Confiscation, mortgage fraud and a 'minus millionaire'
I have recently returned from a 7 day confiscation hearing in Middleward Crown Court. (In this comment I have changed names and locations to preserve client confidentiality.)
Ordinarily confiscation cases don't go to a full hearing - an agreement is reached by a process somewhat akin to horse-trading and a proposed order is drafted by both sides and put before the judge for his approval.
But this was not an ordinary confiscation case. Jake was a property developer who had taken some 'short cuts' along the way. One of those short cuts had involved boasting (in writing) to a mortgage company that he owned properties P and Q and was therefore the sort of person with whom they would want to do business. Partly on the strength of that they lent him £800,000 secured on a property development, S.
Had the lender carried out some simple checks they would have discovered that Jake did not own either P or Q.
That mortgage fraud, and some other dishonesties, had earned Jake a 5 year sentence which he was now serving.
In particular Jake had been told that if a property he was developing was held in the name of a company registered in an offshore tax haven, and the proceeds of sale of the development were banked overseas, no UK tax liability arose on the profits. Since the development was in the UK and the management of the offshore company was conducted by Jake (again in the UK) that was not the case.
Also it has to be said that Jake had not been too fussy about details such as accounting records and company law in relation to the various companies he owned in the UK. But he made no complaint about his 5 year sentence for his misconduct.
Following his sentence, confiscation proceedings were started. Jake was a little taken aback to hear that he was alleged to have a benefit for confiscation purposes of £16 million and that his 'available amount' was said to include not only assets held in his own name and that of his companies, but also assets held by his wife, her sister and her mother.
The prosecution case was that these family members were 'cogs in Jake's machine' and the assets held by them were Jake's assets in all but name.
In total the prosecution pointed to over 50 different properties in which Jake or members of his family had had dealings, and a large number of bank accounts in the UK and offshore.
The defence case was that Tracey (Jake's wife) and Tina (her sister) had had their own wealth from Theresa (their mother) and that the assets held in their names were not Jake's. But they had sought Jake's help and advice in making their own investments in property. Indeed some of the properties they owned had been purchased from Jake. It was also true that Jake had, on one occasion, attended an auction and made the successful bid on a property for Tracey.
In fact, when Jake was short of money for property deals Tracey would lend him some of hers (and so would Tina) so that the various monies had become rather mixed up along the way.
Because Jake had borrowed money from Tracey and Tina he would purchase property for them and then transfer the property into their name without physical payment for it, in part settlement of the money he owed.
Not surprisingly, the prosecution had viewed these transactions as deeply suspicious - believing that Jake was putting his property into the girls' names to avoid that property being subject to law enforcement action.
The first 5 days of the confiscation hearing were devoted to hearing evidence from Tracey, Tina, Theresa and Jake to the effect that the half-dozen or so properties registered in the girls' names genuinely did belong to them and not to Jake.
Once the judge had ruled that Jake had no interest in those properties the court needed to address the remaining 45 or so properties to determine their value and the 'benefit' attributable to Jake in the confiscation proceedings. By common consent the two sides went into discussions outside the courtroom to see if agreement could be reached on that.
Meanwhile the judge dealt with another confiscation hearing related to Joe, Jake's brother, who had been convicted of (largely) unrelated criminal offences.
After a couple of days of negotiation the two sides had reached no agreement and invited the judge to schedule a further 10 days in court to hear further evidence.
The judge invited the parties to try harder to reach agreement and agreed to 'work late' to facilitate that.
Myself and the prosecution's financial investigator were sat at a desk throwing numbers at each other - with a view to some agreement being reached.
Suffice to say that at 6:15p.m. on day 7 the judge was able to rule with the consent of both sides that Jake's 'benefit' was £2 million, which included £800,000 for the mortgage fraud, £200,000 as an estimate of tax evaded, plus other mortgage advances obtained on the basis of false information and an amount representing profits derived from the use of monies obtained by misconduct. This figure was, of course, substantially less than the £16 million initially contended by the prosecution. The judge also ruled by consent that Jake's 'available amount' was just over £1 million, that is the gross value of the properties he owns, less the mortgages secured on them, plus the value of all his other assets.
That means that Jake has to cough up £1 million to the Crown to settle the matter for now, and that at any time in future the prosecution can come back to Court to request that he be ordered to pay over the second million if by then he has it.
That makes Jake a 'minus millionaire'.
Jake may feel that in some respects he is paying for a 'victimless crime' since the mortgage lenders are likely to get their money back in full when the properties on which they are secured are sold. But that's how confiscation works!
Jake won't be boasting to any mortgage lenders again and, whilst in prison, he has himself become something of an expert on confiscation law and practice - and an informal adviser to other prisoners.