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You cannot confiscate illicit funds from a company without having brought charges against it


Speed read:

  1. In Crown Prosecution Service v Aquila Advisory Limited [2019] EWCA Civ 588, the Court of Appeal held
    1. that the CPS could not confiscate illicit funds from a company without having brought charges against it.
  2. The Crown had included the company’s directors on the indictment for unlawful use of the company’s assets, but not the company itself.
  3. This decision highlights the importance for the CPS of getting the indictment right.
  4. It is also a warning to corporates – the CPS is unlikely to make the same mistake again, so more corporate prosecutions resulting in confiscation orders against companies can be expected.

The facts

  1. CPS v Aquila related to a tax fraud devised by the managing director (Mr Faichney) and deputy managing director (Mr Perrin) of Vantis Tax Limited (‘VTL’), a company formed to offer tax planning services.
  2. The directors, who had both previously worked for HMRC, were convicted of cheating the revenue by dishonestly facilitating and inducing others to submit claims for tax credits.
  3. The directors were sentenced to 4 years’ and 18 months’ imprisonment respectively and a confiscation order of £4.55m was imposed.

CPS argument and courts response

  1. Before the Court of Appeal (Civil Division), the CPS argued
    1. that the fraud of the directors should be attributed to VTL, thus precluding VTL from asserting its right to retain possession of the proceeds under the principle of illegality (ex turpi causa non oritur actio).
    2. VTL’s right to the proceeds had been assigned to Aquila Advisory Limited (the respondent).
  2. The Court rejected the CPS’s argument.
  3. It held that the company had a proprietary claim over the proceeds of fraud and, as such, it was entitled to assert its claim in priority to the confiscation order.

The principles = Three key points can be drawn from the decision.

  1. First, it is settled law that any benefit acquired by an agent as a result of his agency and in breach of his fiduciary duty is held on constructive trust for the principal (see the decision in Attorney General for Hong Kong v Reid [1994] 1 AC 324).
    1. There is no carve-out for funds generated illicitly.
    2. In FHR European Ventures LLP v Makarious [2015] AC 250, Lord Neuberger justified this on the basis that
      1. “in the absence of any other good reason, it would seem right to opt for the simple answer”.
    3. In CPS v Aquila the Court noted that the law
      1. “simply recognises that the agent cannot use his position or the assets of the company to benefit himself”. To hold otherwise would incentivise and reward the wrong behaviour.
    4. Secondly, the acts of the defendants could not be attributed to the company, because, as in the case of Bilta (UK) Ltd v Nazir [2015] UKSC 23, the company here was a victim.
      1. Indeed, VTL was left in liquidation and faced substantial claims by its investors who had suffered losses as a result of the directors’ fraud.
      2. Holding that it could not assert its claim to the proceeds would have punished the company further.
    5. Thirdly, a confiscation order made under section 6 of the Proceeds of Crime Act 2002 is an obligation to pay a sum and not a proprietary right. It cannot, therefore, displace the latter.
      1. It is entirely proper for the Crown’s power to confiscate property to be carefully demarcated, and this decision draws a boundary which leaves no room for ambiguity between companies and their directors.

The future

  1. This was a clearly reasoned and principled decision.
  2. It indicates the Court’s unwillingness to compromise established rules in order to help the State use the criminal confiscation regime to confiscate monies held by a company, where that company has not been prosecuted for any wrongdoing.
  3. In Petrodel Resources Limited v Prest [2013] UKSC 34 Lord Sumption stated
    1. that the corporate veil may be pierced only when a person is under an existing legal restriction which he deliberately evades or whose enforcement he deliberately frustrates by interposing a company under his control, and
    2. even then it can only be pierced for the purpose of depriving the company or its controller of the advantage they would otherwise have obtained by the company’s separate legal personality.
  4. This has required the Courts to step back and apply corporate veil principles strictly, a trend further demonstrated in CPS v Aquila.
  5. However, corporates should take little comfort from the decision in CPS v Aquila. The roadblock which emerged in the case is easily sidestepped in the future. As noted by Patten LJ:
    1. “the only remedy available to the CPS in a case like this would be to add the company to the indictment and then, if convicted, to seek a confiscation order directly against the company.”
  6. The business community should expect more corporate prosecutions, which is consistent with calls for a separate corporate offence of failure to prevent the facilitation of economic crime.
  7. It should also prepare itself for the inevitable conflicts of interest between the various defendants in such proceedings — both the individuals accused of unlawful behaviour, and the company that may or may not find itself exposed to a requirement to satisfy an onerous confiscation order as a result.

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