No. 95/2985/W3

IN THE COURT OF APPEAL
CRIMINAL  DIVISION

								Royal Courts of Justice
								The Strand
								London WC2

								Monday  9  December  1996

	B e f o r e:

	THE  LORD  CHIEF  JUSTICE  OF  ENGLAND
	(Lord Bingham of Cornhill)

	MR  JUSTICE  SACHS

	and

	MR  JUSTICE  TOULSON

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	R E G I N A
 
	- v -

	DAVID  MALCOLM  BANKS

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MR MICHAEL BIRNBAUM QC appeared on behalf of THE APPLICANT

MR ANDREW MITCHELL appeared on behalf of THE CROWN

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	J U D G M E N T
	(As Approved by the Court)
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Monday  9  December  1996

THE LORD CHIEF JUSTICE:  In the Crown Court at Newport, on 3 January 1996, the applicant pleaded guilty on re-arraignment to conspiracy to supply class B controlled drugs, namely cannabis, cannabis resin and amphetamine.  On 11 April 1996 he was sentenced to seven years' imprisonment and a confiscation order was made under section 5 of the Drug Trafficking Act 1994 in the sum of £37,000 with 12 months' imprisonment in default of payment consecutive to the substantive term.  The applicant sought leave to appeal against sentence, more particularly against the confiscation order, and his application was referred to this court by the single judge.       
	    There were other defendants besides the applicant before the Crown Court, but they play no part in the issue we have to decide.  
         The prosecution arose out of a police operation code named 'Operation Peruvian' which involved the collection of drugs from a supplier in Dagenham and the distribution of those drugs in South East Wales.  The applicant was involved in that operation.  It is unnecessary to go into detail for the purposes of this judgment; it is enough to say that the proceeds of the applicant's dealings were assessed by the trial judge in the sum of £200,000; his realisable property was assessed by the judge at £37,000; and it is contended on behalf of the applicant (and accepted in principle on behalf of the Crown) that the profit made by the applicant through his dealing in drugs was in some sum smaller than £37,000 but never precisely quantified.  For the purposes of the Drug Trafficking Act inquiry the Crown submitted a statement under section 11, the applicant submitted a counterstatement, and the judge made his orders with reference to those statements and the facts as found.  
         In seeking leave to appeal against the confiscation order Mr Birnbaum QC on behalf of the applicant has addressed five main arguments.  The first is that by construing the Act as applying to gross receipts rather than profits made by a drug trafficker the courts have failed to give effect to the intention of Parliament.  Counsel has made reference to the report which preceded the Drug Trafficking Offences Act 1986 and has sought to refer to various observations made on the floor of the House of Commons when that Act was being introduced.  
         Secondly, and centrally in his submissions, counsel has submitted that the issue which has to be decided under section 2 (and in particular section 2(2) and (3) of the 1994 Act, reproducing similar provisions in the 1986 Act) is:  what benefit has a defendant received from his trafficking in drugs?  Counsel submits that it is a departure from the true construction and intention of the Act to pay attention to the payments which a trafficker has received, or to the proceeds of his trafficking in drugs, and criticises decisions reached by this court as overlooking the central importance of benefit and becoming sidetracked into consideration of these other expressions.  In support of that submission counsel has referred to other provisions of the Act.  He has submitted that there can be no confiscation within the true meaning of that word of what a man has never had.  He draws attention to the terms of sections 4, 5 and 7 of the 1994 Act, and also section 15, all of which sections he submits point towards the correctness of his submissions and the incorrectness of reliance on gross payments or gross proceeds.  He accepts that "proceeds" means the same throughout the 1994 Act, and relies on sections 49 to 51 as fortifying his submission.  
         He goes on to argue that the meaning of the legislation, if not clear in his favour, is ambiguous and therefore (as penal legislation) to be construed in favour of a defendant.  He refers to a number of authorities in which this legislation has been regarded as penal.  He further submits that to concentrate on gross receipts or payments or proceeds can produce unjust results, particularly in a case in which there are a number of defendants.  He also submits that this construction can lead to a defendant being penalised twice, first, because he will be sentenced on the basis of the gross total of his trafficking in drugs, and then (counsel submits) because he is unjustly made the subject of a confiscation order on the same basis. 
         The thrust of Mr Birnbaum's submission can, we think, be demonstrated by taking an example which, although the court's example and not his, illustrates the effect of his submission.  It is an entirely hypothetical and, on its facts, perhaps unrealistic example.  Suppose that a defendant D inherits £1,000 from his law‑abiding grandmother.  Suppose further that D spends that whole sum on drugs which he then sells for £1,000, making no profit.  Suppose in addition that he repeats that operation on four occasions, on each of them buying drugs for £1,000 and selling them for the same sum.  It is on those facts plain that his turnover on the five transactions is £5,000, that being the gross sum received by him by way of payment on the five transactions.  It is, however, equally plain that his profit is nil.  At the end of his dealing he only has the £1,000 with which he started.  It can therefore be said to be unfair if a confiscation order can be made with reference to the figure of £5,000, his gross receipts rather than his profits.  
         The protection which was provided in section 4(3) of the 1986 Act and which is now to be found in section 5(3) of the 1994 Act does not avail D in such circumstances because property held by D may be realised even though it is unrelated to drug trafficking.  If, for example, D had inherited £10,000 from his grandfather, which had remained in the bank throughout and had not been used for drug trafficking at all, that might nevertheless be available for realisation in satisfaction of a confiscation order.  In relation to that sum of £10,000 D might successfully rebut the statutory assumption in section 4(3), as provided by section 4(4)(a) of the 1994 Act and, if he did so, that £10,000 could not be treated as a payment or other reward received by him in connection with drug trafficking.  That sum would however still be available for realisation in satisfaction of an order.  If therefore the object of the legislation is to strip drug traffickers of profits from drug trafficking, the applicant submits, it would distort the object of the legislation if drug traffickers were stripped not only of the profits of their trade but of any funds involved or used in the trade whether or not they had led to a profit.          
	    The thrust of Mr Birnbaum's submissions can, we think, be illustrated by that hypothetical example.  He urges that attention should be concentrated on the benefit to the drug trafficker and would urge that, on that example, the drug trafficker has not benefited to the extent of £5,000, or indeed at all.  He submits that it would be unjust that he should be treated as having made such a benefit.  He further submits that it would be penal and involve a double penalty if D were sentenced on the basis that his transactions involved a turnover of £5,000, and a confiscation order in that sum were made on top.  
         While appreciating the force of this example, we conclude that there are four insuperable objections to it.  The first derives from the language of sections 2, 4 and 5 of the Act.  Section 2 provides, so far as relevant, as follows:  
  
		"(2) The court shall first determine whether the defendant has benefited from drug trafficking.  
  
		(3) For the purposes of this Act, a person has benefited from drug trafficking if he has at any time (whether before or after the commencement of this Act) received any payment or other reward in connection with drug trafficking carried on by him or another person.  
  
		(4) If the court determines that the defendant has so benefited, the court shall, before sentencing or otherwise dealing with him in respect of the offence or, as the case may be, any of the offences concerned, determine in accordance with section 5 of this Act the amount to be recovered in his case by virtue of this section.  
  
		(5) The court shall then, in respect of the offence or offences concerned ‑‑ 
  
			(a) order the defendant to pay that amount; ...." 

         We go forward to section 4(1) which provides:  
  
		"For the purposes of this Act ‑‑ 
  
			(a) any payments or other rewards received by a person at any time (whether before or after the commencement of this Act) in connection with drug trafficking carried on by him or another person are his proceeds of drug trafficking; and 
  
			(b) the value of his proceeds of drug trafficking is the aggregate of the values of the payments or other rewards."  

Section 5(1) provides:  

		"Subject to subsection (3) below, the amount to be recovered in the defendant's case under the confiscation order shall be the amount the Crown Court assesses to be the value of the defendant's proceeds of drug trafficking."  

         The court's duty therefore under section 5(1) is to make a confiscation order in the amount which the Crown Court assesses to be the value of the defendant's proceeds of drug trafficking.  In order to assess the value of the defendant's proceeds of drug trafficking in pursuance of that subsection the court must refer back to section 4(1) which defines the meaning of the proceeds of drug trafficking.  The definition is that those proceeds are the aggregate value of the payments or other rewards received by a person in connection with drug trafficking, and those expressions take one back to the first of the clutch of subsections we mentioned in section 2 where, in subsection (3), there is an express reference to "any payment or other reward".  It accordingly seems to us that the reference to "benefit" in section 2(2) and (3) is the subject of clear and express further definition to which the court must pay attention in applying this Part of this Act.  We accordingly conclude that, on the language which Parliament has used in this Act, reproducing similar language used in the 1986 Act, it is clear beyond argument that the benefit is to be treated in particular in accordance with section 4 as the aggregate value of the payments or other rewards made to the defendant in connection with drug trafficking.  That does not, as we read it, direct attention to profit but to gross payments.  
         The second insuperable objection in the way of the applicant is in our judgment to be found in a series of decisions concerned with the construction of the predecessor of the 1994 Act.  The first of those decisions was R v Osei (1988) 10 Cr App R(S) 289 in which, at page 293, Glidewell LJ delivering the judgment of the court said with reference to these sections:  
  
		"'Payment' means payment.  It means any payment.  The dichotomy is between a payment which may be by way of reward or may be in some other way in connection with drug trafficking or some other form of reward.  An obvious instance of another form of reward is an air ticket paid for by the person who is arranging the trip with the intention that the courier shall get a free holiday in the United Kingdom and, in return, carry the drugs.  That is the sort of matter which comes under 'other reward'.  But 'payment' is apt to include not merely a payment which is going to be a profit or fee, so to speak, for the courier, but also a payment such as that which was envisaged in what this appellant originally said to the customs and in what she said through her counsel to the court below; that is to say, a payment to her to enable her to have money in her possession which would persuade the immigration authorities to allow her to enter the country so that she could bring in the drugs."  

         The second and leading authority on this point is R v Smith [1989] 1 WLR 756.  At page 951A Lord Lane CJ, in giving the judgment of the court, said:  
  
		"The words 'any payments' are on the face of them clear.  They must mean, indeed it is clear from the wording, any payment in money or in kind.  It does not mean, in the judgment of this court, net profit derived from the payment after the deduction of expenses, whether the expenses are those of purchase, travelling, entertainment or otherwise.  The same consideration applies to the words 'other rewards'.  They also have to be valued.  If for example the receiver of the drugs has rewarded the appellant by providing him with an expensive holiday or an expensive motor car, it would not, we think, be legitimate to construe the words 'value of the rewards' as meaning the value of the holiday or motor car less the business expenses involved in earning the reward.  
  
		It seems to us that the section is deliberately worded so as to avoid the necessity, which the appellant's construction of the section would involve, of having to carry out an accountancy exercise, which would be quite impossible in the circumstances of this case.  It may be that the wording is draconian, and that it produces a draconian result.  But it seems to us that if that is the case, it was a result intended by those who framed the Act."  

It is worthy of note that on that occasion the court certified a question of general public importance while refusing leave to appeal to the House of Lords, and the House of Lords themselves refused leave to appeal against that decision.  So far as we know, however, the House of Lords observed their usual practice of giving no reasons for dismissing the petition, and accordingly we have no way of knowing whether the petition was refused because the judicial committee agreed with the decision of this court or whether it was because the petition was 14 weeks out of time or because, as appears from page 768H, the issue before the court on that occasion was on one showing academic.  Be that as it may, the case was not argued before the House.  
         In a number of cases those two decisions have been applied.  Our attention has been drawn in particular to R v Comiskey (1990) 12 Cr App R(S) 562.  At page 567 Tucker J, giving the judgment of the court, said (having cited the terms of section 2 of the 1986 Act):  
  
		"The meaning of the subsection has been considered by this court in the case of Ian Smith (1989) 11 Cr App R(S) 290.  In the course of his judgment in that case the Lord Chief Justice made it plain that the words 'any payment or other rewards' do not mean net profit.  The section is deliberately worded so as to avoid the necessity of carrying out an accounting exercise.  The wording of the Act is draconian, but the effect can be mitigated by the provisions of section 4(3), to which we have referred."  

The case before the court on that occasion was unusual because although the proceeds of the appellant's trafficking were assessed at £250,000 his apparently realisable assets amounted only to £32,000.  It was held that there were undisclosed assets of unquantified extent.  The judge assessed the appellant's realisable property in the same sum as the total proceeds of his dealing in drugs, namely £250,000, and made a confiscation order in that sum.  This court felt that it was unrealistic to assume that his realisable assets were of the same value as the total of his dealing in drugs and accordingly made a reduction in the confiscation order.  That however, as we read the decision, has no bearing on the case which is now before us.  
         The fourth case to which we were referred was R v Simons (1994) 15 Cr App R(S) 126.  At page 129 Henry J (as he then was) giving the judgment of the court said:  

		"The proceeds of sale are not profit made in the sale but the sale price.  This is confirmed by the definition of 'proceeds' in the Act, namely the value of payments or other rewards received in connection with drug trafficking carried on by him.  Thus, one is concerned with the payments made to him in connection with the drug trafficking carried on by him, and not merely with the profit element in those payments."  

After reference to the leading case of Smith Henry J continued:  

		"The natural and ordinary meaning of the word 'proceeds' supports that interpretation.  In any event, the decision is binding on this Court, as it was on the trial judge, as he properly recognised.  There is neither authority nor academic criticism suggesting that that construction is wrong.  It is the only construction open on the clear wording of the Act, in our judgment."  

Then in a passage on page 130 of the report, which it is unnecessary to read, the judge went on to identify the mischief which would flow from an interpretation other than that which had previously been put on these provisions.  
         We have therefore an unbroken and, as it seems to us, clear line of authority which is binding on this court and which appears not to have been the subject of previous criticism.  
         The third insuperable objection in the applicant's way is in our judgment the fact that these provisions of the 1986 Act have been re‑enacted in almost precisely the same terms in the 1994 Act.  In the 1994 Act the opportunity was taken to amend some other provisions, for example, statutory assumptions which were discretionary under section 2 of the 1986 Act have become mandatory (subject to a qualification) in the 1994 Act.  Similarly the burden of proof has been the subject of express enactment which it formerly was not.  It is however noticeable, in our judgment, that there has been no amendment of the provisions which are crucial to the determination of this issue.  This cannot be a case in which the language has simply been reproduced without attention being paid to intervening case law.  The amendments which have been made show that account has been taken of the intervening case law.  We are therefore, in our judgment, bound to proceed on the clear assumption that Parliament re‑enacted these provisions, knowing of the decisions which had been made on them and intending that the provisions should have that effect.  
         The fourth insuperable objection to the applicant's argument in our judgment rests on later sections of the Act which use the expression "proceeds".  Counsel representing the applicant accepts that "proceeds" must have the same meaning whether it appears in the early sections of the Act or the later sections.  In this instance there were three sections of the 1986 Act which are material, sections 23A(1), 24(1) and 26B(7).  The first and last of those provisions were added by amendment in 1993.  Section 24(1) formed part of the original Act.  In the 1994 Act some of those provisions are repeated.  Our attention was drawn to section 49(1) which makes it an offence if any person:  
  
		".... conceals or disguises any property which is, or in whole or in part directly or indirectly represents, his proceeds of drug trafficking...."  

Section 49(2) provides:  

		"A person is guilty of an offence if, knowing or having reasonable grounds to suspect that any property is, or in whole or in part directly or indirectly represents, another person's proceeds of drug trafficking, he ‑‑ 
  
			(a) conceals or disguises ...., or 
  
			(b) converts or transfers that property .... [for a purpose specified in the subsection]."  

Section 50(1)(a) of the 1994 Act makes it an offence for a person to make an arrangement whereby:  
  
		".... the retention or control by or on behalf of another person .... of [that person's] proceeds of drug trafficking is facilitated...."  

Section 51(1) makes it an offence if:  

		"A person .... knowing that any property is, or in whole or in part directly or indirectly represents, another person's proceeds of drug trafficking, he acquires or uses that property or has possession of it."  

Section 52(7) (which is a provision directed against money laundering) defines money laundering by reference to the doing of any act which constitutes an offence under sections 49, 50 or 51 of the Act.  
         All these provisions are in our judgment directed to trying to stamp on the transfer of funds which have been used for the purposes of financing drug trafficking.  It would in our judgment reduce those provisions to absurdity if the expression "proceeds" were to be read as applying only to profits made from drug trafficking and to leave parties free to bank or transfer or conceal or disguise sums which are the product of drug trafficking but which do not represent profits.  In our view it is plain beyond argument that "proceeds" must be understood as meaning, as the earlier sections of the Act suggest, the aggregate sum of payments made deriving from the trafficking in drugs.          
	    Those four objections in our judgment make it impossible for us to accede to the argument which has been advanced by Mr Birnbaum on behalf of the applicant.  
         We should make it plain that we have not accepted his invitation to study the report which preceded the 1986 Act, nor to consider in detail the observations made in the House of Commons when the Act was introduced.  Since the meaning of the provisions is, in our judgment, plain and unambiguous we do not consider that it would be appropriate to refer to those preparatory materials.  
         We would accept another argument advanced by Mr Birnbaum to the effect that these provisions are penal, but we observe that Parliament can lawfully impose penalties if it does so clearly and unambiguously, and in this case we conceive it to have done so.  We accept the suggestion made by Mr Birnbaum that in some cases these provisions, where there are multiple defendants, can lead to difficulties and to a risk of injustice when it comes to apportionment, but we can see no difficulty of that kind arising here.  It is not, as we conceive, a matter that now calls for decision.  
         So far as the double penalty argument is concerned, we can see no reason in principle why two penalties should not be imposed for the same unlawful act.  As we read the legislation it is plain that Parliament intended both penalties to be imposed.  
         We have in our judgment to bear in mind the background to these provisions.  The evils of the international drug trade are now recognised to be such as to justify measures of the utmost rigour.  The trail of death and human devastation which drug traffickers leave behind them is notorious.  We think it clear that Parliament, reflecting the consensus of international opinion on this subject, intended those who engage in this trade to suffer dire consequences:  hence the provision that assets not themselves attributable to trading in drugs should be at risk of realisation to satisfy a confiscation order.  
         Despite the skill and attractiveness with which Mr Birnbaum has deployed his submissions, we feel unable to accept them.  If we thought, despite the clarity of our own views on the subject, that the House of Lords might reach a different conclusion, then we should conceive it to be our duty to give leave to appeal in this court and certify a question for consideration by their Lordships.  We do not however on reflection consider that the issue which has been raised is one which could be determined by the House of Lords otherwise than as we have determined it, particularly in the light of the recent legislation.  For those reasons we dismiss this application for leave to appeal.  
	    Is there any application?  

MR MITCHELL:  My Lord, I think the applicant is legally aided.  
  
THE LORD CHIEF JUSTICE:  If the applicant is legally aided, we make an order for legal aid taxation.  
  
MR BIRNBAUM:  My Lord, he is.  
  
THE LORD CHIEF JUSTICE:  I imagine you ask for that, do you?  
  
MR BIRNBAUM:  My Lord, I do.  
  
THE LORD CHIEF JUSTICE:  Yes, we make that order.  

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