Newsletter - February 2010

Welcome to the latest edition of the Anti-Fraud Network newsletter.

Non-Conviction Based Forfeiture: The Irish Experience

Authors: Joe Kelly and Katie Byrne

Overview
Traditional approaches to law enforcement have focused on the crime, the criminal and the conviction. Whereas asset recovery increasingly plays an important role in fighting crime, the norm is that the pursuit of the proceeds of crime forms part and parcel of a criminal prosecution, with confiscation following upon conviction.

Irish law provides for the restraint (and ultimate forfeiture) of assets deriving from or tainted by crime, without criminal conviction. Although non-conviction (or civil) based recovery of criminal proceeds is not a new concept, equally it is not one that has yet been universally accepted or implemented, particularly in civil law jurisdictions.

Ireland’s model of non-conviction based forfeiture is operated by the Criminal Assets Bureau, a multi-disciplinary statutory body whose function is to identify and take steps to forfeit the proceeds of crime.

Of course, identifying and forfeiting the proceeds of crime is an exercise that inevitably requires the investigator to look beyond his or her own jurisdictional border. It is therefore worth examining the attitude of other jurisdictions to Ireland’s non-conviction based forfeiture model.

The Criminal Assets Bureau
The Criminal Assets Bureau (CAB) is an agency established by statute, comprising members of An Garda Siochana (the Irish police), Revenue officials and Social Welfare officers. The idea behind CAB’s multi-agency structure is to facilitate the sharing of information collected for different statutory purposes, thus enhancing its ability to detect illegitimate assets. CAB is supported in its operations by a comprehensive legal team, including a Bureau Legal Officer, appointed by the Attorney General, and a legal staff selected from the Office of Ireland’s Chief State Solicitor. CAB is also assisted by a dedicated Bureau Forensic Analysis Unit, which comprises a number of forensic accountants.

The function of CAB is to identify assets (including assets located outside Ireland) that are derived from, or suspected to derive from, criminal activity. Once identified, CAB takes appropriate action under the law to deprive persons in control or possession of those assets of their possession or benefit.

In addition to specific CAB powers, CAB officers retain the ordinary powers conferred on them by virtue of being either a police officer, a Revenue official or a Social Welfare officer. Police officers appointed to CAB can investigate substantive criminal offences and submit their investigation files to the Director of Public Prosecution, who decides on whether they should be prosecuted. Such investigations can be conducted separate to, or in parallel with the pursuit of the proceeds of the crime. That said, conducting parallel criminal and proceeds of crime investigations can raise issues in relation to the right against self-incrimination. In certain circumstances, evidence gleaned in relation to proceeds of crime investigation may not be admissible in the context a substantive criminal prosecution.

Restraint and Forfeiture: Proceeds of Crime Acts, 1996–2005
CAB is not, of itself, an asset forfeiture body, but rather it is one of the actors in the asset forfeiture process. The restraint and/or forfeiture of the proceeds of crime under the Proceeds of Crime Acts is a matter for the courts; CAB’s role is to assemble and put before the court the evidence required to trigger the court’s jurisdiction under those Acts to grant an applicable order.

Under the Proceeds of Crime Acts, assets are “restrained” in the first instance and can only be “forfeited” after a period of seven years, or after a shorter period where there is consent to the forfeiture. Notably, Ireland’s Minister for Justice, Equality and Law Reform recently announced that he intends to carry out a review of the Proceeds of Crime Acts, and that review will look at shortening the seven year period.

The Proceeds of Crime Acts provide for both short term and long term restraining orders, referred to as “interim orders” and “interlocutory orders”. Interim orders are granted on the ex parte application of CAB and remain in force for a period not exceeding 21 days. Interlocutory orders are granted following a substantive hearing on notice in which the respondent (i.e., the person alleged to be in possession or control of the property that is the subject of the proceedings) is given an opportunity to prove the legitimacy of the proceeds that it is sought to restrain. Interlocutory orders stay in being until such time as an application to forfeit the proceeds is made and decided upon.

Belief Evidence and Proving “Proceeds of Crime”
In order to obtain either an interim or interlocutory order, CAB must establish that: (i) the property in question is in the possession or control of the respondent; (ii) its value is in excess of €12,700; and (iii) it either constitutes the proceeds of crime, or was acquired using the proceeds of crime.

Notably, the Proceeds of Crime Acts render admissible belief evidence of the Chief Bureau Officer of CAB or an authorised officer of the Revenue Commissioners in relation to establishing that the property in question constitutes the proceeds of crime, or was acquired using the proceeds of crime, pursuant to Section 8 of the Proceeds of Crime Act, 1996. Under Section 8, if the Chief Bureau Officer of CAB, or an authorised officer of the Revenue Commissioners, gives sworn testimony as to his or her belief that the property forming the subject matter of the application represents the proceeds of crime, and the court is satisfied that such a belief is reasonably held, then the belief acquires the status of evidence.

It then falls to the judge, on the basis of that evidence, together with the evidence of other CAB officers, to determine whether CAB has established, on the balance of probabilities, that the property in question represents the proceeds of crime.

If this is established in the context of an interlocutory application, then the onus shifts to the respondent, who is required to prove either the legitimacy of the property, or the fact that its value falls below the €12,700 threshold. Unless the respondent does so, the court is required to grant the order sought, except where to do so would give rise to a serious risk of injustice.

Disposal Orders
Proceeds of crime that are restrained pursuant to an interlocutory order can only be “forfeited” after that order has been in force for a period of seven years, or after a shorter period where there is consent to the forfeiture. Forfeiture must be ordered by the court, which grants a “disposal order” relating to the proceeds. The terms of a disposal order will direct that the restrained property is transferred either to the Minister for Justice, or to “such other person as the court may determine”. This opens up the statutory possibility that property restrained pursuant to the Proceeds of Crime Acts can be returned to victims. This occurred in 2004, where CAB returned the sum of €5.5 million to the victims of an international high yield investment scam administered by US fraudster, Terry Dowdell.

Proceeds of Fraud and Corruption
While the primary focus of CAB in its 13 years of operation has been the proceeds of organised and drug crime, CAB’s remit is not limited to proceeds deriving from particular forms of criminal activity and includes the proceeds of fraud and other forms of white collar crime.

Furthermore, the Proceeds of Crime Acts deal specifically with the forfeiture of corruption assets, following an amendment to the legislation introduced in 2005. It is now possible to apply under the Proceeds of Crime Acts for a “corrupt enrichment order”, pursuant to which the court orders the return by the defendant of the amount by which he or she has been “corruptly enriched”. Notably, where it is established that the defendant in such an application was in a position to benefit others by exercising some official function, and some such benefit has accrued without satisfactory explanation, this triggers a presumption that the defendant was engaged in “corrupt conduct”.

Taxing the Proceeds of Crime
In addition to its restraint and forfeiture powers, CAB is also enabled under the legislation to tax the proceeds of crime. CAB is facilitated in this regard by the Disclosure of Certain Information for Taxation and Other Purposes Act, 1996, which contains extensive provisions on information sharing. Although an analysis of CAB’s taxation powers is beyond the scope of this article, they are worthy of mention in that they constitute an important weapon in CAB’s armoury. In 2008, CAB raised tax assessments totalling €23,435,212.28, and in the same year collected €5,891,624.85 in tax and interest.

Targeting Assets Outside Ireland
It is rare nowadays that criminals retain the proceeds of their crimes in one jurisdiction. Therefore, to effectively deprive a criminal of his assets, investigators are required frequently to look beyond their own jurisdictional borders.

Although Ireland’s Proceeds of Crime legislation is drafted with this in mind (the definition of “property” includes property situated in other jurisdictions; the definition of “criminal conduct” was recast in 2005 to include criminal acts committed outside Ireland), CAB’s efforts to recover proceeds of crime—or evidence in relation to the proceeds of crime—located outside Ireland have been thwarted frequently due to the nervousness of authorities in other jurisdictions when it comes to assisting in the operation of non-conviction based forfeiture models. Other jurisdictions have expressed concerns that the model is at odds with certain fundamental and constitutional rights, including the right to hold property and the presumption of innocence and will only lend assistance where a substantive criminal investigation is in being.

A detailed constitutional analysis of Ireland’s Proceeds of Crime legislation is outside the scope of this article, but it is worth noting that it has survived a number of constitutional challenges before Ireland’s superior courts.

Although there are a plethora of international conventions and European Union legal instruments that address asset recovery, the obligations created by these conventions and instruments tend to relate only to criminal confiscation, i.e., confiscation in the context of a criminal prosecution. The support of non-conviction based forfeiture models is often advocated, but never insisted upon.

By way of example, at European Union level, Framework Decision 2006/783/JHA applies the principle of mutual recognition to confiscation orders. However, the term “confiscation order” is defined in that Framework Decision as a final penalty or measure imposed by a court resulting in the definitive deprivation of the property, following proceedings in relation to a criminal offence.

Against that backdrop, the European Commission, in its November 2008 communication on “ensuring that crime does not pay”, has said that the confiscation and recovery of the proceeds of crime is an essential part of the EU’s financial crime strategy. The Communication makes a case for further legal provisions on confiscation, and suggests that provision be made for non-conviction based confiscation in certain instances.

As an alternative, it suggests that consideration be given to applying the principle of mutual recognition to foreign freezing and confiscation orders, even where those orders are based on non-conviction based confiscation procedures. We will be observing with interest whether this suggestion is taken on board by other EU Member States.

Joe Kelly is a Partner in A&L Goodbody’s Litigation and Dispute Resolution Department. He has worked in A&L Goodbody since 1989. Joe is the Joint Head of A&L Goodbody’s Corporate Criminal Offences Group, which provides advice to clients on regulatory matters and/or criminal investigations/prosecutions. A&L Goodbody’s Corporate Criminal Offences Group has extensive experience in dealing with regulators both in Ireland and abroad. Joe currently advises clients who are caught up in enquiries and investigations being pursued by the US Securities and Exchange Commission (SEC); the Office of the Director of Corporate Enforcement (ODCE), dealing with possible transgressions of Irish company law; the Irish Financial Regulator, dealing with possible breaches of financial services regulations; and the Criminal Assets Bureau, investigating the alleged laundering of the proceeds of crime. A&L Goodbody was recently awarded “Best Law Firm in Ireland for White Collar legal Work 2009” by Corporate Intl Magazine.

Contact Details:
Tel: +353 1 649 2429 jkelly@algoodbody.ie

Katie Byrne is a Solicitor in A&L Goodbody’s Litigation and Dispute Resolution, where she works with the firm’s Corporate Criminal Offences Group. Katie advises corporate enterprises, from SMEs through to large multinational corporations, who have been contacted by a Regulator, whether in relation to an alleged breach of company law or any other regulatory breach that attracts a criminal sanction. Katie works closely with her colleagues in other departments within the Firm, including EU and Competition, Financial Services Regulation and Compliance, Corporate Tax and Corporate Recovery and Insolvency, to ensure that clients are provided with a comprehensive range of services.

Contact Details:
Tel: +353 1 649 2000 kbyrne@algoodbody.ie

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News

Count Alfons Mensdorff-Pouilly has become the first person to be charged in relation to the SFO's
investigations into corruption allegations against BAE relating to African and European sales. Count Mensdorff-Pouilly, a former BAE agent, appeared in court in London on 29 January and was remanded in custody for a week. It is alleged that between 2002 and 2008 Count Mensdorff-Pouilly gave, or agreed to give, corrupt payments to officials in countries including the Czech Republic, Hungary and Austria. The Count has not yet entered a plea and the Attorney-General now has to give her consent for the prosecution to continue. Reports suggest that 5 other individuals may be charged shortly.

Vatican Bank Under Investigation for Alleged Money Laundering
The Italian investigative magazine Panorama has reported that authorities are investigating transactions worth €180 million handled between 2006 and 2008 by Vatican bank accounts held at a UniCredit branch near the Vatican. Officials from the Bank of Italy's Financial Intelligence Unit (UIF) identified the transactions, which allegedly violated anti-money laundering regulations. The Vatican bank is formally known as the Institute for Religious Works (IOR) and came under investigation previously in 1982 when Banco Ambrosiano, in which it was the major shareholder, collapsed. The Vatican was held partly responsible for US$1.3 billion in bad debts held by Ambrosiano at the time of the bank’s collapse. In 2007, an investigation into the death of former Banco Ambrosiano president and “God's banker”, Roberto Calvi, found that the Mafia was involved. Mr Calvi was later found hanging beneath Blackfriar's Bridge in London.

UTStarcom Fined US$3 Million for Bribery in China
According to the Justice Department and the Securities and Exchange Commission, American telecommunications company UTStarcom violated the US Foreign Corrupt Practices Act through a series of bribes paid from 2002 to 2007 to Chinese and Mongolian officials. UTStarcom allegedly spent around US$7 million on “training” sessions in the US for China's government-owned telecommunications companies. These training sessions were frequently located in tourist destinations such as Hawaii. The company also allegedly arranged visas for relatives of clients as well as offered them jobs.

22 Charged in Largest FCPA Investigation
The US Justice Department has announced that 22 employees of military and security firms and law enforcement suppliers have been charged with conspiring to bribe a foreign official in an African arms deal. The “foreign official”, who didn’t exist, was represented by an undercover FBI agent posing as a sales agent and the defendants allegedly agreed to pay a 20% commission to try and win a US$15 million deal to supply the presidential guard. The companies involved come from across the US as well as the UK and Israel. Arrests in the US were co-ordinated with searches in the UK by City of London police.

The US said this was the largest single investigation and prosecution carried out so far under the Foreign Corrupt Practices Act (FCPA), designed to prevent the bribery of foreign government officials in order to obtain or retain business.

Iran Limits Cash Withdrawals
In a bid to fight money laundering, Iran’s Central Bank Deputy Governor, Asghar Abolhasani, has announced that a limit on bank withdrawals per day has been imposed. Account holders cannot withdraw any sum larger than 150 million Rials, approximately US$15,000. Some commentators have suggested that the move may actually be intended to curb inflation by limiting liquidity.

Former HSBC Senior VP Jailed for Bribery
A former senior vice president of HSBC’s Asia Broking Services has been sentenced to one year in jail and ordered to pay an UK$22,222 investigation fee to the Securities and Futures Commission after being found guilty of bribery. Leo Man is alleged to have accepted “an advantage as an agent” after receiving HK$1.1 million in return for recommending the purchase of shares. Mr Man had claimed the money was a personal loan and returned the sum to HSBC Broking.

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