FORENSIC tpaare June 2010 Accounting for hidden assety When confiscation proceedings are taken against a defendant convicted of serious offences, a confiscation order under the Proceeds of Crime Act 2002 will require the defendant to pay a sum of money. A confiscation order is normally made for the amount of the benefit which the defendant is assumed to have gained from criminal conduct. If, however, the defendant's “available amount” is, less than the benefit as decided by the Court, the order is made for the available amount, i.e. the total of the defendant's free property less certain classes of liability plus certain types of gift Why do hidden assets matter? In many cases the Crown may have included in the available amount an estimate of hidden assets or may have made an unquantified reference to hidden assets, which will increase the amount potentially payable by the defendant. This may occur because the Crown has inferred from the assumptions it has made about the defendant's receipts and payments that there are hidden assets or because in the Crown’s view the defendant has failed to show that the value of available assets is less than the estimated benefit. How are assets hidden? Unidentified hidden assets may include: . assets held in the names of nominees such as relatives or trusts, either in the UK or abroad; © money lent or deposited directly by the defendant with individuals or companies; . financial assets which cannot be realised immediately such as insurance policies; . funds channelled through businesses controlled by the defendant to relatives or associates, sometimes in the guise of payments to suppliers or employees; and © money held in safe deposit boxes and personal chattels such as jewellery which can be concealed easily. Da ee SIM KAPILA (Chartered AccountantsQuantifying hidden assets ‘The starting point for forensic accountants’ work in this field is to identify the extent to which there isa trail of transactions which can be followed. Work we have carried out in this area includes: * A review of significant outflows from all bank accounts known to be under the defendant’s control, leading to our finding that the only transfers unaccounted for were relatively small and suggesting in turn that it was unlikely that significant hidden assets had been acquired. * A review of all available documentation following which we concluded that there was no evidence relating to bank accounts in “tax havens”, trusts or insurance policies. * A detailed analysis of the computerised cash book of a foreign exchange dealer, from which ‘we concluded that it appeared unlikely that there were significant hidden assets and that it seemed to us that virtually all assets removed from the business were “tied” up in declared assets already subject to the confiscation proceedings. © A review of expenditure in which we noted that a defendant had spent large sums on building refurbishments and on a wedding and had funded his business with cash generated by its activities. Conclusions In confiscation proceedings in which the Crown is alleging that there are substantial hidden assets, legal advisers may achieve better value by focusing on the quantification of such assets than on trying to reduce the value of the benefit estimated by the Crown given the limitations on funding often imposed in relation to forensic accountancy assistance in confiscation proceedings. To obtain further details of our activities or to benefit from the firm’s experience and expertise, please contact George Sim or Rakesh Kapila. Please note that this newsletter has been written forthe general interest of readers and is intended for guidance onl. It is therefore essential 0 take specific professional advice before taking any action. EcuiUSaU OES So SL Stc BE ) SIM KAPILA Chartered Accountants 14-17 Wells Street London WIT 3PD Telephone 020 7636 7699 Facsimile 020 7636 7717 E-mail mail@simkapila.co.uk