Pattison, R. v

In assessing benefit under the Proceeds of Crime Act 2002, property obtained through criminal conduct is valued gross. The cost of acquiring it, including an unsecured borrowing, is not deductible from the benefit figure.

However, the statutory valuation provisions prevent double counting. Where the defendant has dealt with the original property, the court must value the original property or property representing it, rather than aggregate both values. Drawing money on a mortgage secured on criminally obtained property does not create an additional benefit where the corresponding charge reduces the defendant’s equity. Income generated without reducing the underlying property, such as rent, may be included separately.

The appellant, an estate agent and financial-services provider, was convicted at Warwick Crown Court of entering into a money-laundering arrangement and acquiring criminal property contrary to sections 328(1) and 329(1) of the Proceeds of Crime Act 2002. He had acquired, at a substantial undervalue, a house belonging to drug dealers, with an agreement to fund a confiscation order against one of them.

Following conviction, the Crown Court made a confiscation order of £270,427.64. That figure included the full value of the house, the sum available under a mortgage secured on it, and rental income. The appellant challenged the refusal to deduct acquisition and improvement costs, and the inclusion of the mortgage facility. The central issue was whether the mortgage proceeds could be aggregated with the value of the property from which they were derived.

1. The appeal was allowed. The court quashed the confiscation order of £270,427.64 and substituted an order for £157,972.64. The period of imprisonment in default was reduced to three years. Time to pay was extended by three months.

2. The Crown Court had correctly refused deductions from the value of the house for the unsecured loan used to acquire it, improvements, and associated expenses. Under sections 76 and 79 of the Proceeds of Crime Act 2002, benefit is the gross value of property obtained in connection with criminal conduct. The appellant acquired an unencumbered freehold. The unsecured loan did not reduce the value of his interest. Walls was inapplicable because it concerned a defendant with only a limited interest in property.

3. The Crown Court erred by adding the £112,500 mortgage facility to the pre-mortgage value of the house. Section 80 prevents the same criminally obtained value being counted again when it is converted into, or represented by, substitute property. A sale of the house and purchase of an asset with the proceeds would not produce cumulative benefit at each stage.

4. The same principle applied to the mortgage. The appellant’s ability to draw funds on the security of the house was matched by the reduction in the value of his equity. It did not increase his true benefit merely because the house had originally been obtained through criminal conduct.

5. Rent generated by the house stood differently. It was income obtained without a corresponding diminution of the underlying property and was properly included. The appellant could not withdraw his concession on that issue at this late stage.

• Court of Appeal (Criminal Division): Allowed the appeal against the confiscation order and substituted an order for £157,972.64.

• Warwick Crown Court: Following the appellant’s convictions under the Proceeds of Crime Act 2002, made a confiscation order for £270,427.64 on 20 November 2006.