Operation Rize, the Metropolitan Police’s Economic and Specialist Crime Command’s raid on three safe depositaries on 2-3 June 2008, has resulted in over 6,700 safety deposit boxes being opened and searched. Over 3,600 boxes yielded a haul of items that included fraudulent passports, credit cards and cheque books, drugs, gold, works of art and jewellery, as well as documentation relating to fraudulent activities.
Operation Rize used a ‘Search and Seizure’ Warrant obtained under Section 352 of the Proceeds of Crime Act 2002 (POCA), which appears to have been granted on the grounds that the safe depositaries were suspected of being used by criminals to hide their ill-gotten gains. Whilst the Police’s suspicions appear to have been well founded (judging by some of the items seized), there is real concern that the Police were able to obtain a warrant that allowed them to search each and every box. Indeed, on 22 August 2008, the Police announced that the contents of over 900 boxes had been restored to their owners, meaning that its enquiries had determined that these boxes, at the very least, have been used for legitimate purposes.
It was also reported that Operation Rize led to in excess of £53m in used banknotes being removed and seized under Section 294 of the POCA, on the basis that there were reasonable grounds for suspecting that the cash was derived from, or to be used in, unlawful conduct. The Police have since obtained an order for the continued detention of the seized cash pending their investigation of its origin, and it is believed that these investigations will ultimately result in a significant amount of cash being forfeited by the Courts.
Cash seizure and forfeiture under POCA is a civil process, and the burden on the Police to make good their assertion that seized cash was derived from, or to be used in, unlawful conduct is therefore to the civil standard – on a balance of probabilities. At any time during the continued detention of the cash, which can be up to two years, the Police can apply for forfeiture or return of the cash. However, for those individuals that have had their cash seized, recent decisions by the Courts on this subject appear to have reduced the amount of evidence required by law enforcement bodies to prove, on a balance of probabilities, that unlawful conduct has occurred.
The Police have a wide variety of powers when carrying investigations into seized cash, which could include considering the person(s) from whom the cash was seized as a suspect, leading to their arrest and subsequent interview under caution. This could result in safety deposit box holders finding themselves defending an unlawful conduct assertion during civil cash seizure proceedings that are taking place alongside a criminal investigation, or in advance of a criminal trial. However, the Court of Appeal has expressed its concern about this potential unfairness and the Police will have to proceed carefully.
At anytime during the continued detention of the cash, the person(s) from whom the cash was seized (or any interested party) can apply for early release of the cash. This application would involve the Court being persuaded that, on the balance of probabilities, the cash was not obtained from unlawful conduct due to it being derived from either non-taxable sources (such as gambling winnings, inheritances and other windfalls) or from taxable sources that have been declared to HM Revenue & Customs (HMRC). Indeed, the cash could even have been derived legitimately from businesses that were not yet under a statutory obligation to file tax returns or financial accounts. Clearly, where a safety deposit box holder contends that a box’s contents are legitimately owned, and are not the proceeds of unlawful conduct or criminal activities, then specialist advice should be sought to assist in challenging the assertions being made by the Police and/or HMRC.
A number of questions arise where the contents of a safety deposit box is suspected of having being derived from assets or income that haven’t been declared to HMRC, rather than any wider criminality. For example, will the Police apply for forfeiture in cases where HMRC considers that income tax has been under-declared and where, all or part of, the seized cash may represent unpaid tax? In the more serious cases, will the Police or HMRC lead a criminal investigation? Are POCA money laundering charges being considered whereby the seized cash will be alleged to be criminal property arising from tax evasion? And finally, where the person(s) from whom the cash was seized is a company director will they face accusations of diverting or stealing company funds?
It is reported that senior figures in the Revenue & Customs Prosecution Office, HMRC Criminal Investigations Directorate and HMRC’s National Taxes Special Civil Investigations Office are keeping a watchful eye on developments in Operation Rize – for obvious reasons ! At the same time, the Police are understood to be liaising with HMRC to establish if the known assets and income have been declared by safety deposit box holders, and HMRC is likely to check its own compliance records to establish if the holders have previously been subject of a tax investigation and, if so, whether the contents of the box have been disclosed on any certified statements of assets or tax returns.
Through the use of POCA powers, Operation Rize will undoubtedly lead to individuals facing the unwarranted attention of the Police and HMRC, despite them not having committed the criminality that Parliament intended POCA to combat. There is also concern amongst other safe depositary providers that they may have unknowingly allowed their facilities to be used to hide the proceeds of illegal activity, which could result in similar Police operations against safe depositaries.
Our advice is that any person with tax issues associated to a safety deposit box should be seriously considering seeking professional advice with a view to making a "voluntary" disclosure to HMRC. It is extremely important, however, to manage the disclosure process in such a way as to minimise the risk of potential prosecution or greater financial penalties.
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