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Criminal Conduct and Business Activity: where do you draw the line?

Two decisions in the Court of Appeal recently, handed down within a day of one another, analyse the issue of the derivation of criminal benefit through commercial activity and are of particular interest in a regulatory sense. This has been a hot topic recently with the Crown and local authorities seemingly determined to use the Proceeds of Crime Act 2002 wherever the opportunity may arise. The issues in the cases are not the same and we examine both judgments below, but both decisions really go to the extent to which the Crown can assert that personal criminal benefit can be derived from ‘legitimate’ business activity. Unusually, both cases were in fact appeals by the Crown under section 31 Proceeds of Crime Act 2002 (and both featured Kennedy Talbot QC for the Crown). They produced different results.

The cases

The first decision was R v Powell & Westwood [2016] EWCA 1043. The defendants were directors and shareholders of a waste management company in Wales and had pleaded guilty, on different bases, to environmental offences which arose out of breaches of licences to compost waste predominantly on the basis that the sites had been neglected. There was a cost to clearing up the site of £1.25m which was paid out of the public purse. Both had got suspended prison sentences and confiscation and compensation orders were made against them. The confiscation orders were made in the sums that amounted to their entire personal benefit. The Crown had sought to recover the cost of the clean-up operation by asserting that the court should 'pierce the corporate veil' and that because the company had avoided the clean up cost (it was wound up) it had obtained a pecuniary advantage which ought actually to be treated as the defendant’s personal benefit. The Judge at first instance rejected this argument on his interpretation of the judgment in Prest v Petrodel Resources Ltd [2013] 3 WLR 1 (the leading Supreme Court authority on the circumstances in which a court should 'pierce the corporate veil'). The Court of Appeal dismissed the appeal by the prosecution specifically approving the rule in Boyle Transport that regard must be had to the nature and extent of the criminality involved. There was 'a clear distinction to be drawn between cases in which goods and services are provided by way of a lawful contract but the contract is tainted by associated illegality, and cases in which the entire undertaking is unlawful". In this case the company was perfectly legitimate. It had been founded in 2002 and had provided a valuable service for many years. Mrs Powell had made substantial personal investment and the defendants were not the sole shareholders. Accordingly, there was no basis to the pierce the corporate veil and increase the confiscation orders to include any (so called) benefit proscribed to the company.

In the second case R v Palmer [2016] EWCA 1049, Mr Palmer was not so fortunate although it is difficult to reconcile this decision with that above and also recent authorities on this issue. He had a security business called Lock Up Security Ltd and had been convicted of undertaking some activities for which he required a licence for almost exactly two years. He had been given a suspended prison sentence and following McDowell and Singh [2015] EWCA 173 the Judge had refused to make a confiscation order on the basis the conduct was not criminal conduct per se (but only became criminal by virtue of the failure to hold the licence). The prosecution appealed on the basis that the facts in the case were analogous to those in McDowell (who was an unlicensed arms trader) as opposed to Singh who was an unlicensed scrap metal dealer. The Court allowed the appeal on the basis of a narrow (almost to the point of vanishing) distinction between Singh and this case (whether the statute criminalises the conduct or not as opposed to whether the conduct is illegal per se). It went on to say "we see no reason in principle why it should make a difference whether an activity is unlawful by reason of a statutory prohibition except in a case of persons who have been granted a licence (on the one hand), or whether an activity which is otherwise lawful is prohibited by statute unless one has a licence (on the other). The result is the same: the activity is prohibited and the conduct is therefore 'criminal conduct'.

Conclusion and comment

It has to be said that Palmer is a regressive decision. It had been hoped that the Court of Appeal had made some progress in recent years by adopting a more sensible (and consistent) approach to the interpretation of this legislation. The decision in the former case makes perfect sense. The directors of the waste management company have been punished and to simply attempt to render them personally liable for the neglect of the company through means that are stretching the boundaries of 'criminal conduct' and frankly the purpose of the legislation which is to confiscate from criminals the value of their criminality. Palmer is not a criminal but rather an individual who has failed in a regulatory sense for which he has been punished. This kind of decision leaves the legislation open to exploitation by pernicious prosecuting authorities seeking to recoup income in a frankly artificial and unfair way.

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Articles are intended as an introduction to the topic and do not constitute legal advice.