officers, customs officials and fiscal and judicial authorities, where appropriate. Special attention should be given to the exchange of information and co-operation between the various agencies concerned.
Each country concerned should devise, internally and at the highest level, co-operation machinery capable of producing an inventory of the means of action of the various administrations and departments empowered to act in the combating of illicit drug traffic and in particular in the matter of tracing assets and freezing and confiscating the proceeds of crime.
Where the tracing of assets is concerned, one or several operational or interdepartmental multi-service groups could be set up at state or local level to exchange information (concerning police, customs, fiscal, financial and banking matters) about persons liable to engage in drug-trafficking. This group or groups, which would meet frequently at regular intervals, should comprise "operational" representatives of the department of justice, the police, the gendarmerie and customs, as well as of financial and fiscal services, state banks and others as required.
Having regard to the increasingly serious and dangerous escalation of drug traffic, each country concerned might consider the possibility of reinforcing its existing operational instruments, and give thought to new legal, operational and institutional instruments of prevention and enforcement - in addition to the traditional ones - adequate, in particular, for the purpose of securing the confiscation of assets.
Special attention could be paid to confiscation of assets through application of fiscal law.
Each country concerned might consider the adoption of legal and institutional instruments in addition to the traditional ones, whereby a legal rule would be introduced in fiscal and other spheres, to the exclusion of the penal system, to the effect that a person seriously suspected, on the basis of objective facts, of acquiring illicit wealth by drug-trafficking, shall be obliged to show proof of the legitimate origin of the assets concerned.
In order to establish a more practical international mechanism for handling requests for mutual assistance in tracing and freezing assets of suspected drug-traffickers, each country concerned might provide the other participating countries of the region with a list of minimum requirements to enable the authorities of the requesting country to submit their request in appropriate form to the authorities of the requested country. Consideration could be given to the appropriate machinery for compiling such lists and ensuring that they are authoritative and up-to-date.
ln preparation for a possible revision of existing legislation, the Pompidou Group could make a study of the system adopted by the United States for the detection of monetary and financial movements and for the subsequent confiscation of assets, insofar as such measures are relevant to enforcement procedures in drug-trafficking.
It is urged that the present subject be maintained as a permanent item on the agenda of the meetings of the Permanent Correspondents.
A consultant should be appointed to prepare a comparative document setting out the full range of possibilities available in this field in the participating countries, drawing on the papers prepared for the ad hoc conference, the record of the discussions and the further comments of countries on the proceedings of the conference.
In the sphere of international co-operation, maximum use should be made of the possibilities afforded by international conventions, and in particular by the European Convention on Mutual Assistance in Criminal Matters.
lmproved exchange of information relevant to drug-trafficking and assets generated by such traffic should be encouraged between countries, whether volunteered spontaneously and informally or provided through the machinery of existing international instruments, and the possibility of improving such instruments might also be considered.
Governments should be encouraged to make better use of the ICPO/Interpol network for the transmission of international letters rogatory.
At their meeting in September 1984, the ministers of member countries of the Pompidou Group agreed that the work started by the ad hocconference should be continued. Accordingly, a meeting was planned for 6- 8 March 1985 to discuss items arising out of the conclusions of the ad hoc conference, the agenda to be determined by the Permanent Correspondents at their meeting on 21 -23 November 1984. The Secretariat would then invite participants with experience relevant to the topics selected by the Permanent Correspondents. Participants would be asked to prepare working papers. It was also planned to take account of the conclusions of meetings organized by other international organizations or bodies such as the Division of Narcotic Drugs of the United Nations Secretariat and ICPO/Interpol.
AGREEMENT BETWEEN THE UNITED KINGDOM AND THE UNITED STATES ON DISCLOSURE OF BANKING ARRANGEMENTS IN THE CAYMAN ISLANDS
On 26 July 1984 the United Kingdom and United States Governments exchanged letters setting out an agreement designed to prevent the Cayman Islands banking secrecy laws from protecting drug traffickers. The letters set out an agreement whereby the Government of the Cayman Islands would release to the Attorney General of the United States information requested by the Attorney General relating to any offence being prosecuted by United States authorities connected with, arising from, related to, or resulting from, any narcotics activity referred to in article 36 of the Single Convention on Narcotic Drugs [ 3] .The two Governments also agreed to begin, nine months after the signature of the agreement, and subject to the agreement working satisfactorily, a Law Enforcement Treaty on Criminal Matters between the United States and the Cayman Islands.
The procedure agreed upon works in the following way. If the United States Attorney General believes that persons are involved in narcotics offences and documentary information relevant to those offences is located in the Caymans, he will issue a certificate to the Caymans Attorney General requesting that information. The Caymans Attorney General will then have the power to require the persons holding the information to produce it to him within 14 days (extended by a further 14 days if the United States Attorney General agrees) and will pass it on to the United States Attorney General, the information having been authenticated in the manner set out in the agreement. Failure to produce the information will make the holder of it liable to a substantial fine and imprisonment and to having the information seized anyway. The agreement also provides that a person required to disclose information shall not notify anyone else of the fact for a period of 90 days from the date of the certificate requiring the disclosure, which period may be extended for a further 90 days if the United States Attorney General so requests.
The agreement provides for foundation testimony, i.e. evidence as to the validity of a document, to be provided, either in the form of any affidavit, or in the form of a deposition taken in the Cayman Islands, or by voluntary appearance by a witness at United States court proceedings, or by such other procedure as may be mutually agreed upon. But it also contains the important proviso that the person providing the foundation evidence shall be protected under the laws of Cayman Islands and the United States as regards immunity, self-incrimination, privilege and incapacity.
l. A. Nicol, committee on the Forfeiture of Assets in Criminal Offences of the002
The Profits of Crime and Their Recovery, The Report of a Committee Chaired by Sir. Derek Hodgson (London, Heinneman Education Books, 1984).003
Single Convention on Narcotic Drugs. 1961 (United Nations publication, Sales No. 62.XI.l).