Freiberg, Arie --- "Confiscating the profits" [1998] ALRCRefJl 33; (1998) 73 Australian Law Reform Commission Reform Journal 67

• Reform Issue 73 Spring 1998

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Reform Issue 73 Spring 1998

This article appeared on pages 67 – 70 of the original journal.

Confiscating the profits

By Professor Arie Freiberg*

Legislation to confiscate the proceeds of crime is now a standard feature of the modern crime-fighter’s armoury. Over the past two decades, a number of countries - including the United States, Australia, Canada, New Zealand and the United Kingdom - have introduced, amended, adjusted, reviewed, reinforced, enhanced and, in some cases, repealed and then re-legislated schemes to combat a range of serious crimes. A few have even attempted to evaluate the effectiveness of such laws.

If nothing else, confiscation laws are extraordinarily complex.

Sophisticated crimes evoke elaborate legal responses. However, unsuccessful responses tend to generate harsher laws in the expectation or hope that they will be more effective. The history of confiscation legislation to date has been that of a continuing and unresolved tension between those who seek to create and enforce effective, efficient forfeiture laws on the one hand, and those who accept that organised crime and drug crime must be dealt with, but not at the cost of stripping alleged offenders of their rights of due process, on the other.

The conflict is between what have been termed the ‘crime control’ and ‘due process’ models of the criminal justice system.¹ There are still others who argue that no laws, however harsh, can effectively deal with entrenched social and medical problems such as those associated with drug addiction.

Controversies over confiscation and forfeiture laws centre on a number of key issues, some of which are outlined in the Australian Law Reform Commission’s introductory pamphlet to the proceeds of crime inquiry. Recently, the Financial Action Task Force on Money Laundering (FATF), a body associated with the Organisation for Economic Co-operation and Development (OECD), surveyed its 26 members² in relation to their laws and systems dealing with asset confiscation and provisional measures. Similarly, the Max Planck Institute for Foreign and International Criminal Law in Germany conducted a comparative study of the laws of 10 European countries as well as the United States.³ Both studies found that almost all countries surveyed had introduced specific legislation dealing with the proceeds of crime. In many cases this was in addition to older, more general, provisions relating to the proceeds or instrumentalities of crime. Generally, the laws dealt with drug offences and organised crime.

Conviction-based?

It appears there are several core issues facing legislators. The first of these is whether or not a conviction should be a prerequisite to the operation of the confiscation provisions.

In most jurisdictions, the confiscation provisions were generally considered to be part of the criminal law. Thus a confiscation order can be made only after a conviction has been recorded, although the term ‘conviction’ can be extended by legislation to include ‘deemed convictions’. Deemed convictions are where there has been a finding of guilt, but no conviction recorded, or where the offender has absconded, but there is sufficient evidence that an offence has been committed.

By contrast, in Australia, the Customs Act 1901 (Cth), the Criminal Assets Recovery Act 1990 (NSW) and, most recently, the Confiscation Act 1997 (Vic), permit confiscation through the courts in the absence of a conviction.

Non-judicial, civil or administrative forfeitures can take place in a number of jurisdictions. In the US, there are more than 100 federal statutes which authorise civil forfeiture, but the most widely applied are those provisions which relate to drug trafficking, money laundering and organised crime.

The FATF survey revealed that 17 jurisdictions required a conviction as a prerequisite, seven allowed confiscation without conviction and two had provisions for both types of confiscation regime. The development of hybrid forms of legal action, mixing criminal and administrative proceedings to deal with exceptional circumstances, has been noted in jurisdictions such as Italy, where special measures have been introduced to deal with organised criminal groups, in particular, the Mafia.

What sort of offences

Should confiscation laws be triggered by all offences, serious offences or a limited number of specified offences? Where specific confiscation statutes have been introduced in addition to any general laws relating to forfeiture of goods or property, they have tended to be confined to more serious offences, though some are limited to drug offences or to organised crime and money laundering. However, the appeal of confiscation legislation is such that legislatures are often tempted to expand the range of predicate offences to include, for example, all indictable offences, or a wide range of offences, subject to minimum financial or property value thresholds.

Almost all FATF respondents premised their legislation on conviction or commission of a serious crime, with some introducing special laws in relation to drug offences.

Standard of proof

In those European countries where confiscation proceedings are an integral part of the criminal process, the standard of proof required of the prosecution to link the offence with the proceeds of crime is the criminal standard of proof. However, common law jurisdictions regard confiscation proceedings as related to, but separate from, the criminal process and have categorised them as civil proceedings. The prosecution case, therefore, only requires proof on the balance of probabilities.

Sixteen of the FATF countries applied the criminal standard of proof, six allowed proof on the civil standard and three had provision for both standards, depending upon the nature of the proceedings.

Burden of proof

Another consideration for legislators is whether the burden of proof should be reversed, so that the defendant has the onus of proving that property was legitimately obtained.

Difficulties in proving which assets of a defendant are the proceeds of crime and which are not have led a number of governments to place the burden of proof upon defendants in certain circumstances to show that some or all of their assets are not derived from their criminal activity. Most Australian jurisdictions have laws to this effect, as does the United Kingdom. Federal law in Australia goes further. In relation to offences classed as serious, a presumption of illegal derivation of benefit attaches to all the property of a person at the time an application is made. The presumption also applies to all the property in control of a person from the time of the offence to the date on which the application is made, or under the control of the person for a period of up to five years prior to the date of application. Automatic forfeiture of property is also permitted in relation to certain property held under restraint, unless the person can prove that the property is not tainted, that is, illegally derived.

Third parties

Should property owned by persons who are not defendants to the proceedings be confiscated? To what extent? Property which has been used in the commission of an offence may be subject to forfeiture. However, that property may belong to a person other than the offender. The property owner may not have participated in the commission of the offence or possibly not even have any knowledge that the offence was committed. Other parties, such as corporations, may have an interest in property owned by the offender, such as a mortgage or a charge over the property. When that property is forfeited, their interest in the property may also be lost.

Similarly, property which is directly or indirectly derived from criminal activity may be passed onto a third party as a gift or as a means of avoiding the detection or tracing of that property.

In either case, the question arises as to what protections, if any, should be afforded to innocent, or bona fide third parties. In many jurisdictions third parties have the right to be notified of the loss, or possible loss of their interest, and to apply for its return, or its monetary equivalent.

Legal expenses

Worldwide, legislatures and courts are faced with a dilemma over the funding of legal expenses. On the one hand it is argued that to allow a defendant to use restrained funds for legal expenses is to give that person funds to which he or she may ultimately have no legal or moral right. The argument runs that since the tainted assets, or allegedly tainted assets, do not belong to the defendant, the defendant has no right to use them for any purpose, including possibly expensive legal counsel. On the other hand, it is argued that although criminals are not entitled to enjoy undeserved economic power, until that criminality is established it is premature to say that they should be stripped of all economic power. Experience has shown that some defendants given unlimited access to frozen funds have consumed them in pursuit of frivolous or unmeritorious actions or defences.

Strategies employed in various countries to resolve this dilemma include limiting the amount or level of lawyers’ fees, requiring defendants to use their own assets in preference to restrained assets and forcing offenders with no funds other than the restrained assets to apply for legal aid.

Confiscation laws have been justified on a variety of grounds. Their principal aims are to deprive offenders of the proceeds or benefits of crime and to deprive them of property used in the commission of offences. These are based on two philosophical grounds. The first, and most understandable, is to prevent offenders from unjustly enriching themselves. In other words, crime should not pay. The second, and more practical, is that by depriving offenders of the proceeds of crime and the means of committing offences, they will be unable to commit further offences. That being done, it is intended that others will be deterred from engaging in criminal activity.

To date, very few empirical studies have been carried out in relation to the effectiveness of the confiscation laws. A 1993 study carried out by a Working Party on behalf of the National Crime Authority⁴ was inconclusive in relation to the operation of the legislation, as it was then relatively new in most jurisdictions. At that stage it found that more than 500 offenders had been subject to confiscation orders. They had been ordered to forfeit property worth $12 million or pay penalties of $31 million. Not all of these amounts were realised. The Working Group noted, however, that the criminal economy was very large, estimated at between $1 billion and $2.6 billion,⁵ and that it was unlikely that the legislation would have a major impact upon the capital base of crime. However, it did recommend that a more comprehensive assessment of the legislation be undertaken over the next five years and that agencies keep relevant data in order to facilitate such an assessment.⁶

In England, Michael Levi has also found that confiscation orders constitute only a small proportion of the estimated proceeds of crime and even less is actually recovered.⁷ He suggests that the value of asset removal strategies such as confiscation laws is questionable and likely to have little effect on criminal organisations.

The United States has been the most successful jurisdiction in terms of applying forfeiture laws at both state and federal level. In 1994, it is estimated that the Customs Service seized property valued at more than $US500 million, while the Drug Enforcement Administration seized assets valued at nearly $US650 million.⁸ Over $US695 million was deposited in federal asset funds as a result of asset forfeiture, 90 per cent of which arose from civil or administrative (ie non-conviction) actions.⁹

Though impressive in scale, the empirical question of the extent to which these actions have decreased, or inhibited, drug trafficking, organised crime and money laundering remains unanswered.

Clearly, confiscation laws have a sound moral basis, but more is expected of them than the warm inner glow of justice. Confiscation laws are needed, but not at any price. If we are to extend their provisions to allow for forfeiture without conviction, to reverse the onus of proof and to affect innocent third parties, the onus lies upon governments to prove not only that offenders will not unjustly enrich themselves, but that the criminal activities against which such laws are directed will be significantly diminished by these further, and potentially oppressive measures.

* Arie Freiberg is a Professor of Criminology and Head of the Department of Criminology at the University of Melbourne. He is also an honorary consultant on the Commission’s proceeds of crime reference.

Endnotes

1. Tonry M. (1997) ‘Forfeiture Laws, Practices and Controversies in the US’ 5 European Journal of Crime, Criminal Law and Criminal Justice 294.

2. Financial Action Task Force on Money Laundering, Evaluation of Laws and Systems in FATF Members Dealing with Asset Confiscation and Provisional Measures, (http://www.oecd.org//fatf/reports.htm).

3. Kilchling M. ‘Comparative Perspectives on Forfeiture Legislation in Europe and the United States’ 5 European Journal of Crime, Criminal Law and Criminal Justice 342.

4. National Crime Authority, Proceeds of Crime Conference, Sydney 18-20 June 1993, Canberra, AGPS 1995.

5. Ibid, p. 93.

6. Ibid, p. 101.

7. Levi M. (1997) ‘Taking the Profit Out of Crime: the UK Experience’ 5 European Journal of Crime, Criminal Law and Criminal Justice 228.

8. Tonry, M. 1997.

9. Ibid, p. 301.