Piercing or lifting the veil of incorporation

I have written a new blog post dealing with the lifting or piercing of the veil of incorporation in confiscation cases.  As I say in the introductory paragraph of the article:

"Too often prosecutors do not appear to understand the issues surrounding lifting or piercing the veil of incorporation in confiscation cases. Some will treat a limited company as entirely separate from the defendant and therefore untouchable and of no relevance to the confiscation proceedings. Whilst others will ignore the fact of incorporation and treat all income and assets of a limited company as automatically those of the defendant, whatever the circumstances. Neither approach is correct."

The article then goes on to consider when, for example, monies received and banked by the company can be regarded for confiscation purposes as having been obtained by the defendant personally - and when they cannot.

The article can be found on my website HERE.

I am bound to say that some prosecutors seem to suffer similar difficulties in dealing with husbands and wives.  I have seen cases in which, say, the husband has been convicted of an offence and the prosecutor has cheerfully applied the 'criminal lifestyle' assumptions to deposits in bank accounts held in the sole name of the wife!

But I shouldn't grumble - it keeps me in work!

David

Comments
stepurhan's picture

Hypothetical

stepurhan | | Permalink

An interesting article as always.

I have a curious hypothetical question. You gave an example of a drug-dealer who ran a separate legitimate manufacturing company. Presumably the veil of incorporation could be lifted if this otherwise legitimate company was also used to launder the proceeds of drug-dealing. What about if the results of the company were inflated? Possibly the criminal in question would do this to obtain finance or to create the impression of a legitimate income that would support his lifestyle. These would both be criminal acts but would be separate from the drug-dealing. Presumably this means that they would have to be prosecuted separately to lift the veil of incorporation.

davidwinch's picture

Burden of proof

davidwinch | | Permalink

Stephen

Of course anyone facing confiscation proceedings needs advice from a lawyer (which I am not).

But my own thinking (for what it's worth) is that in the case you suggest a convicted drug dealer would be subject to confiscation on the basis of a 'criminal lifestyle' (s75 & Sch 2 PoCA 2002).  It follows that any money or asset transferred to him since the 'relevant day' will be assumed to be a benefit of criminal conduct (s10(2)).

But the burden rests on the prosecution to establish the money or assets transferred to him (R v Whittington [2009] EWCA Crim 1641 at para [13]).

Money banked in a company account would appear (in the absence of evidence to the contrary) to be transferred to the company and not to the defendant.

So my question would be - What evidence do the prosecution produce to show that either (i) the money has actually been transferred to the defendant or, in the alternative (ii) that although the money was transferred to the company the veil of incorporation should be pierced so that the money should be treated as having been transferred to the defendant?

If the prosecutor asserts that the company is engaged in money laundering (which has not been the subject of a criminal prosecution of either the drug dealer or the company) then - in my view at least - the prosecutor is obliged to produce evidence to the court which proves this to the criminal standard.

Once that is proved (but not before) I would agree with your comment "presumably the veil of incorporation could be lifted".

Your alternative hypothetical situation is that the profits of the company have been inflated.  Suppose the defendant's company accounts show he genuinely has an income from the company of £20,000.  Suppose the defendant has obtained a mortgage on the basis of dishonestly stating his income from the company is £100,000.  I would see that as a basis for a mortgage fraud offence by the defendant.  But I would not regard it as involving any dishonesty or impropriety connected with the transactions or activities of the company.  Accordingly, in my view at least, it would not be a basis on which the veil of incorporation of the company could be lifted in confiscation proceedings against the defendant.

So I would say that, even if the defendant had been prosecuted and convicted of the mortgage fraud, there would be no basis upon which to lift the corporate veil in confiscation proceedings against him.

Of course a prosecutor, lawyer - or judge - might take a different view!

Another hypothetical possibility is that the defendant's income from the company is genuinely £20,000 but that he produces a false set of company accounts showing higher profits in the company and that the company has paid him £100,000.  He then dishonestly obtains a mortgage using those accounts. That would be an offence (perhaps fraud by false representation or false accounting).  If the prosecutor were able to prove that to the criminal standard to the satisfaction of the court then I think he would be in a much stronger position to pierce the corporate veil.

Note that proving an offence to the criminal standard to the court does not necessarily involve prosecution for that offence - see R v Briggs-Price [2009] UKHL 19 at paragraphs [3] and [9] to [14].

David

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