1. The Northern Ireland Human Rights Commission welcomes the opportunity provided to it by the Northern Ireland Assembly's Ad Hoc Committee to comment on the draft Proceeds of Crime Bill. As the Bill is a complicated document, as it is incomplete in many areas, and as the Commission has not yet had the opportunity to debate fully the implications of the Bill, this document is tendered as an initial submission on the Bill. It is likely that the Human Rights Commission will refine its comments in time for submitting them to the Northern Ireland Office prior to 29 May 2001.

2. The Human Rights Commission commends the Home Office for making the Bill available for consultation in advance of its introduction in Parliament. We believe that this way of proceeding with legislation should be the norm rather than the exception. We believe, for example, that the Northern Ireland Office should proceed in this fashion when bringing forward legislation to implement the recommendations of the Criminal Justice Review published in March 2000.

3. The Human Rights Commission recognises that society is obviously entitled to take measures to protect itself against crime and to punish criminals. We accept, moreover, that when convicted criminals are able to benefit financially from their crimes even after they have been convicted and sentenced in relation to them, this is offensive to public morality and damaging to public confidence in the rule of law. It is also offensive when persons who have not been convicted and sentenced in relation to crimes nevertheless appear to be benefiting from them.

4. The Commission acknowledges that new thinking is required in order to deal with the problem of unrecovered proceeds of crime. Existing measures do not seem to have been effective and there appears to be evidence that the size of the unrecovered sums is both large and growing (research conducted by the Home Office estimated that in 1995 the value of criminal proceeds available to be confiscated was £650 million). In particular the Commission recognises that traditional legal thinking, such as the distinction between criminal justice and civil justice, may need to be altered in order to allow the legal system to cope with changing conditions in society. The fact that "penalties" can now be imposed for minor traffic offences without the need for court proceedings to take place is one example of such innovative thinking in recent years.

5. The Human Rights Commission is nevertheless firmly committed to the adoption and application throughout Northern Ireland of internationally accepted rules and principles for the protection of human rights. Many of these standards do not yet form part of the binding domestic law of Northern Ireland, although the Commission urges law enforcers and judges to refer to and use them when at all possible. But one set of standards - those contained in the European Convention on Human Rights and Fundamental Freedoms (1950) - does now form part of binding domestic law throughout the United Kingdom as a result of the entry into force in October 2000 of the Human Rights Act 1998. As of then, no existing or proposed law in any part of the United Kingdom can be incompatible with the European Convention unless Parliament expressly decides that it wishes so to proceed. Even if Parliament does so proceed, a successful challenge to that decision could be mounted before the European Court of Human Rights in Strasbourg.

6. In examining the draft Proceeds of Crime Bill the Human Rights Commission has therefore paid particular attention to the requirements of the European Convention on Human Rights. Although the United Kingdom Government is prepared to declare that the Bill complies with those requirements (see page 6 of the consultation document, at para. 16), this Commission cannot be so confident. Our concerns relate to four particular provisions in the European Convention - Articles 6, 7 and 8, and Article 1 of Protocol 1 (see Annex A to this submission). For ease of reference, these provisions are reproduced in an Annex to this submission.

7. Article 6(2) of the European Convention says that "Everyone charged with a criminal offence shall be presumed innocent until proved guilty according to law". In English and Northern Irish law this right is already enshrined in the basic common law principles that when a person is charged with a criminal offence the burden of proving that person's guilt rests with the prosecuting authorities and the standard of proof to be attained is "proof beyond all reasonable doubt". It is not up to the person charged to prove his or her innocence. The draft Proceeds of Crime Bill targets persons who have been convicted of one or more crimes and also persons who have not been so convicted. As far as Northern Ireland is concerned, the former are dealt with by Part IV of the Bill (clauses 154 to 238), but the Bill does not yet contain provisions dealing with the latter. However at page 5 of the consultation document (para. 11), and again on page 226 (para. 5.2) we are told that Part V of the Bill (civil recovery in England and Wales) will in due course be adapted to apply in Northern Ireland.

8. Persons already convicted: (pages 167 to 176 of the consultation document contain the explanatory notes to the clauses in question here, namely clauses 154 to 238 - Part IV of the Bill):

Here the Bill further distinguishes between persons who have a criminal lifestyle and those who do not. The former can lose the benefits gained from their "general criminal conduct" while the latter can lose only the benefits gained from their "particular criminal conduct" (see clause 154(4)). "Criminal lifestyle" is defined in clause 220 (in identical terms to those used for England and Wales in clause 72), but in very woolly terms. The definition would seem to allow a one-off offender to be labelled as having a criminal lifestyle - e.g. if he or she has conspired for a period of six months or more.

Once a person has been designated as having a criminal lifestyle the court must make four assumptions when deciding whether and to what extent he or she has benefited from such general criminal conduct. These assumptions are set out in clauses 159(2) to 159(5). They are extremely wide-ranging. For example, if Mr Smith were convicted today in proceedings which started on 1 September 2000, then it is to be assumed that all the property he has received since 1 September 1994 is the result of his general criminal conduct. Moreover it is also to be assumed that all the money he has spent since 1 September 1994 was money obtained as a result of his general criminal conduct. The burden of showing that these assumptions are incorrect in his particular case would lie on Mr Smith. He would have to be able to show - on the balance of probabilities - the source of all the property he has received, and of all the money he has spent, since 1 September 1994.

As mentioned on page 29 of the consultation document (para. 2.6), the Privy Council has recently upheld similar provisions in Scottish law as being compatible with the European Convention (the McIntosh case), but another case (Phillips v UK) is pending before the European Court of Human Rights. In the opinion of the Northern Ireland Human Rights Commission it is quite possible that the European Court of Human Rights will decide that such provisions - being so draconian because they reach back six years and extend to all property received and to all expenditure during that period- are in breach of Article 6(2) of the European Convention.

9. Persons not yet convicted: (pages 226 to 249 of the consultation document contains the explanatory notes to the clauses in question here, namely clauses 239 to 271 - Part V of the Bill):

Part V of the Bill contains provisions allowing the Director of the new Criminal Assets Recovery Agency to sue individuals in the High Court for the recovery of property obtained through criminal conduct. At present this Part applies only to England and Wales but the consultation document makes it clear that in due course it will be adapted for the law of Northern Ireland also (see page 5 at para. 11 and page 226 at para. 5.2).

The United Kingdom Government describes these provisions as being civil in nature, even though they deal with property acquired through criminal conduct and even though (presumably) persons can eventually be imprisoned if they do not comply with the High Court's order. This does not mean, however, that they will be so considered under the European Convention on Human Rights. Article 6 of that Convention confers greater rights on persons in criminal proceedings than it does on persons in civil proceedings and the European Court of Human Rights applies its own autonomous definition of what amounts to "criminal" proceedings. It has held, for example, that proceedings for tax evasion leading to large financial penalties are criminal in nature (Bendenoun v France (1994) 18 EHRR 54). One of the leading textbooks on the European Convention points out that "[i]f a domestic court has the power to impose imprisonment, this will generally be sufficient to define the proceedings as 'criminal'" (Lester and Pannick, Human Rights Law and Practice, 1999, para. 4.6.13). Proceedings whereby a person may be bound over to be of good behaviour are also criminal in nature (Hashman and Harrap v UK, 2000).

If these civil recovery proceedings are in fact labelled as criminal under the European Convention then the features of the proceedings mentioned in the consultation document as meeting the Government's objectives (page 227 at para. 5.8) may nevertheless be held to be in breach of the Convention. Thus:

• the admission of hearsay evidence may contravene Article 6 (3)(d);
• the admission of evidence obtained from the respondent as a result of compulsion may be a breach of Article 6(2);
• the use of a civil standard of proof rather than a criminal standard may contravene Article 6 (2); and
• the retrospective application of the provisions may be a breach of Article 7(1).

10. The consultation document itself acknowledges that the statutory provisions in the draft Bill are incomplete in this field. It is not therefore possible for the Human Rights Commission to comment on the human rights implications of these in detail at this stage. However the following points should be noted:

(a) There is to be a "gateway" provision allowing the Director of the new Agency to access information held by existing law enforcement agencies (page 229 at para. 5.16 and page 230 at para. 5.24). There may be data protection dimensions to this, which could raise the possibility of a breach of Article 8 of the European Convention.

(b) It is unclear from the consultation document on what criteria decisions will be taken by the Director of Public Prosecutions and by the Director of the Criminal Assets Recovery Bureau as to whether to proceed in any particular case by way of criminal prosecution or by way of civil recovery. Unless clear guidelines for making such decisions are drawn up and applied, there could be inequality of treatment under the law in this context. That would breach provisions on equality in United Nations' treaties on human rights.

(c) The Bill is to be amended so as to allow the High Court to draw inferences from the failure of a respondent to provide evidence of the legitimate origins of property (pages 230-231 at para. 5.25). While the use of assumptions in this field may not be as serious as in the "purely" criminal field discussed above (see para. 8 of this submission), they could still give rise to arguments that the respondent's right to a fair trial is being breached.

(d) As with confiscation orders in criminal cases, there is the danger that persons who have no connection with the alleged criminal conduct in question (e.g. dependants of those involved) will be sued by the state for civil recovery of property. Under Article 1 of Protocol 1 to the European Convention, however, there is a right to the peaceful enjoyment of one's possessions. While Article 1 itself allows this right to be compromised in the "public" interest or in the "general" interest, and subjected to conditions provided for by law, it remains questionable whether the very extensive powers of recovery granted by this draft Bill are wholly compatible with this European provision. At page 231 of the consultation document (para. 5.30), the United Kingdsom Government acknowledges that it needs to consider further whether the provisions in the Bill provide sufficient protection for third parties. The Human Rights Commission is of the view that additional protections are required.

(e) The Bill does not yet contain any provision guarding against the use in subsequent criminal proceedings of information obtained from a respondent by compulsion (see page 232 at para. 5.31). This is a crucial matter if a breach of Article 6(2) of the European Convention is to be avoided.

(1) In the determination of his civil rights and obligations or of any criminal charge against him, everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law. Judgment shall be pronounced publicly but the press and public may be excluded from all or part of the trial in the interests of morals, public order or national security in a democratic society, where the interests of juveniles or the protection of the private life of the parties so require, or to the extent strictly necessary in the opinion of the court in special circumstances where publicity would prejudice the interests of justice.

(2) Everyone charged with a criminal offence shall be presumed innocent until proved guilty according to law.

(3) Everyone charged with a criminal offence has the following minimum rights:

(a) to be informed promptly, in a language which he understands and in detail, of the nature and cause of the accusation against him;

(b) to have adequate time and facilities for the preparation of his defence;

(c) to defend himself in person or through legal assistance of his own choosing or, if he has not sufficient means to pay for legal assistance, to be given it free when the interests of justice so require;

(d) to examine or have examined witnesses against him and to obtain the attendance and examination of witnesses on his behalf under the same conditions as witnesses against him;

(e) to have the free assistance of an interpreter if he cannot understand or speak the language used in court.

(1) No one shall be held guilty of any criminal offence on account of any act or omission which did not constitute a criminal offence under national or international law at the time when it was committed. Nor shall a heavier penalty be imposed than the one that was applicable at the time the criminal offence was committed.

(2) This article shall not prejudice the trial and punishment of any person for any act or omission which, at the time when it was committed, was criminal according to the general principles of law recognised by civilised nations.

(1) Everyone has the right to respect for his private and family life, his home and his correspondence.

(2) There shall be no interference by a public authority with the exercise of this right except such as is in accordance with the law and is necessary in a democratic society in the interests of national security, public safety or the economic well-being of the country, for the prevention of disorder or crime, for the protection of health or morals, or for the protection of the rights and freedoms of others.

Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.

The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.

1. The proposals in the Proceeds of Crime draft legislation essentially provide two discrete elements that are both intended to assist investigations where the intention is to prevent criminals profiting from their unlawful activities.

2. Firstly, the Bill will update, strengthen and consolidate in one Act legislation which currently exists in the various jurisdictions of the UK in respect of investigations into money laundering offences and confiscation. The proposed legislation will fully reflect the differences in the law between Northern Ireland and Wales.

3. Secondly, and perhaps more significantly, the Bill will establish, for the first time in the UK, a mechanism to recover criminal profits without the necessity of prosecution. A Criminal Assets Recovery Agency is being created and this will have executive responsibility in England, Wales and Northern Ireland for the recovery of criminal assets using a range of investigatory powers. It will be able to pursue criminal assets through confiscation of the assets of convicted criminals, or recovery of assets through civil proceedings, or taxation of persons suspected of having benefited from crime. It will be for the Director of the Agency to decide which route to pursue, depending on the circumstances of the case.

4. A Director of the Agency will be appointed by the Home Secretary and a senior member of his staff will have responsibility for Northern Ireland. The precise structure and make-up of the Agency is not known at this time.

5. Proceeds of Crime investigations are well established in Northern Ireland. RUC Financial Investigation Officers are regularly tasked to investigate the financial background of individuals who are under investigation for offences of an acquisitive nature. This is done with a view to making an application to the court for a Confiscation Order subsequent to conviction and it is important to remember that, at present, confiscation can only occur following conviction.

6. The proposed legislation will not dramatically affect the way police conduct financial investigations in cases where evidence exists to prove the case to the criminal standard. In such circumstances it is anticipated that the Director of Public Prosecutions will continue to be the conduit for confiscation applications.

7. The RUC acknowledges that a substantial number of criminals enjoy the fruits of their labour and that many law-abiding citizens find this difficult to understand. We are, therefore, extremely pleased to see the establishment of the new Agency with its powers to seek the recovery of criminal assets where no conviction has taken place. We anticipate that it will function in a similar, but not identical, manner to the Criminal Assets Bureau in the Republic of Ireland.

8. Of concern to the RUC is the extent to which the Agency will be resourced in Northern Ireland. The Home Secretary announced in July 2000 that £54m would be made available over the next three years to pay for the Agency. As indicated previously, a senior member of the Agency will be responsible for Northern Ireland. It is our view that this person must be based in Northern Ireland and have the necessary staffing level to make an impact against criminals operating within the Province. It is hoped the Committee and the Assembly will support this view.

9. On the practical front, it is anticipated that a Memorandum of Understanding will be entered into between the Director of the Agency and the Chief Constable and Director of Public Prosecutions for Northern Ireland respectively.

10. The effects of drug trafficking and acquisitive crime of a highly profitable nature should not be underestimated. Their impact on society, business and individual victims, particularly where organised criminality is involved, has been widely publicised. No good argument can be advanced as to why individuals should profit from their illegal activities. It is only right that their ill-gotten gains are taken away. This proposed new legislation provides much of the capacity to see this carried out.

Thank you for your letter dated 6 April 2001 and the information on the specific areas of concern that the Committee will be interested in. I welcome the opportunity to comment on the draft legislation and to contribute to its progress and development through the Northern Ireland Assembly.

This reply is intended to build upon the written response provided by John Abbott, the Director General of NCIS to the Northern Ireland Assembly in January of this year (copy enclosed). With regard to the Committee's expressed areas of interest, I have set out my reply in the same manner so as to provide a response to the highlighted areas.

I have also, in light of the request for a brief overview of NCIS, included a copy of a briefing sheet that demonstrates the contribution that NCIS makes towards the policing of Northern Ireland and a copy of the NCIS Service Plan.

• What effect will the new agency have on the work of the NCIS?

It is important to acknowledge that NCIS has a wide range of customers in the forms of government departments, law enforcement agencies, and private sector bodies. The Criminal Assets Recovery Agency (CARA) will be another agency with which NCIS will need to develop a two-way relationship.

The formation of the CARA will be a significant step forwards in the fight against serious and organised crime by attacking the benefits accrued by those involved at all stages of the criminal process. NCIS targets those individuals and organisations involved in the most serious forms of crime, and such activities often result in the accumulation of significant assets, including houses, cars, yachts, share portfolios, retail businesses, leisure outlets, and more.

Civil recovery as operated by CARA will make a real difference to tackling such assets. At present, criminals are often able to hold onto their assets by either distancing themselves from the crime itself - by using subordinates - or by utilising complex financial schemes to break the audit trail between the criminal benefit and the eventual asset.

NCIS is aware of individuals with significant wealth who have never had a legitimate income; at present such individuals cannot effectively be linked to the criminal acts that generate their wealth. NCIS will be able to look to CARA to target and remove the assets of such individuals, undermining their power and prestige. This will in turn help to deconstruct criminal organisations. The most important effect of CARA on the work of the NCIS should therefore be the ability to remove assets from specific individuals and organisations linked to serious and organised crime.

Secondly, the general increase in financial investigation and asset confiscation work that the Proceeds of Crime Bill is likely to promote will result in additional work for NCIS. Requests for financial intelligence will be passed from police forces - including that of Northern Ireland - to the Economic Crime Unit at NCIS. Requests for assistance with particular financial analysis work will be increasingly lodged with NCIS Regional Offices across the UK. In short, financial intelligence will become increasingly in demand as CARA promotes the identification and removal of criminal assets as a new tool for fighting crime.

• How do you envisage co-operation between CARA and NCIS?

As NCIS is the primary handler and disseminator of financial intelligence in the United Kingdom, the level of co-operation between the two agencies is expected to be substantial.

In due course, the gateways between NCIS and CARA will be introduced into the Bill by the Home Office, but the main aim has to be to ensure that NCIS will be able to disseminate intelligence and evidence to CARA to facilitate civil recovery investigations. In particular, when CARA is targeting specific assets it may request a search of the NCIS intelligence databases to determine whether any relevant information is available. NCIS may also wish to put forward suitable targets for consideration by CARA.

The fine details of tasking are still under negotiation, however, it is apparent that NCIS is the organisation best placed to undertake a key role ensuring that intelligence regarding criminal assets is utilised by the most appropriate agency.

The Committee will also be aware that NCIS publishes an Annual Threat Assessment of Serious and Organised Crime. As CARA will have responsibility for overseeing the National Confiscation Strategy, NCIS anticipates working closely with the organisation on a range of strategic issues.

• What are the essential elements that will need to be incorporated into any memorandum of understanding between NCIS and CARA?

It is always essential when sharing intelligence with another agency that adequate safeguards are in place to protect sources. Memorandums of understanding that NCIS has in place with other regulatory and law enforcement bodies state general conditions under which information exchanged between parties may be disseminated onwards. With regards to the work of CARA, such an agreement will be especially pertinent in light of the evidence that may or may not be presented to the courts during recovery hearings.

The memorandum will also need to include general performance measures for standard tasks requested between parties - such as search requests from CARA to NCIS or acknowledgement of target tasking requests from NCIS to CARA.

• What are your views on the reforms proposed for the money laundering offences?

Reform of the legislation surrounding money-laundering offences is long overdue. The current complexity leads to an inefficient and piecemeal approach to both enforcement and prosecution. The draft Bill's unification of drugs and non drugs money laundering offences is one example of an improvement that should make prosecution and conviction of those involved in all types of money laundering more practicable.

A further significant improvement is the introduction of a 'reasonable grounds for suspicion' test for the offence of failing to disclose. This offence will only apply to those individuals and institutions within the regulated sector, reflecting the professionalism and training that should be present within the financial services industry.

I believe that the application of such a test will ensure that individuals are no longer able to 'turn a blind eye' to criminal funds passing through their company's business. Currently, some 30% of disclosures originate from just 10 financial institutions. The failing to disclose offence will also, and for the first time, apply to funds linked to all crime. Intelligence exists that individuals have previously used cover stories of 'tax evasion' to encourage institutions not to make a disclosure, although the funds were actually derived from drugs trafficking or other serious crime. The change to the law will therefore remove the burden on the institution to decide which underlying offence it believes the funds may be linked to, thus encouraging disclosure.

• General legislative issues:

Overall, I support the objectives of the draft Bill, but feel that in its current form it does not fully address all of the issues. The single most important weakness in the current Bill is, in my opinion, the restriction of investigative powers to allow investigations into the whereabouts of the proceeds of crime.

There will be circumstances where the ability to apply for an account monitoring order or customer information order as part of a proactive investigation into crime would be of immense use in solving a case. For example, in an organised-crime murder scenario, the ability to obtain a monitoring order on a suspects account would enable the investigators to be kept abreast - possibly in real time - of any withdrawals from the account and thus possible location. However, at present, unless such crimes had had a clear financial benefit, no such use of the powers could be made.

I and NCIS would support an extension of the powers to cover such circumstances - the final approval for such orders would, of course, still rest with the courts, ensuring that the rights of the citizen were fully protected.

The final issue that I would wish to raise is the ability to seize drug and terrorist related cash at borders. This is actually due for inclusion in the Bill at a future date, but I am of the opinion that it is of such importance for Northern Ireland that the Committee may wish to consider it at this stage.

The ability to seize drug and terrorist-related cash at borders is of great importance in disrupting organised criminal activity. NCIS would support any extension of these powers to cover funds derived from any crime, and for the development of a scheme to allow seizure of such cash detected anywhere within the United Kingdom - including in transit between Northern Ireland and the mainland. At present cash detected at, say, Belfast International en route to Liverpool cannot be seized under the Drugs Trafficking Act S42 - the Proceeds of Crime Bill presents the legislature with an excellent opportunity to correct this loophole.

Finally I would like to repeat the offers put forward by John Abbott. NCIS would welcome the secondment of Northern Ireland law enforcement officers as it does both strengthen and improve working practices. Also, should any member of the Ad Hoc Committee wish to visit NCIS headquarters in London to see the work carried out by the Economic Crime Unit or NCIS as a whole, I would be delighted to facilitate such a visit.

Yours sincerely,

Thank you for your letter dated 20 December 2000. I welcome the opportunity to comment on the draft Order and its impact on the work of the National Criminal Intelligence Service (NCIS). You will already be aware that in accordance with European Union requirements the United Kingdom has a single central unit charged with receiving financial disclosures from financial institutions. This unit is the Economic Crime Unit (ECU) at NCIS.

Overall, I believe that the draft Order would clarify and strengthen the anti-money laundering and asset confiscation legislation, increasing the effectiveness of law enforcement in Northern Ireland and reducing the ability of criminals to hold on to the profits of their criminality.

With regard to the impact on NCIS, there are three main issues which I wish to draw to the attention of the Committee:

Firstly, we would expect the general increase in financial investigation work that would result from the draft Order to increase the number of requests for financial intelligence lodged by Northern Ireland law enforcement at the Economic Crime Unit (ECU) within NCIS.

Secondly, NCIS has forecast that as financial institutions are made increasingly aware of their disclosure responsibilities as a result of the financial investigation work generated by the draft Order, the number of disclosures from financial institutions based in Northern Ireland will rise. As explained above, all such disclosures must be directed through the Economic Crime Unit.

Thirdly, it is possible that the NCIS ECU may act as the central hub for dissemination and collation of general bank circular requests should such legislation be enacted in England and Wales in the future. Should this be the case, it would also be rational to include orders raised in Northern Ireland. The expansion in banking circulars proposed in the draft Order would, therefore, increase the potential workload on NCIS.

However, although each of the issues above is judged to result in an increase in workload for NCIS, overall we believe that the benefits to the Northern Ireland community of increasing the effectiveness of asset confiscation from criminals are highly desirable. I am also hopeful that the forthcoming judgement by the Home Secretary on NCIS funding will allow the organisation to fulfil the increased demands of the draft Order without necessitating a request for additional funding from your jurisdiction.

Finally, it has been the experience of NCIS that many law enforcement and government organisations from across the country have benefited from seconding selected staff into the ECU. Such secondments strengthen relationships between NCIS and parent organisations, as well as allowing effective exchanges of ideas to allow improvements in systems and procedures. Your Committee may wish to consider the potential benefits of such a secondment from the Northern Irish law enforcement community in the light of continuing financial investigation developments in your jurisdiction. Personally, I would welcome a positive proposal along these lines.

I hope that my comments are of use to the Committee, and if you have any further questions please feel free to contact me through my administration. In addition, should you or any members of the Ad Hoc Committee wish to visit NCIS headquarters in London to see the work of our Economic Crime Unit (and other parts of NCIS) I would be delighted to facilitate such a visit.

• Draft Bill carefully constructed to reflect interests of all members of society.
• Rights are accompanied by responsibilities
• The state has duty to protect citizens from crime and criminal organisations, and removing finances is a highly effective way of doing this
• The following, taken from the recent evidence given to the High Court by NCIS, gives a break down of the cost of crime on the UK and puts it clearly in perspective in respect of the costs to the nation and the power (and duty) of the state:

Estimates of the total cost of crime vary, but it was assessed in 1996 to have a total financial impact of £50 billion per annum (not including tax evasion and benefit fraud). This figure includes £12 billion costs on the Criminal Justice System, £28 billion for pain and suffering and £3.8 billion on vehicle thefts. It is further estimated that in 1999 robberies involving cash-in-transit cost £9.5m, theft of lorries and their loads cost £39.8m, and art and antique thefts cost £300-500 m. In the first six months of 1999, losses from the use of counterfeit payment cards were estimated to be £19.6m. Tax evasion is estimated at £10 billion per annum (which includes lost excise duty on smuggled tobacco at £2.5 billion). Benefit fraud is estimated at £1.5 billion.

Quite apart from humanitarian issues, the financial cost of organised smuggling of illegal immigrants, although difficult to quantify, is believed to be extremely high. There are about 110,000 illegal immigrants detected each year in the UK and a conservative estimate suggests this reflects only 20% of the total. Each illegally smuggled entrant will pay an average of £5,000 to the smuggling group, but those from the Far East are regularly paying up to £20,000 each.

In 1998 the value of the main drug types seized by Police and Customs in the UK was £832m. It is believed that this constitutes about 10% of the total value of illegal drugs in circulation. The size of the drugs market continues to rise. Total seizures in the UK in 1988 were 38,235, however these had risen by 1998 to 149,907. Customs estimate that £1.7 billion worth of drugs were prevented from entering the UK in the financial year 1997/98, but, again, this had risen to £2.4 billion the following year. The total value of the UK drugs market in 1998 has been given as £6.6 billion.

In recycling the proceeds from criminal activity, organised crime groups resort to money laundering techniques which infiltrate illicit gains into the legitimate financial system. Money laundering is conducted in many forms, but is typically facilitated either through business 'fronts' which involve high cash flow or the purchase of high value capital assets (such as art work, jewellery or property) for cash. When these latter items are resold, the money received acquires an outwardly legitimate character. The International Monetary Fund considers 2 - 5 % of the World's GDP involves money which has been filtered in this way. The Office of National Statistics has valued cash in circulation from the illegal drug market in the UK at around 1% GDP (worth £8.5 billion in 1998).

Organised Crime is entrepreneurial in nature and the removal of the profit incentive can potentially have a powerful impact on crime reduction. Forfeiture of assets has a further preventative aspect in removing financial resources which would otherwise be reinvested in criminal enterprise. Forfeiture legislation is aimed at recovering assets which have been obtained contrary to law and acquired at significant cost to society.

Confiscation orders are made in only 20 % of drug trafficking cases (in real terms in 1998 there were 1,243 orders made out of a possible pool of 6,998 convictions). In the same year in respect of the Criminal Justice Act only 136 orders were made from a potential 52,456 confiscation cases (i.e. 0.3%). The actual collection rate is far less than the value of the orders made. Under UK Drug Trafficking legislation in the year to 31st MARCH 1999, the total value of confiscation orders made was £22.3m, but only £10.5m was collected. In that same year confiscation's ordered under the Proceeds of Crime Act was £12.7m, but only £6m was recovered. Forfeiture orders for the recovery of unlawful assets are more common. In 1998 there were 27,353 such orders made in the Magistrates' Court and 10,406 in the Crown Court (i.e. 37,759 in total of which 25,700 were drugs offences). This equates to about 27 forfeiture orders for every one confiscation order made.

Although LONDON is recognised as the principal financial market in EUROPE, the UK uses powers of confiscation and forfeiture less than some other jurisdictions. In 1996 the UK made confiscation/forfeiture orders valued at US$ 26.4m against a GDP of US$ 1,177 billion, the USA made orders worth US$ 759m against a GDP of US$ 7,751 billion, EIRE made orders worth US$ 19.5m with a GDP of US$85 billion whilst ITALY ordered confiscation/forfeiture of US$ 460 million having a GDP of US$ 1,229 billion.

• The standard proposed in the draft Bill is not mirroring the legislation in Eire
• Rather it requires the state to present a factual case and gives the defendant the opportunity to disprove the claims made
• The defendant will be in the best position to disprove
• Any innocent individual would have no problem defining where the vast majority of their wealth had originated from
• The matters are not criminal - they are a civil hearing to consider the origin of ownership of disputed assets, not tainting an individual with a criminal conviction

• As discussed in the original written submission

• NCIS liases closely with a range of agencies in Eire in relation to financial intelligence, as it does with a range of other agencies around the world.
• Such contacts are essential for the efficient working of an anti-money laundering regime
• The issue of seconding staff to and from CARA will be developed in coming months

1. Benefits to Customs & Excise enforcement activity.

1.1 General

The principal benefits to HM Customs and Excise from the Proceeds of Crime Bill are expected to arise from the replacement and strengthening of the current legislation on:

• investigation powers;
• restraint and confiscation procedures;
• money laundering offences; and
• seizure of crime-related cash.

These are dealt with in more detail in the following paragraphs.

1.2 Criminal Confiscation Procedures

1.2.1 The main changes in this area involve the consolidation, strengthening and streamlining into one Act of the current criminal confiscation powers contained in the Drugs Trafficking Act 1994 and the Criminal Justice Act 1988. At present there is an inconsistent approach to the application by the courts of the assumptions about benefit derived from past criminal conduct. In future, where a convicted defendant is identified as having a "criminal lifestyle", it will be mandatory for the court to base a confiscation order on the premise that all property which has passed through the defendant's hands in the previous six years was the proceeds of criminal conduct. Since the mandatory application of the assumptions is currently only available in connection with drug trafficking convictions, the new provisions can be expected to lead to an increase in the amount of money ordered to be confiscated in other offence cases which are priority areas for Customs. Examples would include, oils fraud and tobacco smuggling.

1.2.2 The Bill also introduces, in England and Wales, a "one stop shop" by providing for all restraint and criminal confiscation hearings to take place in local Crown Courts rather than being split between three courts as at present (ie, Magistrates', Crown and High Courts). In Northern Ireland, restraint orders will remain the prerogative of the High Court.

1.2.3 Prosecutors will also be given a new power under the Bill to challenge the court's decision where they consider that the criminal confiscation order is lower than warranted by this evidence.

1.3 Restraint procedures

1.3.1 The Bill will provide prosecutors with the power to seek a restraint order at any time after the start of a criminal investigation. At present this is only possible when a person is about to be charged with a criminal offence. We expect this provision to assist in preventing the dissipation of assets during the criminal investigation.

1.4 Civil forfeiture powers (Cash at borders)

1.4.1 Customs currently have the power under Part II of the Drug Trafficking Act 1994 to seize and detain - with a view to forfeiture in the Magistrates' Court - cash being imported or exported which is reasonably suspected of being the proceeds of, or intended for use in, drug trafficking. The Bill is expected to extend these powers to include the proceeds of - or money intended for use in - any criminal conduct and to cover non-cash instruments such as travellers' cheques and bearer bonds. Whilst this area is still under discussion with the Home Office and clauses have not yet been drafted, we believe that such provisions would be of particular benefit to Customs issues. Problems like tobacco smuggling are currently immune from cash seizure, even when it is clear that the monies are related to smuggling. The proposed "all crime" coverage will also enable us to take action on behalf of other agencies such as the police (eg, if we detect money which is the proceeds of a robbery) and to pass the case to them for further progression.

1.5 Civil Recovery

1.5.1 The proposed civil recovery scheme, which will enable the Criminal Assets Recovery Agency (CARA) to recover the proceeds of criminal conduct on the basis of the civil rules of evidence will not be of direct interest to Customs and Excise except that:

• we expect to refer cases to the new Agency for civil recovery where we have concluded that it is not feasible to mount a successful prosecution but there are, nevertheless substantial assets appearing to derive from criminal activity; and
• we expect in due course to second financial investigators, lawyers and other staff to the newly-formed Agency. (We have already agreed to second two officials, one being a specialist financial investigator, to the Agency in Northern Ireland).

1.6 Investigation Powers

1.6.1 In addition to the existing powers of a production order and search warrant, two new investigation powers will be granted to enable Customs and Excise, other law enforcement authorities and the new Agency to trace and investigate suspected criminal assets. The two new powers are:

• the account monitoring order, under which financial investigators will be able to gain access to transaction information on suspect bank accounts for a specified period; and
• the customer information order, which will require banks to identify accounts held by a person under investigation.

We expect these new investigatory powers to facilitate the gathering of evidence to support criminal offence and confiscation action, and generally to increase the effectiveness of our financial investigation efforts.

1.6 Money Laundering

1.6.1 The Bill should remove the current distinctions between drug and non-drug money laundering offence provisions. This should remove a barrier to securing convictions which is currently created by the need to demonstrate to the court that the laundered money derived from a specific offence, not simply that it derived from criminality. The offence of 'failure to report suspected money laundering activities' would under the Bill, be extended to cover the proceeds of any criminal conduct, not just drugs trafficking as at present. Furthermore, persons carrying on a business in a sector governed by the Money Laundering Regulations (eg, banks, building societies, bureaux de change) will in future be susceptible to prosecution where they have reasonable grounds for suspecting that another person is engaged in money laundering. Currently we need to demonstrate actual knowledge or suspicion, and this has hindered the successful progression of criminal action.

2. Specific benefits to C & E enforcement activity in Northern Ireland

2.1 Fiscal fraud

2.1.1 Customs' highest priority in Northern Ireland is tackling hydrocarbon oils fraud, which poses a specific and serious threat. In addition, and in common with the rest of the UK, there is a serious threat from tobacco smuggling which Customs are tackling through a national strategy. Enhanced resources for tackling oils fraud in Northern Ireland specifically and the tobacco smuggling problem nationally, have enabled Customs to increase the enforcement presence tackling these frauds.

2.1.2 The Government's strategy is designed to undermine the economics of smuggling and remove the profits of criminals. We expect the Proceeds of Crime Bill to make a significant contribution towards achieving these aims, both in Northern Ireland and the rest of the UK by:-

• tightening money laundering offence provisions so as to make disposal of smuggling profits more difficult;
• enabling Customs to seize cash (and equivalent monetary instruments) at ports, airports and the Northern Ireland Land Boundary where it is reasonably suspected of being the proceeds of, or intended for use in, excise fraud; and
• providing stronger investigatory powers and more flexible confiscation procedures to enhance the quality of our financial investigations and generate more substantial confiscation orders.

All these powers will make it more difficult for the smugglers to make a profit and will help Customs take away these profits.

2.2 Organised Crime

2.2.1 The criminals involved in oils and tobacco smuggling are serious gangs who will smuggle anything to make money. The Northern Ireland Threat Assessment estimates that some 21% are involved in fiscal fraud as well as drug dealing and trafficking. Customs' task is to tackle fiscal fraud and drugs trafficking, no matter who perpetrates it, especially since excise fraud gangs may use profits from excise smuggling to fund other criminal activities.

1. Your letter of 9th April invited the Inland Revenue to produce a written memorandum setting out our views on the draft Proceeds of Crime Bill. You also listed 5 questions, which you think the Committee will be especially interested in.

2. It is important to be clear that the Inland Revenue has been fully engaged in the process of developing this policy. The draft legislation represents a position we have agreed with the leading government departments. The original study, which made the series of recommendations resulting in this draft legislation, was by the Cabinet Office's Performance and Innovation Unit. The lead department responsible for drafting the legislation is the Home Office. Both have sought our views and advice throughout the process and the resulting Chapter VI of the consultation document, "Taxation", represents these views.

3. As a consequence we fully support the proposals in the draft legislation.

4. Taking the Committee's questions in the order asked:

5. The precise operational arrangements for how the Director will take on tax cases have yet to be finalised.

6. An important point to make here is that there are no new powers assigned to the Inland Revenue as a result of the taxation proposals in the Proceeds of Crime Bill. Cases of serious tax fraud will continue to be investigated by the Inland Revenue's Special Compliance Office, using existing powers and existing operational practices.

7. The Inland Revenue will not have the new "sourceless assessing" power and will continue to need to identify sources of income attributable to any income tax assessments raised.

8. There will be clear lines of demarcation between the Revenue and CARA. It will be possible for the Revenue to be responsible for some taxes and the Director other taxes within the same tax period. So good communications between CARA and the Revenue will be vital.

9. The Director will have authority under the legislation to serve notice on the Board of the Inland Revenue that he is assuming responsibility for whichever tax functions he chooses relating to a case. The legislation requires the Revenue to comply with the notice.

10. The Revenue's involvement will be limited to the provision of case-specific information. This will be at the time of transfer of the case to CARA and continuing during CARA's operation of the case. The Revenue will also receive information relating to taxation from CARA when the case is handed back.

11. A key area for agreement will be the provision and security of taxpayer information. This will include the arrangements to be put in place for the transfer of files to and from the Director CARA. It will also include the scope and limitations on the use of information gateways between CARA and the Revenue. Section E below provides further details.

12. A second area is the Director CARA's application of his taxing powers in keeping with the Board of Inland Revenue's practice, in particular, the application of published statements of interpretation and extra statutory concessions. The draft legislation provides for the Revenue to gain assurances from the Director CARA that he is applying the tax system in this way and the Revenue may ask for documentation from CARA to satisfy themselves accordingly.

13. Before this power can be used, the Director must apply a "suspicion of criminality test". So we accept that the Director CARA will need this assessing power because of the nature of the cases he will be dealing with.

14. The Inland Revenue operates to very high standards of taxpayer confidentiality, which will be rigorously maintained in relation to the new Agency. In particular:

• All Inland Revenue staff sign a declaration of secrecy, which is a statutory commitment to confidentiality about taxpayers' affairs. Breaches of this are criminal offences. We would expect to see CARA staff who have access to taxpayer information being subject to a similar duty of confidentiality;
• The gateway from the Inland Revenue to CARA will be permissive, which is to say that the Revenue can disclose to CARA, but we are not obliged to;
• The Revenue will be able to pass on to CARA information it receives under existing statutory provisions from DSS, Customs and financial institutions;
• The Revenue will not pass on information gained through tax treaties, mutual assistance directives or other agreements which require that information is not passed on to other parties;
• Disclosures by the Revenue to CARA can be for any of the Director's functions;
• Disclosures by the Revenue may not become the subject of onward disclosures to third parties by the Director CARA;
• Disclosures to the Revenue by the Director CARA should be limited to those matters concerned with the taxation functions of the Director CARA, not those purely to do with criminal or civil confiscation;
• We are also legally required to comply with any limitations imposed by the Data Protection Act 1998.
• In practice we intend that disclosures will be limited to case-specific information only. CARA will not be given direct access to the Revenue's databases.

15. Each of these key points above is being developed with the Home Office and we envisage these being made explicit in a memorandum of understanding. We are content that our policy objective of maintaining taxpayer confidentiality will be met.

More generally the Committee asked whether we feel there are any weaknesses in the draft legislation.

16. We have been fully involved in the drafting of the Home Office legislation and so it reflects our views in each important policy area. These are:

• The maintenance of a single, consistent national taxation system;
• Legally robust vesting of tax raising powers in the Director CARA, whilst retaining his operational independence from the Inland Revenue;
• Proportionate and secure use of taxpayer information - CARA will not be able to sift through the Revenue's databases;
• Clear lines of demarcation between CARA and the Revenue in terms of who does which cases;
• No new powers for the Inland Revenue through what would be perceived to be a "backdoor" route.

17. In each case we believe our policy intentions are being addressed. We look forward to discussing this further with the Committee on 3rd May.

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