The Commissioner commonly seeks the forfeiture of stolen assets or profits derived from drug dealing, money laundering or similar criminal activity. When forfeiture orders are granted by the Court, the tainted property or profits vest in the Crown without compensation – as one might expect in the case of drug money or fast cars purchased with illicit funds. But now the Commissioner is preparing to seek forfeiture of profits and assets of a commercial business, over two years after that business pleaded guilty and was sentenced.
This case is likely to be closely watched by commercial businesses subject to an increasing number of regulatory, often strict liability, offences (i.e. offences based on the company’s actions rather than their intention). If convicted, businesses may not only be exposed to substantial fines but also uncertainty, delay and losses while Police seek forfeiture of proceeds said to derive from their offending.
We consider the Commissioner’s novel strategy in this case, and the potential for punishment and forfeiture to become routine in cases of corporate crime.
In 2015, a contractor died from an explosion whilst welding a tank containing hazardous substances for Salters Cartage Limited (SCL). His death followed failures on the part of SCL, and its shareholder, director, and chief executive Mr Salter, to safely manage substances known to be especially hazardous and to obtain required test certificates for those substances.
SCL and Mr Salter were convicted of six offences under the Hazardous Substances and New Organisms Act 1996 (HSNO) and the Health and Safety in Employment Act 1992 (HSE). In November 2017, they were jointly ordered to pay reparations to the deceased contractor’s family and each pay fines which together totalled over NZ$300,000. Mr Salter was also sentenced to four and a half months’ home detention.
The High Court’s decision
More than two years after sentencing, in 2019, the Commissioner of Police applied for restraining orders over four properties belonging to Mr and Mrs Salter and their family trusts (including the business premises of SCL) under the Criminal Proceeds (Recovery) Act 2009 (the Act). These restraining orders sought to prevent any disposals of or dealings with the four properties, including any increase in mortgages secured against the properties, pending the Commissioner’s application for forfeiture orders.
The Commissioner’s application for restraining orders was opposed. The Salters and SCL argued that the Commissioner should first give an undertaking to compensate the Salters as to any damages and costs they might sustain as a result of the restraining orders, if the Commissioner ultimately loses on the forfeiture application. The High Court agreed that an undertaking was appropriate, accepting that the restraining orders could negatively impact SCL’s ability to borrow for investment purposes and impede sale of the business.
At this stage, the High Court was not required to determine whether the Salters’ four properties (or any business income) should be forfeited to the Crown. But it accepted that – even though the proceeds of crime regime had never before been applied to a commercial business – the Commissioner had an arguable case to seek forfeiture.
The Commissioner’s forfeiture application
The Commissioner has not yet applied for forfeiture, but has indicated how it will frame its forthcoming application, describing the case as:
A straightforward application of the Act to serious offending that generated significant financial reward with full knowledge of the numerous illegalities. SCL was systemically non-compliant with the HSNO and HSE, operating blatantly and dangerously for at least seven years. It is profit-motivated criminal offending. Revenue resulting from the production and sale of recycled oil and from the storage of hazardous substances is unlawfully derived and the Commissioner seeks to recover those unlawful benefits.1
While the Commissioner may see the case as straightforward, its forfeiture application will be novel and is likely to be keenly contested.
Before applying for forfeiture, we understand that the Commissioner is seeking, first, to appeal the High Court’s judgment requiring an undertaking as to damages. If the undertaking is set aside on appeal, this may further incentivise the Commissioner to seek forfeiture orders beyond their typical application to drug dealing and money laundering operations.
Implications for corporate crime
The Commissioner has never previously sought the forfeiture of assets or income of a commercial enterprise (or those of its owners) following its conviction for health and safety offences. However the regime is not limited to serious organised crime. It applies to any offending punishable by either five years’ imprisonment or where the proceeds of crime acquired or derived from the criminal activity have a value of NZ$30,000 or more.
We consider the scope for broader application of the regime should concern all businesses. There are many criminal activities that are closer in nature to regulatory transgressions, requiring no or negligible culpability on the part of business owners or directors, but from which valuable proceeds or benefits of at least NZ$30,000 might be derived. The regime appears to set a very low bar for the Commissioner to further punish corporate misconduct with restraint and forfeiture orders.
We advise any company facing prosecution (and deciding whether to plead guilty) to consider carefully not only the potential consequences of conviction and fines, but the prospect of restraint and forfeiture of corporate assets where it can be shown that those benefits derived from the offending. Indeed, applications for restraining and forfeiture orders may follow unexpectedly several years after sentencing – precisely the time at which a company has begun to move on from past offending.
We will be reporting on the outcome of the Commissioner’s appeal to the Court of Appeal, and the Commissioner’s forfeiture application over the Salters’ property assets
If you have questions about the implications of this case for your business, or would like our assistance to understand the proceeds of crime regime, please get in touch with the contacts listed or your usual Bell Gully adviser.