This action might not be possible to undo. Are you sure you want to continue?
Tax evasion and the Proceeds of Crime Act 2002
Drapers' Professor of Law, Queen Mary, University of London
Lecturer in Taxation Law, London School of Economics
INTRODUCTION Pursuit of the proceeds of crime has always been central to the criminal justice agenda of Tony Blair's Labour Party.' In response to Blair's moral imperatives2 and to wider global forces,3 legislation has been put in place that targets, in * The text is a revised and updated version of a Taxation Seminar at the London School of Economics in December 2003. We are grateful to those present on that occasion for their comments. Responsibility for remaining errors and omissions remains ours. 1. Blair has returned many times to this issue since, as shadow Home Secretary, he supported the Criminal Justice Act 1993. The list of ten objectives he delivered at the 2004 Brighton Labour Party conference (http://www.labour.org.uk/ac2004news?ux_ news-id=ac04tb), 28 September 2004 included (point 8) 'those believed to be part of organised crime will have their assets confiscated'. We must wait to see precisely what extension of the current law is proposed. 2. '... [I]t simply is not right in Modem Britain that millions of law-abiding people work hard to earn a living, whilst a few live handsomely off the profits of crime. The undeserved trappings of success enjoyed by criminals are an affront to the hard-working majority.' Foreword to Cabinet Office Performance and Innovation Unit Recovering the Proceedsof Crime (the P1U Report) (London: Cabinet Office, 2000). 3. See, for example, Heba Shams Legal GlobalizationMoney Laundering Law and Other Cases (London: BIICL, 2004).
various ways, the proceeds of crime.4 These efforts reached at least a temporary culmination in the Proceeds of Crime Act 2002. 5 The mechanisms directed against property are backed by widespread reporting obligations, set out in the Money Laundering Regulations 2003,6 implementing the Amending EU Directive. 7 The increased rate of seizures and growing rate of confiscation under 9 the Proceeds of Crime Act 20028 and a number of decided cases under the Act for place now in is industry A large bit'. their are evidence of the courts 'doing the delivery of the legal and other services the need for which was generated by the Proceeds of Crime Act 2002. This article will deal with the state of the substantive law before and after the Act in one area of particular significance - tax evasion. It is of great importance because most illegally acquired property is not declared for the purposes of tax. If the money can be confiscated, and falls within the scope of the other Proceeds of Crime Act powers, on the basis that it is the 'proceeds' of evading tax, then it may be unnecessary for the state agency responsible 0 (whether the Crown Prosecution Service or the Assets Recovery Agency' ) to establish precisely by what other crime (robbery, drug dealing, collecting money for terrorist organisations or whatever other offence) the property was acquired. Moreover, if the 'proceeds' of tax evasion are within the scope of the money laundering offences, then the extensive and onerous reporting regime will apply to those who suspect or have reasonable grounds to suspect they are dealing in a professional capacity (bankers, accountants) with property acquired by evasion. THE POWERS Since the Proceeds of Crime Act 2002 came into force, there are four major substantive powers (and a panoply of adjectival ones) that can be used against persons suspected of having profited from crime. They are: (i) confiscation; (ii) civil recovery; (iii) taxation; and (iv) criminal liability for laundering. The first and last are inherited from the previous legislation, but at least now are brought together in one piece of legislation, rather than being found in two
4. And see for the legislation, Peter Alldridge Money LaunderingLaw (Oxford: Hart, 2003) (hereinafter MLL) pp 75-83. 5. Entry into force 13 January 2003. 6. SI 2003/3075. 7. European Parliament and Council Directive 2001/97/EC of 4 December 2001 OJ L 344 of 28.12.2001. 8. For latest figures see http://www.homeoffice.gov.uk/crimpol/oic/proceeds/ index.html. 9. For example, Re S (restraintorder), S v Customs and Excise Comrs  EWCA Crim 2374. 10. The Assets Recovery Agency (ARA) was created by the Proceeds of Crime Act 2002, s 1. See http://www.assetsrecovery.gov.uk.
Tax evasion and the Proceeds of Crime Act 2002 355 places according to whether the predicate offences were drug related or not." The second and third were introduced by the Proceeds of Crime Act 2002. Confiscation Confiscation proceedings follow a criminal conviction, but are not themselves criminal proceedings so as to attract the protection of Article 6 of the European Convention on Human Rights. 2 The idea is to relieve the criminal of the proceeds of the crime. Proceeds are measured gross. 3 When the 'lifestyle' provisions apply, the burden shifts to the defendant to establish on the balance of probabilities that he or she had acquired property lawfully. Otherwise any property acquired in the previous six years is liable to confiscation. 4 Confiscation orders have priority over the claims of unsecured creditors. 5 Civil recovery One of the perceived 'obstacles' on the 'money trail' relates to the requirement for a criminal conviction before a confiscation order can be made. A criminal conviction requires proof beyond reasonable doubt according to the criminal rules of evidence. Following leads from elsewhere, specifically Ireland and the US, the Proceeds of Crime Act 2002 grants the ARA the power to bring 'civil recovery' proceedings 6 in respect of the proceeds of crime. The civil recovery procedure operates as a property action. The ARA may trace or follow it into the hands of any person other than a bona fide purchaser. 7 The ARA has significant investigatory and interlocutory powers. 8 Because they are proprietary claims, civil recovery proceedings take priority over the claims of unsecured creditors. An amendment by Lord Lloyd of Berwick which would have granted the right to trial by jury with the criminal burden of proof in place succeeded in the House of Lords and then had to be removed by the use of the government's Commons' majority. 9 It was unclear whether or not the application of the civil recovery procedure to offences committed before the Proceeds of Crime Act 2002 came into force will offend Article 7, but what degree of specificity in making allegations of criminal behaviour and what burden and standard of proof will satisfy Article 6
11. The Drug Trafficking Act 1994 or the Criminal Justice Act 1988, respectively. 12. HM Advocate v McIntosh (sentencing)  UKPC D1;  3 WLR 107;
Phillipsv UnitedKingdom (2002) 11 BHRC 280; R v Rezvi  UKHL 1; R v Benjafield
 UKHL 2.
13. MLL, p 133. 14. MLL, p 145. 15. MLL, p 163.
16. Proceeds of Crime Act 2002, s 243. 17. Proceeds of Crime Act 2002, s 308.
18. MLL, p 169ff.
19. MLL, p 242ff.
19a. See now Director of the Assets Recovery Agency v Customs and Excise Commissioners  EWCA Civ 334.
remains to be argued.20 The government's position during the passage of the Bill was that a relatively vague statement should be sufficient.2 The gradation in responses from confiscation to civil recovery to taxation is by reference not to the seriousness of the crime but to the burden and standard of proof. For a confiscation order to be made there must first be a conviction, requiring proof beyond reasonable doubt of a criminal offence. Then, at the confiscation proceedings, the CPS or ARA must prove its case on the balance of probabilities.22 For the civil recovery procedure the burden is on the ARA, but the standard is the balance of probabilities.23 What exactly is meant in this context by 'balance of probabilities' and whether this can be done consistently European Convention are both questions that must shortly with Article 6 of the 4 2
occupy the courts.
Taxation From time to time, the tax system is proposed as a means of dealing with 5 The Proceeds of Crime Act 2002, in attempting to target acquisitive crime. 2 the assets of criminals, includes taxation as one of its weapons. Greater use of information acquired for the purposes of taxation2 6 will lead to greater collaboration between state agencies. There are some jurisdictions in which illegally obtained income is not taxed. However, despite the absence of clear
authority on the point, it seems that unlawfully or illegally obtained income
remains subject to taxation under English law. 27 Where unlawful activity is taxed under Schedule D, deductions may be made for lawful 8 business
20. MLL, p 241.
21. MLL, pp 243-244. In Walsh v Directorof the Assets Recovery Agency  NICA 6 the Court of Appeal for Northern Ireland held that allegations, without any specificity, of 'criminal conduct' did not, precisely because of their vagueness, engage Art 6. This is a result described by a Scottish judge in an analogous context as 'Kafkaesque'. (Lord Prosser in McIntosh v HMAdvocate 2001 JC 78,  UKHRR 751: '[T]he suggestion that there is less need for a presumption of innocence in the [the case where offences are not specifically alleged compared with the case where they are] appears to me to be somewhat Kafkaesque, and to portray a vice as a virtue'.) 22. Proceeds of Crime Act 2002, s 6(7). 23. Proceeds of Crime Act 2002, s 241(3). 24. And see Clingham v Kensington and Chelsea Royal London Borough Council  UKHL 39; Victor Tadros and Stephen Tierney 'The Presumption of Innocence and the Human Rights Act' (2004) 67 MLR 402; and Re U (a child) (serious injury: standard ofprool)  EWCA Civ 567,  2 FLR 263. 25. Russell Baker 'Taxation: Potential Destroyer of Crime' (1951)29 Chi-Kent LR 197. 26. Under Anti-Terrorism, Crime and Security Act 2001, s 19. 27. See InlandRevenue Comrs v Aken [ 1990] 1 WLR 1374,  STC 497, reserving the point explicitly by pointing out that prostitution is not ipsofacto illegal, but doubting the decision of the Supreme Court in Ireland in Hayes v Duggan [ 1929] 1 IR 406. The granting of the taxation jurisdiction to the ARA would be pointless did income tax not apply to illegal profits. 28. The issue became a live one because bribes of public officials overseas were deductible until the insertion of Income and Corporation Taxes Act 1988, s 577A by the Finance Acts 1992 and 1993. The international move against permitting such bribes, culminating in the Paris Convention of the OECD, Convention on Combating Bribery of
Tax evasion and the Proceeds of Crime Act 2002 357
expenses.29 The ARA, modelled to some extent on the Irish Criminal Assets Bureau, has been given a tax jurisdiction.30 So far as concerns assessments raised by the ARA, the rules that in order to found liability to tax the income must be ascribed to a source and a year of assessment are removed.3 ' To a government agency attempting to seize the alleged profits of crime, the rules allocating the burden of proof provide a great advantage to raising an assessment to Schedule D income tax rather than trying to get confiscation orders or to obtain civil recovery. Once an assessment is raised the burden of proof is upon the taxpayer to negative it.3 " Apparently Article 6(2) of the European Convention on Human Rights does not affect this because no 'criminal charge' is involved,33 even though adverse consequences are being
Foreign Public Officials in International Business Transactions, Paris, 17 December 1997 (Cm 3994). Section 577A, as amended, states: 'Expenditure involving crime. (1) In computing profits chargeable to tax under Schedule D, no deduction shall be made for any expenditure incurred; (a) in making a payment the making of which constitutes the commission of a criminal offence or; (b) in making a payment outside the United Kingdom where the making of a corresponding payment in any part of the United Kingdom would constitute a criminal offence there.] (l A) In computing profits chargeable to tax under Schedule D, no deduction shall be made for any expenditure incurred in making a payment induced by a demand constituting(a) the commission in England or Wales of the offence of blackmail under section 21 of the Theft Act 1968, (b) the commission in Northern Ireland of the offence of blackmail under section 20 of the Theft Act (Northern Ireland) 1969, or (c) the commission in Scotland of the offence of extortion. (2) Any expenditure mentioned in subsection (1) or (lA) above shall not be included in computing any expenses of management in respect of which relief may be given under the Tax Acts.' 29. The taxing section (Income and Corporation Taxes Act 1988, s 18) applies to the 'profits' of a trade, profession or vocation. This is clearly differentiable from proceeds. So the 'proceeds not just profits' doctrine will not extend to the tax jurisdiction. The position differs in the case of VAT. In cases such as Einbergerv HauptzollamtFreiburg  ECR 1177, the Court of Justice has held that VAT does not arise on the unlawful importation of drugs: see R v Goodwin and Unstead  STC 22; R v Citrone  STC 29,  Crim LR 327. But where lawful services compete with lawful ones the unlawful ones are not given a competitive advantage: Polok v Customs and Excise Comrs  EWHC 156,  STC 361 (massage parlours). 30. MLL, p 246ff. 31. Proceeds of Crime Act 2002, s 319. 32. This was regarded by Lord Greene MR as beyond argument in Norman v Golder  1 All ER 352, following, as it did, from the wording of Income Tax Act 1918, s 137(4) (now Taxes Management Act 1970, s 50(6)), and was restated, for example, in Gamble v Rowe [ 1998] STC 1247, 71 Tax Cas 190. 33. King v Walden  STC 822, on appeal from  STC (SCD) 179. By the time the case went on further appeal ( EWCA Civ 1518) the House of Lords had decided (in R v Lambert  UKHL 37) that the Human Rights Act 1998 had no application before 2 October 2001.
of an allegation, which, at least by implication, is one visited in consequence 3 4 of criminal behaviour. Criminal liability for laundering The final possibility is the imposition of criminal liability for one of the laundering offences. The offences that have been put in place on the model of the Vienna Convention35 are of concealing, disguising, converting, transferring 36 the proceeds of criminal property or removing them from the jurisdiction; entering into or becoming concerned in an arrangement which he or she knows or suspects facilitates the acquisition retention use or control of criminal property by or on behalf of another;37 and acquisition, possession or use of the proceeds of criminal property.38 Before the Proceeds of Crime Act 2002, the laundering offences were not directly enforced with any vigour. Numbers of prosecutions have been very small, both in the UK and elsewhere. 39 It was not until late in the 1990s that a prosecution for one of the laundering offences was brought without a drug trafficking offence also being alleged. 0 It is difficult to account for the existence of the offences by reference to the usual justifications advanced for the existence of serious criminal offences. The simple point is that if the existence of the predicate offences and the power to confiscate are effective, then further laundering offences are unnecessary: conversely if they are ineffective then there is no reason to suppose that the existence of laundering offences will achieve anything." The real significance of the laundering offences is not that the conduct involved is a distinct and threatening form of evil, but that the offences trigger the regulatory regime, including the reporting procedures, which is set out partly by the existence of the failure to report offence in s 331 of the Proceeds of Crime Act 2002 and partly in the Money Laundering Regulations 2003. 42 The offence of failing to report has been restricted by the Proceeds of Crime 34. The basis upon which the ARA takes jurisdiction is that there are reasonable grounds to suspect that income or chargeable gains accrue or arise as a consequence of the person's or another's criminal conduct: Proceeds of Crime Act 2002, s 317. 35. UN Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, Vienna, 1998. 36. Proceeds of Crime Act 2002, s 327, replacing Drug Trafficking Act 1994, s 49 and Criminal Justice Act 1988, s 93C. 37. Proceeds of Crime Act 2002, s 328, replacing Drug Trafficking Act 1994, s 50 and Criminal Justice Act 1988, s 93A. 38. Proceeds of Crime Act 2002, s 329, replacing Drug Trafficking Act 1994, s 51 and Criminal Justice Act 1988, s 93B. There is also a 'tipping off' offence (s 333) and an offence of in the regulated sector of failure to inform the authorities of suspected transactions (ss 330-332).
39. MLL, pp 206-207. 40. R v Ussama-el-Kurd Crim LR 234, CA. 41. Peter Alldridge 'The Moral Limits of the Crime of Money Laundering' (2001) 5 Buffalo Crim LR 279-319. 42. SI 2003/3075. This article will not deal with those areas of investment business covered by the Financial Services Authority Sourcebook.
Tax evasion and the Proceeds of Crime Act 2002 359 Act 2002 to the regulated sector43 but extended (from drugs offences) to all laundering. What triggers the duty to inform the authorities is a set of conditions the first of which is that: 'he: (a) knows or suspects, or (b) has reasonable grounds for knowing or suspecting, that another person is engaged in money laundering.' 4 Money laundering is defined, for the purposes of the relevant provisions of primary and secondary legislation, by reference to the three principal laundering offences and their equivalents under the Terrorism Act 2000."5 Whether or not particular conduct constitutes a laundering offence does not just determine the actor's criminal liability: it also determines the reporting obligations of the person in the regulated sector. TAX OFFENCES There is an infinite number of ways in which people might try to defraud the Revenue. In some of them (falsely claiming rebates or, perhaps, loss relief) the property acquired is identifiable, and the consequences are the same as in any other case of obtaining property by deception. This article is concerned here, however, with the case of non-declaration of earnings, profits or gains. One form of income that typically46 goes undeclared is, of course, income from criminal activity. When a person evades tax, he or she has more property than he or she might otherwise have. Until relatively recently there has been a disjunction between the system for the collection of revenue and that for dispensing criminal justice. Tax offences do not really require the deployment of the criminal law. Tax authorities are unlike other unpaid creditors since they have extremely efficacious enforcement mechanisms available to them for the extraction of information and money from the recalcitrant.47 There is now, perhaps as a result of the introduction of self-assessment, a greater willingness to use the criminal law against tax evaders,48 and the combination of the removal of the Crown's status as a preferred creditor in insolvency49 with the
43. Defined in Proceeds of Crime Act 2002, Sch 9, as amended. 44. Proceeds of Crime Act, ss 330(2), 331(2). The use of a negligence test for criminal liability for an omission is very unusual. Even manslaughter requires more than simple negligence. 45. Proceeds of Crime Act 2002, s 340(11); Money Laundering Regulations 2003, SI 2003/3075, reg 2(1). 46. Though not invariably: income from corruptly obtained contracts is often declared. 47. See Ann Mumford and Peter Alldridge 'Taxation as an Adjunct to the Criminal Justice System' [20021 British Tax Review 458. 48. Although there is now a summary offence (Finance Act 2000, s 144, as to which see David C Ormerod 'Summary evasion of income tax'  Crim LR 3; David Salter 'Some Thoughts on Fraudulent Evasion of Income Tax'  British Tax Review 489), there remains a range of indictable offences which can also be charged (cheating the public revenue, false accounting, theft and deception offences). 49. Enterprise Act 2002, s 251.
preference it has both in confiscation and civil recovery proceedings will provide an incentive to use Proceeds of Crime Act 2002 weapons in the (frequent) cases where the solvency of the subject of the investigation is, in the light of the claim in respect of the proceeds of crime, in doubt. When the Money Laundering Regulations 1993 were first put in place, little concern was expressed about tax evasion. In the earlier attempts to deal at an international level with laundering, explicit exceptions were made for tax offences. 50 Many jurisdictions do not have such a wide category of predicate offences, and exclude tax offences. The view that fiscal questions fell within the ambit of national sovereignty was part of the common law of private international law. 5' Under the Money Laundering Regulations 1993, sector guidance notes were issued with legal force equivalent to that of the Highway Code.52 So far as concerned tax evasion, the Guidance Notes issued, for example, by the Institute of Chartered Accountants, were complacent: 'NCIS had indicated53 that they only wished to receive reports of suspicious financial transaction derived from the profits of serious crimes and fraud, robbery, including drug trafficking, terrorist activity, major thefts 5 4 forgery and counterfeiting, blackmail and extortion.' That is, the National Criminal Intelligence Service (NCIS), the body to which reports are55 sent, was not interested if the suspected predicate offence were 'just' tax fraud, or any of a wide range of other offences. The (then) current bogey was 'organised crime', and tax evasion did not fall within the stereotypes it evoked. THE CHANGE OF POSITION OCCASIONED BY THE OECD AND THE FINANCIAL ACTION TASK FORCE The Financial Action Task Force (FATF) is the international body principally concerned to campaign against money laundering, through the promulgation
50. Vienna Convention, Art 3(10); Council of Europe Convention on Instrumentalities, Art 18. 51. Government of India v Taylor  AC 491. 52. Money Laundering Regulations 1993, SI 1993/1933, reg 5(3). 'In determining whether a person has complied with any of the requirements of para (1) above, a court may take account of-(a) any relevant supervisory or regulatory guidance which applies to that person.' The provision is repeated in Money Laundering Regulations 2003, SI 2003/3075, para 3(3). 53. Whether or not it was lawful to do so: R v MetropolitanPolice Comr, exp Blackburn  2 QB 118,  1 All ER 763 holds that while the police may put in place priorities, it is not open to the police to decide not to enforce particular criminal laws. Indicating that it did not wish to receive reports of other cases of laundering not only manifests intention not to enforce the law in those cases but also purports to grant permission to professional not to discharge their legal duty by making reports (authors' note).
54. ICAEW Money Laundering GuidanceNotes (1993) p 14.
55. Until the Serious and Organised Crime Agency takes on the role.
Tax evasion and the Proceeds of Crime Act 2002 361
of its 40 Recommendations 6 and by monitoring compliance," against a background threat of blacklisting. 58 As with many international bodies, the means by which it arrives at decisions are not so transparent as they might be. Only its decisions, not its proceedings, are published. During the late 1990s FATF became concerned at the extent to which reports so as to satisfy the fifteenth of the 40 Recommendations were not being made where the suspicion of the regulated body was that tax was being evaded. The reasons are not difficult to guess. Schemes to avoid tax frequently depend upon complex routings of deals without apparent commercial rationale.59 Money movements under a tax avoidance scheme make money movements that are laundering the profits of crime less easy to detect. If the law of taxation could be altered in such a way as to discourage 'artificial' avoidance schemes then the laundering disposals would no longer sit amidst their camouflage. This can be used as an argument for general anti-avoidance rules. Of course, tax evasion also takes place by salting money abroad. Additional concern has been directed at the relationship between systems of 6° taxation and global economics by the OECD. in discussions of laundering the surface far from The issue which is never the proceeds of tax evasion is the large sums of money that - it is suspected 6 are laundered through the City of London, bringing valuable business. The claim by regulated financial institutions that might provoke most concern in the context of the 2003 Regulations and the failure to report offence under the 2002 Act 62 is this: 'We [the firm conducting relevant financial business] did not think that the money that we were handling was the proceeds of drug dealing [or whatever]: we thought that it was the proceeds of tax evasion.' If this is a good defence, then the regulatory framework will be substantially less effective, but if it is not, the costs to the professions of the additional monitoring and reporting of suspected tax evasion will be very substantial. In the mid- I 990s the FATF and a number of other international bodies began to broaden the category of offences capable of amounting to predicate offences:
56. The 40 Recommendations are described as 'The Crown Jewel of soft law': Guy Stessens Money Laundering:A New InternationalLaw Enforcement Model (Cambridge: Cambridge University Press, 2000) p 17. The amended recommendations can be found at http://www l.oecd.org/fatf/pdf/4ORecs-2003-en.pdf. See Shams, above n 3. 57. Michael Levi and William Gilmore 'Terrorist finance, money laundering and the rise and rise of mutual evaluation: a new paradigm for crime control?' in Mark Pieth (ed) Financingterrorism(Dordrecht, London: Kluwer Academic, 2002). 58. And on blacklisting see Jackie Johnson 'Blacklisting: initial reactions, responses and repercussions' (2001) 4 Journalof Money Laundering Control 211. 59. These are the sorts of schemes against which the 'Ramsay doctrine' (WTRamsay v Inland Revenue Comrs [ 1982] AC 300) or attempts at general anti-avoidance rules are intended to strike. For the current approach of the courts see Barclays MercantileBusiness FinanceLimited (respondents) v Mawson (Her Majesty's Inspectorof Taxes) (appellant)  UKHL 51; HM Comrs of Inland Revenue (appellants) v Scottish Provident Institution (respondents) (Scotland)  UKHL 51. 60. Harmful Tax Competition: An Emerging Global Issue (Paris: OECD, 1998). 61. And see Lord Rooker, 635 HL Official Report (5th series) col 1067,27 May 2002. 62. Proceeds of Crime Act 2002, s 330.
'It may not be essential for tax evasion to be a predicate offence for money laundering charges ... but if financial and other institutions are permitted not to pass on information about conduct that otherwise would be suspicious on the grounds that they think (or say they think) that the funds are "only" tax money. ... Given that few institutions have satisfactory methods of satisfying themselves and others that particular funds are not the proceeds of crime and are tax evasion/avoidance the tax exemption both facilitates the cognitive judgment that they can do the business without informing the authorities and denies the authorities information that might be used for identifying the laundering of drug and fraud proceeds.'63 An FATF directive, issued on 2 July 1999 in the form of an 'interpretative note' to Recommendation 15 on money laundering, proclaimed that: 'In implementing Recommendation 15, suspicious transactions should be reported by financial institutions regardless of whether they are also 6l thought to involve tax matters. Countries should take into account that, in order to deter financial institutions from reporting a suspicious transaction, money launderers may seek to state inter alia that their transactions relate 65 to tax matters.' Late in 1999, the Tampere European Council meeting66 placed enormous emphasis upon money laundering, calling, in particular, for an increase in consistency in the definition of predicate offences, the adoption of the Amending Directive, and the greater availability of all relevant information for the purposes of exchange, irrespective of arguments from banking secrecy. At the IMF meeting in Washington DC in April 2000 the Chancellor of the Exchequer, Gordon Brown, told world economic leaders that he wanted Britain to spearhead a major international crackdown on offshore tax havens, money 67 laundering and financial crime. Also in 2000, in a supplementary note by to evidence given to the Treasury Select Committee, the then Paymaster General, Melanie Johnson, set out the UK government's position: 'In the UK there is no specific offence of "tax evasion". The offences with which tax evaders are commonly charged include offences under the Theft Act 1968 and the common-law offence of cheating the public revenue. These are included within the definition of criminal activity for the purposes of the Criminal Justice Act , which extends to all indictable offences. This means that laundering the proceeds of tax evasion is considered a serious offence in the UK, and that financial institutions and others have a statutory
63. Jack Blum et al FinancialHavens,Banking Secrecy and Money-Laundering,UNDCP
technical series issue 8 (New York City, NY: UN, 1998) p 51. 64. Note the use of 'also' not 'only'. The FATF does not itself require a report in the case where the only offence is tax evasion. There are many jurisdictions - Switzerland is one - in which this is not done (authors' note). 65. Interpretive Note to Recommendation 15 (July 1999). Under the revised Recommendations (2003) this is now para 2 of the Interpretative Note to Recommendation 13, but the text is unchanged. 66. Julian Schutte 'Tampere European Council Presidency Decisions' (1999) 70 Revue Internationalede Droit Pinal 1023 at 1034-1035. 67. Daily Telegraph, 17 April 2000.
Tax evasion and the Proceeds of Crime Act 2002 363 obligation to report suspicions of tax evasion to the National Criminal Intelligence Service. This obligation extends to the proceeds of offences committed overseas, where the relevant conduct would have been criminal sets out that we do if it had occurred in the UK. In this way, the UK 6 8 clearly not wish to provide a haven for dirty money.' The 1999 Guidance Notes from the ICAEW reflected a far more proactive view on the part of NCIS than informed their predecessors. They assert that: 'Suspected tax evasion should be treated no differently to any other crime that is covered by the money laundering legislation.' 69 This is true, but leaves open the question whether it is covered. The guidance issued by the legal profession in the light of the 2003 Regulations assumes, rather than explains, that the 'proceeds' of tax evasion are subject to the reporting regime.7" There is some 7 1 support in the literature for this position. And so it was, apparently, that the law was 'changed'. Tax evasion became a predicate offence to laundering. The letter of the law was not changed at all: Parliament had said nothing. For reasons never made explicit, the interpretation of a non-binding set of recommendations promulgated by an advisory body based in Paris was changed, and the government and NCIS were able to effect change in the guidance as to how the law should apply, without action through the traditional legislative channels. The making of law by international agencies should be done as transparently and as accountably as possible. This was not what happened in respect of tax evasion as a predicate offence to laundering. We are entitled to ask whether the relevant statutes actually achieved what was desired, and the extent of the regime laid down in the statute itself, rather than in some extra-statutory pronouncements. The article will again deal in turn with the four legal mechanisms available. CONFISCATION There is no doubt that tax evasion is capable of providing a predicate offence to a confiscation order both under the Criminal Justice Act 1988 and now under 68. Dated 28 February 2000, supplementary to evidence given on 8 February 2000. 69. ICAEW Technical release 15/99. The British Bankers Association also presented new guidelines to its members in June 1999, stating that the financial proceeds of tax evasion should be viewed by British authorities as laundered money. 70. The Law Society's Guidance on Money Laundering is set out as Annex 3B(1) of its online guide to professional conduct. Paragraph 2.8 states: 'Tax evasion is a criminal offence and the financial benefit gained represents a person's benefit from criminal conduct, even if the money or property on which tax should have been paid was legitimately earned.' The guide does not, however, consider s 340 closely. See also paras 4.42 and 6.62. The Bar Council guidance is less extensive, because in general the barrister will be able to shelter behind the precautions taken by the solicitor (http://www.barcouncil.org.uk/ document.asp?languageid= 1&documentid=259 1). The introduction of direct access to the barrister, together with the specific inclusion in the regulated sector of tax advisers, may alter the position. 71. Martyn Bridges 'The Nexus between Tax Evasion and Money Laundering' inAndrew Money Laundering Guide to International Clark and Peter Burrell (eds) A Practitioner's Law and Regulation (Old Woking: City & Financial Publishing, 2003) p 243.
the Proceeds of Crime Act 2002.72 The question that arises is for how much, if anything, the order should be made. The Criminal Justice Act 1988 stated: '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.' 73 The expression 'pecuniary advantage' has a chequered history, and apparently was intended in its original incarnation, in s 16 of the Theft Act 1968, to cover the case of unquantifiable benefits. Consider this simple question - Where the pecuniary advantage is the deferral of a debt, is the value of the advantage: (a) the value of the deferral; or (b) the value of the debt? The answer, as a matter of plain English construction, is 'the value of the deferral'. Frequently, because of the possibility of interest being charged on tax paid late, where the deferral is in the payment of tax due, the deferral will have no 74 value at all. None the less, in R v Smith (David Cadman) the House of Lords held that a person who smuggles cigarettes into the country is liable, in addition to whatever punishment is imposed upon conviction and the forfeiture of the boat used for the smuggling, to the forfeiture of the cigarettes and then also to a confiscation order to the full value of the unpaid duty. A dictum of Laws LJ was approved to the effect that the Customs and Excise could even still claim the duty itself: 'In short, the fact that the tax remains due does not mean that its evasion did not confer a pecuniary advantage, nor indeed that that pecuniary advantage consisted of the whole of the tax withheld, the value of the liability that was evaded. By his crime the appellant evaded payment of £4 million tax. That sum constituted the proceeds of the offence... The fact that he remained in law liable to pay the tax, the fact even, were it so, that the Revenue might later recover it, does not, in our judgment, yield the proposition that the proceeds of his crime were one penny less than the whole 75 of the tax evaded.' In a case such as this, the value of the deferral of the duty is negligible and the powers of the Customs and Excise to recover the debt so great that the appropriate course to adopt would, it is suggested, have been not to issue the confiscation order but for the Customs and Excise to assess the defendant to duty, and, if appropriate, penalties. The upshot of Smith was that a case note76 was used as the basis for a proposed amendment to the Proceeds of Crime Bill, moved at the Commons Report stage, the effect of which would have been to reduce the benefit attributed to a smuggler by the amount of any forfeitures. 77 The amendment was withdrawn 72. Proceeds of Crime Act 2002, s 6. 73. Criminal Justice Act 1988, s 71(5). 74.  UKHL 68. 75.  1 CAR(S) 497 at 500-501. 76. Peter Alldridge 'Smuggling, Confiscation and Forfeiture' (2002) 65 MLR 781. 77. 380 HC Official Report (6th series) cols 634-639, 26 February 2002, Amendment 41 (Dominic Grieve MP).
Tax evasion and the Proceeds of Crime Act 2002 365
8 when the government agreed to reconsider the issue." A similar amendment 79 was then introduced at the House of Lords Committee stage. The government 8 s 76(5) " Consequently defeated. was amendment and the was happy with Smith of the Proceeds of Crime Act 2002 now provides:
'If a person derives a pecuniary advantage as a result of or in connection with the conduct, he is to be taken to obtain as a result of or in connection with the conduct a sum of money equal to the value of the pecuniary advantage.'
8 A later House of Lords might be prepared to overrule Smith, or to hold that notwithstanding their evident similarities, cases on s 71(5) of the Criminal Justice Act 1988 do not necessarily control decisions under s 76(5) of the Proceeds of Crime Act 2002. Failing that, later defendants, and, perhaps, unpaid creditors, who are adversely affect by Smith will have to fall back upon Convention rights. In the case where a confiscation order is made in the value of unpaid tax and 82 then the tax is demanded, it might be possible to assert a First Protocol right. However, the Convention right that most clearly embodies the moral claim on Smith's behalf is a right not to be made subject to double jeopardy. That will 83 become available if and when the UK adopts the double jeopardy protocol. 84 the question Even if Smith is followed, this will not, as shall be seen, determine 8 4 whether there is a laundering offence and a duty to report. a
TAX EVASION AS THE PREDICATE OFFENCE IN CIVIL RECOVERY PROCEEDINGS Although a confiscation order may apparently be made in respect of evaded tax (or so Smith holds) it does not follow that the civil recovery procedure also applies to it (or to other evaded debts). The civil recovery jurisdiction requires that there be 'recoverable property', that is 'property obtained through unlawful conduct' .85 The first objection to the use of civil recovery procedure in respect 78. 380 HC Official Report (6th series) col 639, 26 February 2002, Amendment 41 (George Foulkes). 79. HL Official Report (5th series) col 57, 22 April 2002 (Lord Kingsland). 80. HL Official Report (5th series) cols 57-59, 22 April 2002 (Lord Rooker). 81. Which has been followed, by implication, in R v Foggon  EWCA Crim 270. 82. Note that in R v Edwards  EWCA 2923 the Court of Appeal received an undertaking (at ) from counsel for the Customs and Excise Authorities that there would be no attempt to claim the tax, and the First Protocol argument was mentioned. 83. It is the expressed policy of the UK government to accede to ECHR, Protocol 7, Art 4: Rights Brought Home (Cm 3782, 1997) para 4.15. 84. Subsequent attempts to extend Smith have not been successful: R v Foggon (John James)  EWCA Crim 270,  STC 461; R v Olubitan (Ayodele Olusegun)  EWCA Crim 2940,  2 CAR (S) 14; R v Davy  EWCA Crim 781,  2 CAR (S) 101. Compare, however, R v Davies (Derrick) EWCA Crim 3110,  2 All ER 706 and R v Ellingham  EWCA Crim 3446 (regarding Smith as 'settled'). 84a. The argument is very similar to that which succeeded in R v Preddy  AC 815. 85. Proceeds of Crime Act 2002, s 304. 'Unlawful conduct' is criminal conduct: s 241 and s 316.
of the 'proceeds' of tax evasion is the same as the argument against R v Smith 86 (David Cadman). The criminal conduct with which the tax evader will generally be charged will usually be the act of signing a false return. The benefit from signing the false return is negligible when the money (and interest upon it) is still owed. The benefit is the deferral, not the whole sum involved. Even if this argument goes the same way as that in R v Smith (DavidCadman), there are two further arguments, one technical, the other not, against the use of the civil recovery procedure for evaded tax. Generally, if it is possible to identify the property in the first place as being the proceeds of tax evasion, then there will be no special difficulty in locating property into which it is traced. If, on the other hand, the property cannot be identified, then, since this is an in rem action, there will no rem, and no action. It might be thought that in the case of suspected tax evasion the appropriate course will be for the ARA to exercise its taxation jurisdiction,87 or to leave the matter to the Revenue. The technical argument is that the statute requires that the property be 'obtained', rather than 'obtained or retained'.88 Increased wealth that a taxpayer has as a consequence of tax evasion need not itself have been obtained by criminal conduct (indeed, where it has been, the usual remedies will exist). It is suggested that all three arguments are sound and that the civil recovery procedure does not cover the case of evasion or deferment of liability to tax. THE TAXATION JURISDICTION OF THE ASSETS RECOVERY AGENCY The other possible route by which the ARA may clearly not proceed in respect of tax evasion is through its tax jurisdiction.89 'Criminal conduct' is defined as for civil recovery, 9° and so the same arguments would have arisen, save that tax frauds are excluded.9 The Inland Revenue maintains jurisdiction there. TAX EVASION AS THE PREDICATE OFFENCE TO CRIMINAL LAUNDERING Because it provides the trigger for the reporting requirement, the question whether tax evasion can provide the predicate offence to criminal laundering is of enormous practical significance. The definition of 'criminal property' for the purposes of the criminal laundering provisions of the Act is as follows: 'Property is criminal property if(a) It constitutes a person's benefit from criminal conduct or it represents such a benefit (in whole or in part and whether directly or indirectly); and 86.  UKHL 68. 87. Note that by taking on the tax affairs of a subject, the ARA does not acquire the Board of Inland Revenue's powers to prosecute: Proceeds of Crime Act 2002, s 323(3)(b). 88. Proceeds of Crime Act 2002, s 242. 89. Ann Mumford and Peter Alldridge 'Taxation as an Adjunct to the Criminal Justice System'  British Tax Review 458. 90. Proceeds of Crime Act 2002, s 326(1). 91. Proceeds of Crime Act 2002, s 327(2).
Tax evasion and the Proceeds of Crime Act 2002 367 knows or suspects that it constitutes or (b) The alleged offender 92 represents such a benefit.' As with confiscation orders, there is a special provision to deal with the case where the 'criminal property' is a pecuniary advantage: 'If a person obtains a pecuniary advantage as a result of or in connection with conduct, he is to be taken to obtain as a result of or in connection with 93 the conduct a sum of money equal to the value of the pecuniary advantage.' It will be noted that this provision is identical to s 76(5), dealing with the quantification of a confiscation order. So far as it is possible to make sense of it, the provision will again apply where the property in question is the subject matter of a debt, usually of tax evasion. As in the case of confiscation, and because of its great significance to the relationship between criminal justice and taxation, it requires particular attention. Are dealings by a tax evader or other non-payers of debts with his or her own property to be regarded as dealings in the 'criminal property'? There are two major sets of arguments against such a view. First, there is the argument against Smith (David Cadman) from the plain meaning of s 76(5), and hence of s 340(6). The value of tax evasion is the deferral of the debt but in most cases (because of the interest payable) the deferral of the debt will have no value to the defendant. Secondly, and even if the first cuts no ice, there is the difficulty of identifying the property. For the purposes of a confiscation order, all that is necessary is that the amount of the order be quantified. The highest common factor in the criminal laundering offences is 'criminal property'. If there is no criminal property there is no laundering offence. For the purposes of the criminal laundering provisions it is necessary to identify the specific property involved. The difficult cases are where the alleged 'criminal property' is the evasion or deferment of a debt. These differences seem to have escaped the draftsman. Even if we accept Smith (David Cadman) as a correct interpretation of the words of what is now s 76(5) for the purpose of the making of a confiscation order (ie that someone who evades paying Ex in tax obtains a pecuniary advantage of Lx), it is by no means clear that it operates to allow the property to be identified for the purposes of s 340(6), and hence the reporting obligation. Neither the use of the expression 'directly or indirectly' in s 340(3) nor that of 'pecuniary advantage' in s 340(5) facilitates the identification of the property. Consider more closely at the way in which the definition in s 340, especially the deeming provision in s 340(6), interacts with the substantive laundering offences. Assume, contrary to what was argued above, that s 340(6) makes sense, and identifies the value of the advantage obtained as being the value of the entire tax liability deferred. Would even that help? Would that bring tax evasion within the laundering offences and hence subject to the reporting 9 requirement? The article will consider ss 327 and 329, then 328. 1
92. Proceeds of Crime Act 2002, s 340(3). 93. Proceeds of Crime Act 2002, s 340(6). 94. On these offences generally, see MLL, pp 192-197.
Section 327 - concealing etc a unicorn Section 327 criminalises concealing, disguising, converting or transferring criminal property or removing it from the UK. How does it interact with s 340(6)? The first thing to notice is that s 340(6) is a deeming provision. Deeming provisions occasionally work satisfactorily in tax statutes, but almost invariably come to grief when the criminal law is involved. Section 340(6) deems the defendant to have a sum of money that he or she does not actually have. Here, in the transfer of the text from s 76(5) to s 340(6) the consequences of the use of the deeming provision does not seem to have been properly worked through. The sum of money does not actually exist. It is simply impossible to conceal, disguise, convert or transfer property whose existence is only hypothetical. It is no more possible to conceal (and the rest) property that does not exist than it is to conceal a unicorn. Consequently no issue arises as to whether there ever need be a report under s 330 in respect of dealings with tax evaded under s 327. Section 329 - acquisition, use or possession The same goes for the third set of laundering offences, which involve acquisition, use or possession of criminal property. As with s 327, the notional money cannot be acquired, used or possessed because it does not actually exist. Consequently no issue arises as to whether there ever need be a report under s 330 in respect of dealings with tax evaded under s 329. Section 328 - arrangements The argument under s 328 is slightly different, but to the same end. Under s 328(1): 'A person commits an offence if he enters into or becomes concerned in an arrangement which he knows or suspects facilitates (by whatever means) the acquisition, retention, use or control of criminal property by or on behalf of another person.' Here the drafting is less specific about the criminal property. 95 No article is used before 'criminal property'. The provision seems to contemplate that the criminal property is property that might come into existence (or become criminal property) at some point after the arrangement is entered into. So, it might be argued, the property could not be identified at the time of the arrangement, and the fact that it could not be identified does not prevent there being criminal property for the purposes of the reporting obligation. The contrary argument is that s 328 still contemplates that there be at some time identifiable property when the arrangement comes to fruition, and that unless that property is criminal property there will be no offence. It is suggested that this is the better interpretation, but even if this is not accepted there will be a couple of further arguments against the application of s 328 in the case of tax evasion.
95. It is wider than the offence generated by Criminal Law Act 1977, s 1of conspiring to commit the offence under s 327.
Tax evasion and the Proceeds of Crime Act 2002 369 Suppose a person within the regulated sector is helping a person deal with his or her money. They suspect that the person is not declaring their full liability to tax. Section 340(6) (we are assuming, for the sake of this argument) deems the evader of tax to possess a sum of money. Even if the specific property need not be identified as a matter of law, the mental state implied in 'criminal property' (that the alleged offender knows or suspects that it constitutes or represents such a benefit 96 ) still provides further possible defences to one charged either with laundering or failing to report. First, the arranger may well not 'know or suspect' the property represented the benefit of criminal conduct, since he or she might well be ignorant of s 340(6). If this is the case, because of s 340(3), it is not criminal property. The arranger can say that he or she did not know or suspect the property represented the benefit of criminal conduct because he or she did not understand the relevant law. A claim of mistake of law, where it negatives the relevant mens rea, can provide a defence.97 Secondly, the person upon whom the reporting requirement is placed may well not know or suspect that the property was criminal property because, even if he or she knew the relevant law, he or she might not ascribe to the arranger the knowledge or suspicion required by s 340(3). P V P (ANCILLARYRELIEF: PROCEEDSOFCRIME) Unfortunately, the first case to consider of the obligations upon lawyers and others imposed by the Proceeds of Crime Act 2002 was a case of alleged tax evasion, yet no argument was made that any special considerations arising for this crime. In P v P (ancillaryrelief: proceeds of crime)9" guidance was given to the legal profession as to its reporting obligations, and their relationship to legal professional privilege. The case was a divorce case during the course of which it emerged that the husband may have been evading liability to tax. The wife's legal advisers became concerned about the possibility of committing an offence under s 328 of the 2002 Act. Based on the financial information they had seen and the advice of their forensic accountant, the wife and her legal team became suspicious that part of the matrimonial assets might be 'criminal property' within the meaning of the Act. Consequently the wife's lawyers were worried that, in acting for the wife in the litigation and/or settlement of a financial dispute, they themselves - or even the judge - might facilitate 'the acquisition, retention, use or control of criminal property' by the wife, which would be an offence under s 328. Accordingly, they sought to protect themselves and their client by invoking the protection offered by s 328(2)(a). The wife's solicitors wrote to NCIS making disclosure on behalf of the wife, her solicitors and counsel, that the wife and her solicitors had suspicions that the assets might comprise criminal property. By a sequence of events unnecessary to the present argument, the case came before Butler-Sloss P for directions as to how the respective legal advisers and their clients should behave. Interventions in the case were made by NCIS, the Revenue and the professions. A glittering array of legal talent was assembled, including no fewer
96. Proceeds of Crime Act 2002, s 340(3). 97. R v Smith (DR)  QB 354,  1 All ER 632. 98. P v P (ancillary relief: proceeds of crime)  EWHC 2260,  Fain 1.
than five QCs. Many issues were canvassed. The case sparked a great deal of concern in the legal profession,99 reflected in the media.' °° However, the argument that the 'proceeds' of tax evasion are not 'criminal property' within the terms off the Act does not appear even to have been made.I °° a On the arguments presented in this article, the starting-point in P v P should have been that there is no criminal property, and that therefore no question arises of there being a duty to disclose. 01' THE INFORMER'S IMMUNITY Where the bank or other person in the regulated sector makes a disclosure in circumstances such that, by the arguments advanced above, there is no obligation to report suspicion of laundering the proceeds of tax evasion, does it act wrongfully vis-A-vis the customer/client? Unless there is a statutory provision empowering the disclosure it would be a breach of the bank's contractual duty to the client."° The provisions permitting disclosures is as follows: 's 337 Protected disclosures (1) A disclosure which satisfies the following three conditions is not to be taken to breach any restriction on the disclosure of information (however imposed). (2) The first condition is that the information or other matter disclosed came to the person making the disclosure (the discloser) in the course of his trade, profession, business or employment. (3) The second condition is that the information or other matter(a) causes the discloser to know or suspect, or (b) gives him reasonable grounds for knowing or suspecting, that another person is engaged in money laundering." 03 Can information to the effect that the other person (usually the client) is engaged in tax evasion provide evidence without more that the movement of any of his or her funds is laundering and hence protect the financial institution from liability? If the argument advanced in this article is correct, then a bank or other financial institution will not be able to 'know or suspect' that the client who has more money than otherwise he or she would as a consequence of tax evasion. 99. Both the Law Society and the Bar Council redrew their guidance to their members in the light of the judgment, and again inthe light of Bowman v Fels  EWCA Civ 226. 100. 'Caught inthe act: a new law designed to prevent terrorists, drug barons and big-time criminals laundering money is ensnaring ordinary people quarrelling over family assets' Guardian,22 June 2004, G2, pp 16-17. 100a. Less surprising, but more worrying, is that the point was not made by a litigant in
person in SquirrellLtd v National Westminster Bank plc  EWHC 664,  2
All ER 784, who could not afford to engage a lawyer because his assets had been frozen. 101. P v P was later disapproved in the Court of Appeal decision of Bowman v Fels  EWCA Civ 226 - not a tax case. 102. Tournierv National Provincialand Union Bank of England  1 KB 461. 103. Defined by reference to ss 327-329: Proceeds of Crime Act 2002,
s 340(1 1)(a).
Tax evasion and the Proceeds of Crime Act 2002 371 Is it any defence to an action by the client for breach of contract or breach of confidence (as appropriate) that it acted upon the mistaken belief that the transactions in question were laundering transaction, when the reason for the mistake was the mistaken interpretation of the Act? Apparently not. This is a harsh consequence, but one the financial institutions seem relatively content to accept. CONCLUSIONS The legal conclusion to this article can be briefly stated. Notwithstanding much government protestation to the contrary, the criminal laundering offences under the Criminal Justice Act 1988 and now under the Proceeds of Crime Act 2002 do not apply to the property of a person who is richer by reason of criminal failure to pay tax. It follows that the reporting obligation imposed 'failure to disclose' offences does not apply in the case of tax evasion. To summarise the reasons: (i) The only plausible reading of ss 75(6) and 340(6) of the Proceeds of Crime Act 2002 is that when a pecuniary advantage is obtained and the advantage is the deferral of a debt the value of the advantage is the value of the deferral. In most cases of the deferral of liability to taxation, because of the availability of penalties and interest, the value will be nil. To the extent that it is inconsistent with this (the specific question not having ° was incorrectly decided. been argued), R v Smith (David Cadman)" (ii) Section 340(6) does not enable criminal property to be identified. Without identification of the property, there can be no criminal laundering offence. (iii) Section 340(6) is a deeming provision. It creates a legal fiction that a person has criminal property when otherwise he or she would not. The operations contemplated by ss 327-329 are not capable of performance with reference to fictitious property. (iv) 'Criminal property' only exists where 'the alleged offender knows or suspects that it constitutes or represents such a benefit' (s 340(3)(b)). Even if (i)-(iii) above are incorrect very few alleged offenders who have obtained pecuniary advantages will know or suspect that s 340(6) does operate to make any specific property in their hands into criminal property. (v) The reporting obligation only arises where the actor within the regulated sector does knows or suspect etc that the client knows or suspects etc the consequences of s 340(6) (s 330). Even where the client does satisfy (iv), the agent in the regulated sector may not suspect that he or she does. This article claims - this is a strong claim - that this implies that s 340(6) of the Proceeds of Crime Act 2002 is of very limited value, because it fails to provide any means of identifying the property it describes. This leads to the position that if a person within the regulated sector - whether the Money Laundering Reporting Officer or not - says 'I know it was dodgy but I thought it was just a tax scam' that belief - whether or not actually correct - provides a valid reason not to report.
104.  UKHL 68.
This, then, is a curious tale. A great many resources have been devoted to legislation whose terms, if these claims are correct, do not achieve the professed objectives. Why might it be important to secure this advantage for the financial services industry and for tax evaders that is not available to any other criminals? There are a number of reasons. First, there is an argument from statutory interpretation. Liberals should be concerned, especially in the face of a moral panic such as grips us in relation to laundering, that statutes, particularly criminal statutes imposing severe sentences, should not be read more widely than the words will support. It is important that penal statutes should be strictly construed and that if someone is to face a serious penalty, such as 14 years' imprisonment (for laundering) or five years' (for failing to report), then any plausible reading of the statute in their favour should be adopted and any ambiguity in the statute should be resolved in their favour. The issues under consideration in this article go beyond those at the penumbra of meaning of words in statutes. It is suggested in particular that ss 76(5) and 340(6) cannot reasonably bear meanings other than those argued for here. Secondly, there is the argument from cost. The impositions made by the laundering regime upon the financial services industry, and thence of course upon its customers, are very significant. Any further demands need to be assessed very carefully. In particular, it is one thing to aspire towards the criminal justice system being paid for not out of taxes but by crime itself; it is quite another to place the costs of the criminal justice system at the door of the financial services industry. The imposition of burdens greater than those in other jurisdictions could make the UK fimancial services industry uncompetitive. Thirdly, the preference accorded to the Crown on insolvency, particularly in respect of unpaid taxes, has now been abolished."5 The preference afforded by the Proceeds of Crime Act 2002 to the state over unsecured creditors is not something that should be able to be used by the state to regain that preference in respect of taxes. Fourthly, there is the special position of the state and of the tax authorities. A liability to tax is a debt to the state. Up until now, because of the way in which the Revenue and Customs have exercised their other powers, and because the priorities of these agencies are upon the raising of revenue and not punishing offenders, there has been little incentive for them to use prosecution as a means of tax collection. If that is to change, it should be after discussion and not as a result of developments in other areas. Fifthly, there is a political agenda. NCIS and ARA, and other professionals involved, have their own empires to build. One of the ways in which the Economic Crimes Unit of NCIS, and its successor, can establish a claim upon our attention is to show the type of crime against which it is directed to be serious and to be on the increase. The law enforcement discourse of laundering, especially the FATF, already bandies around huge numbers as representing the amount laundered. If the 'proceeds' of tax evasion is covered, then the amount of money which can be claimed to be the total 'black' and 'grey' economies of the world multiplied by the mean number of transactions per unit of currency per unit of time. The 'problem' of laundering can be presented
105. Enterprise Act 2002, s 251.
Tax evasion and the Proceeds of Crime Act 2002 373 as huge and increasing, more resources can be claimed for it, more laundering 'discovered' and the entire industry can become self-authenticating. Sixthly, differentiation of tax evasion from other acquisitive crimes is important for the purposes of the labelling function of criminal law. If all acquisitive crime is redesignated as tax evasion, then the ability of the criminal law to differentiate when labelling is diminished. Seventhly, and most controversially, we should at least consider whether the entire crusade in respect of money laundering, however well motivated, might not be worthwhile. It might just be the case, as with Prohibition, that proliferation of offences, powers, sentencing options and paid and unpaid officials - Levi wrote memorably of 'an unpaid, involuntary High Street watch 6 of pressed informants" 0 - only amplifies the 'problem'. It may not be that bad a thing if some criminals do retain the proceeds of their crimes. It is by no means clear that the mechanisms put in place under the 2002 Act and 2003 Regulations will, on their own terms, succeed, either by raising the amount seized by the state beyond a level that would be commensurate with the expenditure involved, or by reducing the amount of money laundered in the UK or in the world, or by disrupting the operation of criminal markets. The history of the extension of the criminal law in general is a history of unprincipled creeping incrementalism. The history of liberal arguments in the field of criminal law is a history of failure. 07 Liberal arguments tend to fail because the discourse of criminal justice concentrates too much upon individual cases. Those arguing for a different position always enter the public debate (in the way in which it is conducted in Britain at least) disadvantaged by the absence of easily accessible, rhetorically powerful examples of criminals who should be allowed to retain the proceeds of their crimes. Arguments against regulation, or for less regulation, or for less draconian laws, follow from the general costs of having such laws, and seldom (except in third-party cases) from their application in particular instances. Even before the Act, money laundering law had already become the area in which, arguing from individual instances, blind judicial eyes are turned to the European Convention. Over and over again judges have held that legislative measures which might on the face of it appear to involve criminal charges do not, that shifts in the burden of proof are justified and that laws which prejudice fair trial, or the right to property, are justified and proportional in the face of the evil which money laundering poses. All these things are serious and costly blows to any hope of establishing a human rights culture. An overall analysis of the costs and benefits of regulation is long overdue.
106. Michael Levi 'Cleaning up the Bankers' Act: the United Kingdom Experience' in Brent Fisse et al The money trail:confiscation ofproceeds of crime, money laundering
and cash transactionreporting (Sydney: Law Book Company, 1992).
107. And see Andrew Ashworth 'Is the criminal law a lost cause?' (2000) 166 LQR 225.
This action might not be possible to undo. Are you sure you want to continue?
We've moved you to where you read on your other device.
Get the full title to continue reading from where you left off, or restart the preview.