tax evasion and the proceeds of crime act 2002

Vol 25 No 3September 2005

Legal Studies

Tax evasion and the Proceeds ofCrime Act 2002

Peter AIldridgeDrapers' Professor of Law, Queen Mary, University of London

Ann MumfordLecturer in Taxation Law, London School of Economics

INTRODUCTION

Pursuit of the proceeds of crime has always been central to the criminal justiceagenda 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 Schoolof Economics in December 2003. We are grateful to those present on that occasion fortheir comments. Responsibility for remaining errors and omissions remains ours.1. Blair has returned many times to this issue since, as shadow Home Secretary, hesupported the Criminal Justice Act 1993. The list of ten objectives he delivered at the2004 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 oforganised crime will have their assets confiscated'. We must wait to see precisely whatextension of the current law is proposed.2. '... [I]t simply is not right in Modem Britain that millions of law-abiding peoplework hard to earn a living, whilst a few live handsomely off the profits of crime. Theundeserved trappings of success enjoyed by criminals are an affront to the hard-workingmajority.' Foreword to Cabinet Office Performance and Innovation Unit Recovering theProceeds of Crime (the P1U Report) (London: Cabinet Office, 2000).3. See, for example, Heba Shams Legal Globalization Money Laundering Law andOther Cases (London: BIICL, 2004).

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various ways, the proceeds of crime.4 These efforts reached at least a temporaryculmination in the Proceeds of Crime Act 2002. 5 The mechanisms directedagainst property are backed by widespread reporting obligations, set out inthe Money Laundering Regulations 2003,6 implementing the Amending EUDirective.7 The increased rate of seizures and growing rate of confiscation underthe Proceeds of Crime Act 20028 and a number of decided cases under the Act9

are evidence of the courts 'doing their bit'. A large industry is now in place forthe delivery of the legal and other services the need for which was generatedby the Proceeds of Crime Act 2002.

This article will deal with the state of the substantive law before and afterthe Act in one area of particular significance - tax evasion. It is of greatimportance because most illegally acquired property is not declared for thepurposes of tax. If the money can be confiscated, and falls within the scope ofthe other Proceeds of Crime Act powers, on the basis that it is the 'proceeds' ofevading tax, then it may be unnecessary for the state agency responsible(whether the Crown Prosecution Service or the Assets Recovery Agency'0 ) toestablish precisely by what other crime (robbery, drug dealing, collectingmoney for terrorist organisations or whatever other offence) the property wasacquired. Moreover, if the 'proceeds' of tax evasion are within the scope of themoney laundering offences, then the extensive and onerous reporting regimewill apply to those who suspect or have reasonable grounds to suspect they aredealing in a professional capacity (bankers, accountants) with property acquiredby evasion.

THE POWERS

Since the Proceeds of Crime Act 2002 came into force, there are four majorsubstantive powers (and a panoply of adjectival ones) that can be used againstpersons 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 noware brought together in one piece of legislation, rather than being found in two

4. And see for the legislation, Peter Alldridge Money Laundering Law (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 L344 of 28.12.2001.8. For latest figures see http://www.homeoffice.gov.uk/crimpol/oic/proceeds/index.html.9. For example, Re S (restraint order), S v Customs and Excise Comrs [2004] EWCACrim 2374.10. The Assets Recovery Agency (ARA) was created by the Proceeds of Crime Act2002, s 1. See http://www.assetsrecovery.gov.uk.

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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 themselvescriminal proceedings so as to attract the protection of Article 6 of the EuropeanConvention on Human Rights. 2 The idea is to relieve the criminal of theproceeds of the crime. Proceeds are measured gross. 3 When the 'lifestyle'provisions apply, the burden shifts to the defendant to establish on the balanceof probabilities that he or she had acquired property lawfully. Otherwise anyproperty 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 requirementfor a criminal conviction before a confiscation order can be made. A criminalconviction requires proof beyond reasonable doubt according to the criminalrules of evidence. Following leads from elsewhere, specifically Ireland and theUS, the Proceeds of Crime Act 2002 grants the ARA the power to bring 'civilrecovery' proceedings 6 in respect of the proceeds of crime. The civil recoveryprocedure operates as a property action. The ARA may trace or follow it intothe hands of any person other than a bona fide purchaser. 7 The ARA hassignificant investigatory and interlocutory powers. 8 Because they areproprietary claims, civil recovery proceedings take priority over the claims ofunsecured creditors. An amendment by Lord Lloyd of Berwick which wouldhave granted the right to trial by jury with the criminal burden of proof in placesucceeded in the House of Lords and then had to be removed by the use of thegovernment's Commons' majority. 9

It was unclear whether or not the application of the civil recovery procedureto offences committed before the Proceeds of Crime Act 2002 came into forcewill offend Article 7, but what degree of specificity in making allegations ofcriminal 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) [2001] UKPC D1; [2001] 3 WLR 107;Phillips v United Kingdom (2002) 11 BHRC 280; R v Rezvi [2002] UKHL 1; R v Benjafield[2002] 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 ExciseCommissioners [2005] EWCA Civ 334.

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remains to be argued.20 The government's position during the passage of theBill was that a relatively vague statement should be sufficient.2

The gradation in responses from confiscation to civil recovery to taxationis by reference not to the seriousness of the crime but to the burden and standardof 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 theconfiscation proceedings, the CPS or ARA must prove its case on the balanceof 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 thiscontext by 'balance of probabilities' and whether this can be done consistentlywith Article 6 of the European Convention are both questions that must shortlyoccupy the courts.24

Taxation

From time to time, the tax system is proposed as a means of dealing withacquisitive crime. 25 The Proceeds of Crime Act 2002, in attempting to targetthe assets of criminals, includes taxation as one of its weapons. Greater use ofinformation acquired for the purposes of taxation2 6 will lead to greatercollaboration between state agencies. There are some jurisdictions in whichillegally obtained income is not taxed. However, despite the absence of clearauthority on the point, it seems that unlawfully or illegally obtained incomeremains subject to taxation under English law. 27 Where unlawful activity istaxed under Schedule D, deductions may be made for lawful 8 business

20. MLL, p 241.21. MLL, pp 243-244. In Walsh v Director of the Assets Recovery Agency [2005] NICA6 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 isa result described by a Scottish judge in an analogous context as 'Kafkaesque'. (LordProsser in McIntosh v HMAdvocate 2001 JC 78, [2000] UKHRR 751: '[T]he suggestionthat there is less need for a presumption of innocence in the [the case where offences arenot specifically alleged compared with the case where they are] appears to me to besomewhat 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 [2002]UKHL 39; Victor Tadros and Stephen Tierney 'The Presumption of Innocence and theHuman Rights Act' (2004) 67 MLR 402; and Re U (a child) (serious injury: standardofprool) [2004] EWCA Civ 567, [2004] 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 Inland Revenue Comrs v Aken [ 1990] 1 WLR 1374, [1990] STC 497, reservingthe point explicitly by pointing out that prostitution is not ipsofacto illegal, but doubtingthe decision of the Supreme Court in Ireland in Hayes v Duggan [ 1929] 1 IR 406. Thegranting of the taxation jurisdiction to the ARA would be pointless did income tax notapply to illegal profits.28. The issue became a live one because bribes of public officials overseas weredeductible until the insertion of Income and Corporation Taxes Act 1988, s 577A by theFinance Acts 1992 and 1993. The international move against permitting such bribes,culminating in the Paris Convention of the OECD, Convention on Combating Bribery of


expenses.29 The ARA, modelled to some extent on the Irish Criminal AssetsBureau, has been given a tax jurisdiction.30 So far as concerns assessments raisedby the ARA, the rules that in order to found liability to tax the income must beascribed 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 anassessment to Schedule D income tax rather than trying to get confiscationorders or to obtain civil recovery. Once an assessment is raised the burden ofproof is upon the taxpayer to negative it.3" Apparently Article 6(2) of theEuropean 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 bemade for any expenditure incurred;(a) in making a payment the making of which constitutes the commission of a criminaloffence or;(b) in making a payment outside the United Kingdom where the making of acorresponding payment in any part of the United Kingdom would constitute a criminaloffence there.](l A) In computing profits chargeable to tax under Schedule D, no deduction shall bemade for any expenditure incurred in making a payment induced by a demandconstituting-(a) the commission in England or Wales of the offence of blackmail under section 21of the Theft Act 1968,(b) the commission in Northern Ireland of the offence of blackmail under section 20of 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 includedin computing any expenses of management in respect of which relief may be givenunder 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. Theposition differs in the case of VAT. In cases such as Einberger v Hauptzollamt Freiburg[1984] ECR 1177, the Court of Justice has held that VAT does not arise on the unlawfulimportation of drugs: see R v Goodwin and Unstead [1997] STC 22; R v Citrone [1998]STC 29, [1999] Crim LR 327. But where lawful services compete with lawful ones theunlawful ones are not given a competitive advantage: Polok v Customs and Excise Comrs[2002] EWHC 156, [2002] 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[1945] 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, inGamble v Rowe [ 1998] STC 1247, 71 Tax Cas 190.33. King v Walden [2001] STC 822, on appeal from [2000] STC (SCD) 179. By thetime the case went on further appeal ([2001] EWCA Civ 1518) the House of Lords haddecided (in R v Lambert [2001] UKHL 37) that the Human Rights Act 1998 had noapplication before 2 October 2001.

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visited in consequence of an allegation, which, at least by implication, is oneof criminal behaviour.34

Criminal liability for laundering

The final possibility is the imposition of criminal liability for one of thelaundering offences. The offences that have been put in place on the model ofthe Vienna Convention35 are of concealing, disguising, converting, transferringthe proceeds of criminal property or removing them from the jurisdiction;36

entering into or becoming concerned in an arrangement which he or she knowsor suspects facilitates the acquisition retention use or control of criminalproperty by or on behalf of another;37 and acquisition, possession or use of theproceeds of criminal property.38

Before the Proceeds of Crime Act 2002, the laundering offences were notdirectly enforced with any vigour. Numbers of prosecutions have been verysmall, both in the UK and elsewhere.39 It was not until late in the 1990s that aprosecution for one of the laundering offences was brought without a drugtrafficking offence also being alleged. 0 It is difficult to account for theexistence of the offences by reference to the usual justifications advanced forthe existence of serious criminal offences. The simple point is that if theexistence of the predicate offences and the power to confiscate are effective,then further laundering offences are unnecessary: conversely if they areineffective then there is no reason to suppose that the existence of launderingoffences will achieve anything."

The real significance of the laundering offences is not that the conductinvolved is a distinct and threatening form of evil, but that the offences triggerthe regulatory regime, including the reporting procedures, which is set outpartly by the existence of the failure to report offence in s 331 of the Proceedsof 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 groundsto suspect that income or chargeable gains accrue or arise as a consequence of the person'sor another's criminal conduct: Proceeds of Crime Act 2002, s 317.35. UN Convention Against Illicit Traffic in Narcotic Drugs and PsychotropicSubstances, Vienna, 1998.36. Proceeds of Crime Act 2002, s 327, replacing Drug Trafficking Act 1994, s 49 andCriminal Justice Act 1988, s 93C.37. Proceeds of Crime Act 2002, s 328, replacing Drug Trafficking Act 1994, s 50 andCriminal Justice Act 1988, s 93A.38. Proceeds of Crime Act 2002, s 329, replacing Drug Trafficking Act 1994, s 51 andCriminal Justice Act 1988, s 93B. There is also a 'tipping off' offence (s 333) and anoffence 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 [2001] Crim LR 234, CA.41. Peter Alldridge 'The Moral Limits of the Crime of Money Laundering' (2001) 5Buffalo Crim LR 279-319.42. SI 2003/3075. This article will not deal with those areas of investment businesscovered by the Financial Services Authority Sourcebook.


Act 2002 to the regulated sector43 but extended (from drugs offences) to alllaundering. What triggers the duty to inform the authorities is a set of conditionsthe 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 ofprimary and secondary legislation, by reference to the three principal launderingoffences and their equivalents under the Terrorism Act 2000."5 Whether or notparticular conduct constitutes a laundering offence does not just determinethe actor's criminal liability: it also determines the reporting obligations ofthe person in the regulated sector.

TAX OFFENCES

There is an infinite number of ways in which people might try to defraud theRevenue. In some of them (falsely claiming rebates or, perhaps, loss relief) theproperty acquired is identifiable, and the consequences are the same as in anyother case of obtaining property by deception. This article is concerned here,however, with the case of non-declaration of earnings, profits or gains. Oneform of income that typically46 goes undeclared is, of course, income fromcriminal activity. When a person evades tax, he or she has more property thanhe or she might otherwise have. Until relatively recently there has been adisjunction between the system for the collection of revenue and that fordispensing criminal justice. Tax offences do not really require the deploymentof the criminal law. Tax authorities are unlike other unpaid creditors since theyhave extremely efficacious enforcement mechanisms available to them for theextraction of information and money from the recalcitrant.47 There is now,perhaps as a result of the introduction of self-assessment, a greater willingnessto use the criminal law against tax evaders,48 and the combination of theremoval 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 criminalliability for an omission is very unusual. Even manslaughter requires more than simplenegligence.45. Proceeds of Crime Act 2002, s 340(11); Money Laundering Regulations 2003, SI2003/3075, 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 JusticeSystem' [20021 British Tax Review 458.48. Although there is now a summary offence (Finance Act 2000, s 144, as to which seeDavid C Ormerod 'Summary evasion of income tax' [2002] Crim LR 3; David Salter'Some Thoughts on Fraudulent Evasion of Income Tax' [2002] British Tax Review 489),there remains a range of indictable offences which can also be charged (cheating the publicrevenue, false accounting, theft and deception offences).49. Enterprise Act 2002, s 251.

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preference it has both in confiscation and civil recovery proceedings willprovide an incentive to use Proceeds of Crime Act 2002 weapons in the(frequent) cases where the solvency of the subject of the investigation is, inthe light of the claim in respect of the proceeds of crime, in doubt.

When the Money Laundering Regulations 1993 were first put in place, littleconcern was expressed about tax evasion. In the earlier attempts to deal at aninternational level with laundering, explicit exceptions were made for taxoffences.50 Many jurisdictions do not have such a wide category of predicateoffences, and exclude tax offences. The view that fiscal questions fell withinthe ambit of national sovereignty was part of the common law of privateinternational law.5' Under the Money Laundering Regulations 1993, sectorguidance notes were issued with legal force equivalent to that of the HighwayCode.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 ofsuspicious financial transaction derived from the profits of serious crimesincluding drug trafficking, terrorist activity, major thefts and fraud, robbery,forgery and counterfeiting, blackmail and extortion.' 54

That is, the National Criminal Intelligence Service (NCIS), the body to whichreports 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) currentbogey was 'organised crime', and tax evasion did not fall within the stereotypesit evoked.

THE CHANGE OF POSITION OCCASIONED BY THE OECD AND THEFINANCIAL ACTION TASK FORCE

The Financial Action Task Force (FATF) is the international body principallyconcerned 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 [1955] AC 491.52. Money Laundering Regulations 1993, SI 1993/1933, reg 5(3). 'In determiningwhether a person has complied with any of the requirements of para (1) above, a courtmay take account of-(a) any relevant supervisory or regulatory guidance which appliesto that person.' The provision is repeated in Money Laundering Regulations 2003, SI2003/3075, para 3(3).53. Whether or not it was lawful to do so: R v Metropolitan Police Comr, exp Blackburn[1968] 2 QB 118, [1968] 1 All ER 763 holds that while the police may put in placepriorities, 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 onlymanifests intention not to enforce the law in those cases but also purports to grantpermission to professional not to discharge their legal duty by making reports (authors'note).54. ICAEW Money Laundering Guidance Notes (1993) p 14.55. Until the Serious and Organised Crime Agency takes on the role.


of its 40 Recommendations 6 and by monitoring compliance," against abackground threat of blacklisting.58 As with many international bodies, themeans 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 1990sFATF became concerned at the extent to which reports so as to satisfy thefifteenth of the 40 Recommendations were not being made where the suspicionof the regulated body was that tax was being evaded.

The reasons are not difficult to guess. Schemes to avoid tax frequentlydepend upon complex routings of deals without apparent commercialrationale.59 Money movements under a tax avoidance scheme make moneymovements that are laundering the profits of crime less easy to detect. If thelaw of taxation could be altered in such a way as to discourage 'artificial'avoidance schemes then the laundering disposals would no longer sit amidsttheir camouflage. This can be used as an argument for general anti-avoidancerules. Of course, tax evasion also takes place by salting money abroad.Additional concern has been directed at the relationship between systems oftaxation and global economics by the OECD.6°

The issue which is never far from the surface in discussions of launderingthe proceeds of tax evasion is the large sums of money that - it is suspected -are laundered through the City of London, bringing valuable business.6 Theclaim by regulated financial institutions that might provoke most concern inthe context of the 2003 Regulations and the failure to report offence under the2002 Act 62 is this: 'We [the firm conducting relevant financial business] didnot 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 agood defence, then the regulatory framework will be substantially less effective,but if it is not, the costs to the professions of the additional monitoring andreporting of suspected tax evasion will be very substantial.

In the mid- I 990s the FATF and a number of other international bodies beganto broaden the category of offences capable of amounting to predicate offences:

56. The 40 Recommendations are described as 'The Crown Jewel of soft law': GuyStessens Money Laundering: A New International Law Enforcement Model (Cambridge:Cambridge University Press, 2000) p 17. The amended recommendations can be foundat 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 therise and rise of mutual evaluation: a new paradigm for crime control?' in Mark Pieth (ed)Financing terrorism (Dordrecht, London: Kluwer Academic, 2002).58. And on blacklisting see Jackie Johnson 'Blacklisting: initial reactions, responsesand repercussions' (2001) 4 Journal of Money Laundering Control 211.59. These are the sorts of schemes against which the 'Ramsay doctrine' (WTRamsay vInland Revenue Comrs [ 1982] AC 300) or attempts at general anti-avoidance rules areintended to strike. For the current approach of the courts see Barclays Mercantile BusinessFinance Limited (respondents) v Mawson (Her Majesty's Inspector of Taxes) (appellant)[2004] UKHL 51; HM Comrs of Inland Revenue (appellants) v Scottish ProvidentInstitution (respondents) (Scotland) [2004] 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.

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'It may not be essential for tax evasion to be a predicate offence for moneylaundering charges ... but if financial and other institutions are permittednot to pass on information about conduct that otherwise would be suspiciouson the grounds that they think (or say they think) that the funds are "only"tax money. ... Given that few institutions have satisfactory methods ofsatisfying themselves and others that particular funds are not the proceedsof crime and are tax evasion/avoidance the tax exemption both facilitatesthe cognitive judgment that they can do the business without informingthe authorities and denies the authorities information that might be usedfor identifying the laundering of drug and fraud proceeds.'63

An FATF directive, issued on 2 July 1999 in the form of an 'interpretativenote' to Recommendation 15 on money laundering, proclaimed that:

'In implementing Recommendation 15, suspicious transactions shouldbe reported by financial institutions regardless of whether they are also6lthought to involve tax matters. Countries should take into account that, inorder to deter financial institutions from reporting a suspicious transaction,money launderers may seek to state inter alia that their transactions relateto tax matters.' 65

Late in 1999, the Tampere European Council meeting66 placed enormousemphasis upon money laundering, calling, in particular, for an increase inconsistency in the definition of predicate offences, the adoption of theAmending Directive, and the greater availability of all relevant informationfor the purposes of exchange, irrespective of arguments from banking secrecy.At the IMF meeting in Washington DC in April 2000 the Chancellor of theExchequer, Gordon Brown, told world economic leaders that he wanted Britainto spearhead a major international crackdown on offshore tax havens, moneylaundering and financial crime.67

Also in 2000, in a supplementary note by to evidence given to the TreasurySelect Committee, the then Paymaster General, Melanie Johnson, set out theUK government's position:

'In the UK there is no specific offence of "tax evasion". The offences withwhich tax evaders are commonly charged include offences under the TheftAct 1968 and the common-law offence of cheating the public revenue. Theseare included within the definition of criminal activity for the purposes ofthe Criminal Justice Act [1988], which extends to all indictable offences.This means that laundering the proceeds of tax evasion is considered a seriousoffence in the UK, and that financial institutions and others have a statutory

63. Jack Blum et al Financial Havens, Banking Secrecy and Money-Laundering, UNDCPtechnical 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 thecase where the only offence is tax evasion. There are many jurisdictions - Switzerland isone - in which this is not done (authors' note).65. Interpretive Note to Recommendation 15 (July 1999). Under the revisedRecommendations (2003) this is now para 2 of the Interpretative Note to Recommendation13, but the text is unchanged.66. Julian Schutte 'Tampere European Council Presidency Decisions' (1999) 70 RevueInternationale de Droit Pinal 1023 at 1034-1035.67. Daily Telegraph, 17 April 2000.


obligation to report suspicions of tax evasion to the National CriminalIntelligence Service. This obligation extends to the proceeds of offencescommitted overseas, where the relevant conduct would have been criminalif it had occurred in the UK. In this way, the UK clearly sets out that we donot wish to provide a haven for dirty money.' 68

The 1999 Guidance Notes from the ICAEW reflected a far more proactiveview on the part of NCIS than informed their predecessors. They assert that:'Suspected tax evasion should be treated no differently to any other crime thatis covered by the money laundering legislation.' 69 This is true, but leaves openthe question whether it is covered. The guidance issued by the legal professionin 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 somesupport in the literature for this position. 71

And so it was, apparently, that the law was 'changed'. Tax evasion becamea predicate offence to laundering. The letter of the law was not changed at all:Parliament had said nothing. For reasons never made explicit, the interpretationof a non-binding set of recommendations promulgated by an advisory bodybased in Paris was changed, and the government and NCIS were able to effectchange in the guidance as to how the law should apply, without action throughthe traditional legislative channels. The making of law by internationalagencies should be done as transparently and as accountably as possible. Thiswas not what happened in respect of tax evasion as a predicate offence tolaundering. We are entitled to ask whether the relevant statutes actuallyachieved what was desired, and the extent of the regime laid down in the statuteitself, rather than in some extra-statutory pronouncements. The article willagain deal in turn with the four legal mechanisms available.

CONFISCATION

There is no doubt that tax evasion is capable of providing a predicate offenceto 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 presentednew guidelines to its members in June 1999, stating that the financial proceeds of taxevasion 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 itsonline guide to professional conduct. Paragraph 2.8 states: 'Tax evasion is a criminaloffence 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. TheBar Council guidance is less extensive, because in general the barrister will be able toshelter behind the precautions taken by the solicitor (http://www.barcouncil.org.uk/document.asp?languageid= 1 &documentid=259 1). The introduction of direct access tothe 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' in AndrewClark and Peter Burrell (eds) A Practitioner's Guide to International Money LaunderingLaw and Regulation (Old Woking: City & Financial Publishing, 2003) p 243.

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the Proceeds of Crime Act 2002.72 The question that arises is for how much, ifanything, the order should be made. The Criminal Justice Act 1988 stated:

'Where a person derives a pecuniary advantage as a result of or inconnection with the commission of an offence, he is to be treated for thepurposes of this Part of this Act as if he had obtained as a result of or inconnection with the commission of the offence a sum of money equal to thevalue of the pecuniary advantage.' 73

The expression 'pecuniary advantage' has a chequered history, andapparently was intended in its original incarnation, in s 16 of the Theft Act1968, to cover the case of unquantifiable benefits. Consider this simplequestion - Where the pecuniary advantage is the deferral of a debt, is the valueof the advantage: (a) the value of the deferral; or (b) the value of the debt? Theanswer, as a matter of plain English construction, is 'the value of the deferral'.Frequently, because of the possibility of interest being charged on tax paidlate, where the deferral is in the payment of tax due, the deferral will have novalue at all. None the less, in R v Smith (David Cadman)74 the House of Lordsheld that a person who smuggles cigarettes into the country is liable, in additionto whatever punishment is imposed upon conviction and the forfeiture of theboat used for the smuggling, to the forfeiture of the cigarettes and then also toa confiscation order to the full value of the unpaid duty. A dictum of Laws LJwas approved to the effect that the Customs and Excise could even still claimthe duty itself:

'In short, the fact that the tax remains due does not mean that its evasiondid not confer a pecuniary advantage, nor indeed that that pecuniaryadvantage consisted of the whole of the tax withheld, the value of theliability that was evaded. By his crime the appellant evaded payment of £4million tax. That sum constituted the proceeds of the offence... The factthat he remained in law liable to pay the tax, the fact even, were it so, thatthe Revenue might later recover it, does not, in our judgment, yield theproposition that the proceeds of his crime were one penny less than the wholeof the tax evaded.' 75

In a case such as this, the value of the deferral of the duty is negligible andthe powers of the Customs and Excise to recover the debt so great that theappropriate course to adopt would, it is suggested, have been not to issue theconfiscation order but for the Customs and Excise to assess the defendant toduty, and, if appropriate, penalties.

The upshot of Smith was that a case note76 was used as the basis for a proposedamendment 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 asmuggler 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. [2001] UKHL 68.75. [2000] 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, Amendment41 (Dominic Grieve MP).


when the government agreed to reconsider the issue."8 A similar amendmentwas then introduced at the House of Lords Committee stage.79 The governmentwas happy with Smith and the amendment was defeated.8" Consequently s 76(5)of the Proceeds of Crime Act 2002 now provides:

'If a person derives a pecuniary advantage as a result of or in connectionwith the conduct, he is to be taken to obtain as a result of or in connectionwith the conduct a sum of money equal to the value of the pecuniaryadvantage.'

A later House of Lords might be prepared to overrule Smith,8 or to hold thatnotwithstanding 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 andthen the tax is demanded, it might be possible to assert a First Protocol right.82

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

become available if and when the UK adopts the double jeopardy protocol.83

Even if Smith is followed,84 this will not, as shall be seen, determine the questionwhether there is a laundering offence and a duty to report. 84a

TAX EVASION AS THE PREDICATE OFFENCE IN CIVILRECOVERY PROCEEDINGS

Although a confiscation order may apparently be made in respect of evadedtax (or so Smith holds) it does not follow that the civil recovery procedure alsoapplies to it (or to other evaded debts). The civil recovery jurisdiction requires

that there be 'recoverable property', that is 'property obtained through unlawfulconduct' .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 [2003] EWCA Crim 270.82. Note that in R v Edwards [2004] EWCA 2923 the Court of Appeal received anundertaking (at [25]) from counsel for the Customs and Excise Authorities that therewould 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 (JohnJames) [2003] EWCA Crim 270, [2003] STC 461; R v Olubitan (Ayodele Olusegun)[2003] EWCA Crim 2940, [2004] 2 CAR (S) 14; R v Davy [2003] EWCA Crim 781,[2003] 2 CAR (S) 101. Compare, however, R v Davies (Derrick) [2003] EWCA Crim3110, [2004] 2 All ER 706 and R v Ellingham [2004] EWCA Crim 3446 (regardingSmith as 'settled').84a. The argument is very similar to that which succeeded in R v Preddy [1996] AC 815.85. Proceeds of Crime Act 2002, s 304. 'Unlawful conduct' is criminal conduct: s 241and s 316.

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of the 'proceeds' of tax evasion is the same as the argument against R v Smith(David Cadman).86 The criminal conduct with which the tax evader willgenerally be charged will usually be the act of signing a false return. The benefitfrom signing the false return is negligible when the money (and interest uponit) 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 (David Cadman),there are two further arguments, one technical, the other not, against the use ofthe civil recovery procedure for evaded tax. Generally, if it is possible to identifythe property in the first place as being the proceeds of tax evasion, then therewill be no special difficulty in locating property into which it is traced. If, onthe other hand, the property cannot be identified, then, since this is an in remaction, there will no rem, and no action. It might be thought that in the case ofsuspected tax evasion the appropriate course will be for the ARA to exerciseits 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 taxpayerhas as a consequence of tax evasion need not itself have been obtained bycriminal conduct (indeed, where it has been, the usual remedies will exist). Itis suggested that all three arguments are sound and that the civil recoveryprocedure 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 respectof tax evasion is through its tax jurisdiction.89 'Criminal conduct' is definedas for civil recovery,9° and so the same arguments would have arisen, save thattax frauds are excluded.9 The Inland Revenue maintains jurisdiction there.

TAX EVASION AS THE PREDICATE OFFENCE TO CRIMINALLAUNDERING

Because it provides the trigger for the reporting requirement, the questionwhether tax evasion can provide the predicate offence to criminal launderingis of enormous practical significance. The definition of 'criminal property' forthe 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 orindirectly); and

86. [2001] UKHL 68.87. Note that by taking on the tax affairs of a subject, the ARA does not acquire theBoard 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 JusticeSystem' [2002] British Tax Review 458.90. Proceeds of Crime Act 2002, s 326(1).91. Proceeds of Crime Act 2002, s 327(2).


(b) The alleged offender knows or suspects that it constitutes orrepresents such a benefit.'9 2

As with confiscation orders, there is a special provision to deal with the casewhere the 'criminal property' is a pecuniary advantage:

'If a person obtains a pecuniary advantage as a result of or in connectionwith conduct, he is to be taken to obtain as a result of or in connection withthe conduct a sum of money equal to the value of the pecuniary advantage.'93

It will be noted that this provision is identical to s 76(5), dealing with thequantification of a confiscation order. So far as it is possible to make sense ofit, the provision will again apply where the property in question is the subjectmatter of a debt, usually of tax evasion. As in the case of confiscation, andbecause of its great significance to the relationship between criminal justiceand taxation, it requires particular attention. Are dealings by a tax evader orother non-payers of debts with his or her own property to be regarded as dealingsin the 'criminal property'? There are two major sets of arguments against sucha view.

First, there is the argument against Smith (David Cadman) from the plainmeaning of s 76(5), and hence of s 340(6). The value of tax evasion is the deferralof the debt but in most cases (because of the interest payable) the deferral ofthe debt will have no value to the defendant.

Secondly, and even if the first cuts no ice, there is the difficulty of identifyingthe property. For the purposes of a confiscation order, all that is necessary isthat the amount of the order be quantified. The highest common factor in thecriminal laundering offences is 'criminal property'. If there is no criminalproperty there is no laundering offence. For the purposes of the criminallaundering provisions it is necessary to identify the specific property involved.The difficult cases are where the alleged 'criminal property' is the evasion ordeferment of a debt. These differences seem to have escaped the draftsman.Even if we accept Smith (David Cadman) as a correct interpretation of the wordsof what is now s 76(5) for the purpose of the making of a confiscation order (iethat someone who evades paying Ex in tax obtains a pecuniary advantage ofLx), it is by no means clear that it operates to allow the property to be identifiedfor the purposes of s 340(6), and hence the reporting obligation. Neither theuse of the expression 'directly or indirectly' in s 340(3) nor that of 'pecuniaryadvantage' in s 340(5) facilitates the identification of the property.

Consider more closely at the way in which the definition in s 340, especiallythe deeming provision in s 340(6), interacts with the substantive launderingoffences. 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 theentire tax liability deferred. Would even that help? Would that bring taxevasion within the laundering offences and hence subject to the reportingrequirement? The article will consider ss 327 and 329, then 328.91

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.

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Section 327 - concealing etc a unicorn

Section 327 criminalises concealing, disguising, converting or transferringcriminal 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. Deemingprovisions occasionally work satisfactorily in tax statutes, but almost invariablycome to grief when the criminal law is involved. Section 340(6) deems thedefendant to have a sum of money that he or she does not actually have. Here, inthe transfer of the text from s 76(5) to s 340(6) the consequences of the use of thedeeming provision does not seem to have been properly worked through. Thesum 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 morepossible to conceal (and the rest) property that does not exist than it is to conceala unicorn. Consequently no issue arises as to whether there ever need be a reportunder 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 involveacquisition, use or possession of criminal property. As with s 327, the notionalmoney 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 unders 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. Unders 328(1):

'A person commits an offence if he enters into or becomes concerned inan arrangement which he knows or suspects facilitates (by whatever means)the acquisition, retention, use or control of criminal property by or on behalfof another person.'

Here the drafting is less specific about the criminal property. 95 No article isused before 'criminal property'. The provision seems to contemplate that thecriminal property is property that might come into existence (or become criminalproperty) at some point after the arrangement is entered into. So, it might beargued, 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 criminalproperty for the purposes of the reporting obligation. The contrary argumentis that s 328 still contemplates that there be at some time identifiable propertywhen the arrangement comes to fruition, and that unless that property iscriminal property there will be no offence. It is suggested that this is the betterinterpretation, but even if this is not accepted there will be a couple of furtherarguments 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 1 of conspiringto commit the offence under s 327.


Suppose a person within the regulated sector is helping a person deal withhis or her money. They suspect that the person is not declaring their full liabilityto tax. Section 340(6) (we are assuming, for the sake of this argument) deemsthe evader of tax to possess a sum of money. Even if the specific property neednot be identified as a matter of law, the mental state implied in 'criminalproperty' (that the alleged offender knows or suspects that it constitutes orrepresents such a benefit96 ) still provides further possible defences to onecharged either with laundering or failing to report. First, the arranger may wellnot '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 ofs 340(3), it is not criminal property. The arranger can say that he or she did notknow or suspect the property represented the benefit of criminal conduct becausehe or she did not understand the relevant law. A claim of mistake of law, whereit negatives the relevant mens rea, can provide a defence.97 Secondly, the personupon whom the reporting requirement is placed may well not know or suspectthat the property was criminal property because, even if he or she knew therelevant law, he or she might not ascribe to the arranger the knowledge orsuspicion required by s 340(3).

P V P (ANCILLARYRELIEF: PROCEEDS OF CRIME)

Unfortunately, the first case to consider of the obligations upon lawyers andothers imposed by the Proceeds of Crime Act 2002 was a case of alleged taxevasion, yet no argument was made that any special considerations arising forthis crime. In P v P (ancillary relief: proceeds of crime)9" guidance was givento the legal profession as to its reporting obligations, and their relationship tolegal professional privilege. The case was a divorce case during the course ofwhich it emerged that the husband may have been evading liability to tax.The wife's legal advisers became concerned about the possibility of committingan offence under s 328 of the 2002 Act. Based on the financial informationthey had seen and the advice of their forensic accountant, the wife and herlegal team became suspicious that part of the matrimonial assets might be'criminal property' within the meaning of the Act. Consequently the wife'slawyers were worried that, in acting for the wife in the litigation and/orsettlement of a financial dispute, they themselves - or even the judge - mightfacilitate 'the acquisition, retention, use or control of criminal property' bythe wife, which would be an offence under s 328. Accordingly, they sought toprotect themselves and their client by invoking the protection offered bys 328(2)(a). The wife's solicitors wrote to NCIS making disclosure on behalf ofthe wife, her solicitors and counsel, that the wife and her solicitors hadsuspicions that the assets might comprise criminal property. By a sequence ofevents unnecessary to the present argument, the case came before Butler-SlossP for directions as to how the respective legal advisers and their clients shouldbehave. Interventions in the case were made by NCIS, the Revenue and theprofessions. 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) [1974] QB 354, [1974] 1 All ER 632.98. P v P (ancillary relief: proceeds of crime) [2003] EWHC 2260, [2004] Fain 1.

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than five QCs. Many issues were canvassed. The case sparked a great deal ofconcern in the legal profession,99 reflected in the media.' °° However, theargument that the 'proceeds' of tax evasion are not 'criminal property' withinthe terms off the Act does not appear even to have been made.I °°a On thearguments presented in this article, the starting-point in P v P should have beenthat there is no criminal property, and that therefore no question arises of therebeing a duty to disclose. 10'

THE INFORMER'S IMMUNITY

Where the bank or other person in the regulated sector makes a disclosure incircumstances such that, by the arguments advanced above, there is noobligation to report suspicion of laundering the proceeds of tax evasion, doesit act wrongfully vis-A-vis the customer/client? Unless there is a statutoryprovision empowering the disclosure it would be a breach of the bank'scontractual duty to the client."° The provisions permitting disclosures is asfollows:

'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 (howeverimposed).

(2) The first condition is that the information or other matter disclosedcame to the person making the disclosure (the discloser) in the course of histrade, 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 engagedin tax evasion provide evidence without more that the movement of any of hisor 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 financialinstitution will not be able to 'know or suspect' that the client who has moremoney 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 inthe light of the judgment, and again in the light of Bowman v Fels [2005] EWCA Civ 226.100. 'Caught in the act: a new law designed to prevent terrorists, drug barons and big-timecriminals 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 inperson in Squirrell Ltd v National Westminster Bank plc [2005] EWHC 664, [2005] 2All 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[2005] EWCA Civ 226 - not a tax case.102. Tournier v National Provincial and Union Bank of England [1924] 1 KB 461.103. Defined by reference to ss 327-329: Proceeds of Crime Act 2002,s 340(1 1)(a).


Is it any defence to an action by the client for breach of contract or breachof confidence (as appropriate) that it acted upon the mistaken belief that thetransactions in question were laundering transaction, when the reason for themistake was the mistaken interpretation of the Act? Apparently not. This is aharsh consequence, but one the financial institutions seem relatively contentto accept.

CONCLUSIONS

The legal conclusion to this article can be briefly stated. Notwithstandingmuch government protestation to the contrary, the criminal laundering offencesunder the Criminal Justice Act 1988 and now under the Proceeds of Crime Act2002 do not apply to the property of a person who is richer by reason of criminalfailure to pay tax. It follows that the reporting obligation imposed 'failure todisclose' offences does not apply in the case of tax evasion. To summarise thereasons:(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 theadvantage is the deferral of a debt the value of the advantage is the valueof the deferral. In most cases of the deferral of liability to taxation, becauseof the availability of penalties and interest, the value will be nil. To theextent that it is inconsistent with this (the specific question not havingbeen argued), R v Smith (David Cadman)"° was incorrectly decided.

(ii) Section 340(6) does not enable criminal property to be identified. Withoutidentification 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 personhas criminal property when otherwise he or she would not. The operationscontemplated by ss 327-329 are not capable of performance with referenceto fictitious property.

(iv) 'Criminal property' only exists where 'the alleged offender knows orsuspects that it constitutes or represents such a benefit' (s 340(3)(b)). Evenif (i)-(iii) above are incorrect very few alleged offenders who have obtainedpecuniary advantages will know or suspect that s 340(6) does operate tomake any specific property in their hands into criminal property.

(v) The reporting obligation only arises where the actor within the regulatedsector does knows or suspect etc that the client knows or suspects etc theconsequences 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) ofthe Proceeds of Crime Act 2002 is of very limited value, because it fails toprovide any means of identifying the property it describes. This leads to theposition that if a person within the regulated sector - whether the MoneyLaundering Reporting Officer or not - says 'I know it was dodgy but I thoughtit was just a tax scam' that belief - whether or not actually correct - providesa valid reason not to report.

104. [2001] UKHL 68.

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This, then, is a curious tale. A great many resources have been devoted tolegislation whose terms, if these claims are correct, do not achieve the professedobjectives. Why might it be important to secure this advantage for the financialservices 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 beconcerned, especially in the face of a moral panic such as grips us in relationto laundering, that statutes, particularly criminal statutes imposing severesentences, should not be read more widely than the words will support. It isimportant that penal statutes should be strictly construed and that if someoneis to face a serious penalty, such as 14 years' imprisonment (for laundering) orfive years' (for failing to report), then any plausible reading of the statute intheir favour should be adopted and any ambiguity in the statute should beresolved in their favour. The issues under consideration in this article go beyondthose at the penumbra of meaning of words in statutes. It is suggested in particularthat ss 76(5) and 340(6) cannot reasonably bear meanings other than thoseargued for here.

Secondly, there is the argument from cost. The impositions made by thelaundering regime upon the financial services industry, and thence of courseupon its customers, are very significant. Any further demands need to be assessedvery carefully. In particular, it is one thing to aspire towards the criminal justicesystem being paid for not out of taxes but by crime itself; it is quite another toplace the costs of the criminal justice system at the door of the financial servicesindustry. The imposition of burdens greater than those in other jurisdictions couldmake the UK fimancial services industry uncompetitive.

Thirdly, the preference accorded to the Crown on insolvency, particularlyin respect of unpaid taxes, has now been abolished."5 The preference affordedby the Proceeds of Crime Act 2002 to the state over unsecured creditors is notsomething that should be able to be used by the state to regain that preferencein 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 inwhich the Revenue and Customs have exercised their other powers, and becausethe priorities of these agencies are upon the raising of revenue and notpunishing offenders, there has been little incentive for them to use prosecutionas a means of tax collection. If that is to change, it should be after discussionand not as a result of developments in other areas.

Fifthly, there is a political agenda. NCIS and ARA, and other professionalsinvolved, have their own empires to build. One of the ways in which theEconomic Crimes Unit of NCIS, and its successor, can establish a claim uponour attention is to show the type of crime against which it is directed to beserious and to be on the increase. The law enforcement discourse of laundering,especially the FATF, already bandies around huge numbers as representingthe amount laundered. If the 'proceeds' of tax evasion is covered, then theamount of money which can be claimed to be the total 'black' and 'grey'economies of the world multiplied by the mean number of transactions perunit of currency per unit of time. The 'problem' of laundering can be presented

105. Enterprise Act 2002, s 251.


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 isimportant for the purposes of the labelling function of criminal law. If allacquisitive crime is redesignated as tax evasion, then the ability of the criminallaw to differentiate when labelling is diminished.

Seventhly, and most controversially, we should at least consider whetherthe entire crusade in respect of money laundering, however well motivated,might not be worthwhile. It might just be the case, as with Prohibition, thatproliferation of offences, powers, sentencing options and paid and unpaidofficials - Levi wrote memorably of 'an unpaid, involuntary High Street watchof pressed informants" 06 - only amplifies the 'problem'. It may not be that bada 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 Actand 2003 Regulations will, on their own terms, succeed, either by raising theamount seized by the state beyond a level that would be commensurate withthe expenditure involved, or by reducing the amount of money laundered inthe UK or in the world, or by disrupting the operation of criminal markets. Thehistory of the extension of the criminal law in general is a history of unprincipledcreeping incrementalism. The history of liberal arguments in the field of criminallaw is a history of failure. 07 Liberal arguments tend to fail because thediscourse of criminal justice concentrates too much upon individual cases.Those arguing for a different position always enter the public debate (in theway in which it is conducted in Britain at least) disadvantaged by the absenceof easily accessible, rhetorically powerful examples of criminals who shouldbe allowed to retain the proceeds of their crimes. Arguments against regulation,or for less regulation, or for less draconian laws, follow from the general costsof having such laws, and seldom (except in third-party cases) from theirapplication in particular instances. Even before the Act, money laundering lawhad already become the area in which, arguing from individual instances, blindjudicial eyes are turned to the European Convention. Over and over again judgeshave held that legislative measures which might on the face of it appear toinvolve criminal charges do not, that shifts in the burden of proof are justifiedand that laws which prejudice fair trial, or the right to property, are justifiedand proportional in the face of the evil which money laundering poses. Allthese things are serious and costly blows to any hope of establishing a humanrights culture. An overall analysis of the costs and benefits of regulation islong overdue.

106. Michael Levi 'Cleaning up the Bankers' Act: the United Kingdom Experience' inBrent Fisse et al The money trail: confiscation of proceeds of crime, money launderingand cash transaction reporting (Sydney: Law Book Company, 1992).107. And see Andrew Ashworth 'Is the criminal law a lost cause?' (2000) 166 LQR225.

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