Chapter 16
Proceeds of crime requests
Foreign assistance provided by New Zealand
16.18MACMA creates a regime that relies on a combination of registering and enforcing foreign proceeds orders and obtaining domestic orders based on foreign evidence. This regime is heavily reliant on adopting provisions from CPRA.
16.19The MACMA regime allows for New Zealand to provide assistance to foreign countries at each of the four stages of the confiscation process.
The investigation stage
16.20International assistance at this stage largely consists of cross-border information sharing and is governed by inter-agency mutual legal assistance agreements of the type described in Chapter 18. For example, a New Zealand bank may have an obligation to report a suspicious financial transaction to the Financial Intelligence Unit within the New Zealand Police, which may then send that information to an interested overseas counterpart in accordance with an information-sharing agreement.
16.21The only role for MACMA at this stage is that a foreign country may request that the Attorney-General obtain an examination order, a production order, or a search warrant on its behalf under CPRA. These orders are designed to assist in gathering information about potential proceeds or instruments of crime, with a view to possibly making an application to restrain the relevant property. All three orders target slightly different information:
- A search warrant may be obtained to seize evidence about any person’s interest or control over the property or the property itself.
- A production order may be obtained to order a person to produce documents that are in their possession or control that relate to the property.
- An examination order may be obtained to order a person to answer questions or produce documents that may be relevant to the proceeds investigation.
16.22Several technical problems have been brought to our attention regarding this type of assistance:
- The empowering provisions in MACMA require that there must be reasonable grounds for the Attorney-General to believe that the “property” is in New Zealand. Therefore, if there is information about proceeds or instruments of crime in New Zealand but the property itself is overseas, New Zealand cannot provide assistance. Search warrants, production orders, and examination orders are, however, investigative tools usually used to gather information. Whether the property itself is in New Zealand seems largely irrelevant.
- The empowering provision in MACMA concerning search warrants requires that the “property” must be in New Zealand, whilst the empowering provisions concerning examination and production orders require that “all or part of the property” must be in New Zealand. There is no principled basis for this distinction.
- MACMA enables the Attorney-General to authorise the Commissioner of Police to obtain production or examination orders on behalf of a foreign country under CPRA. Before making the CPRA order, a judge must be satisfied that there is reason to believe that the information sought is relevant to an investigation or proceedings “under this Act”, suggesting orders can only be made if the foreign country is, or will be, pursuing a proceeds action in New Zealand. However, at the investigation stage, the foreign country may not know whether it will initiate a proceeds action. Moreover, while the relevant information is in New Zealand, the property may not be.
These problems could be addressed by fairly straightforward amendments to the relevant legislation.
16.23There are two further problems:
- MACMA requires that the foreign criminal investigation or proceeding must relate to property that falls within four categories. One category includes property that belongs to a person who has “unlawfully benefited from significant foreign criminal activity”. While this is defined in CPRA as including a knowledge requirement, it is not clear whether the person must simply know how the benefit arose or whether that person must also know of the criminal offence. If both are required, such persons will be able to plead ignorance of the law, providing an inappropriate avenue for proceeds of crime to be laundered through third parties.
- Due to the way CPRA is drafted, it is not clear whether proceedings that are related to search warrants, examination orders, and production orders are civil or criminal in nature. This has created confusion as to what the applicable appeal rights are, if any.
These two problems are not limited to foreign assistance, but they reflect more general problems with the domestic confiscation regime under CPRA. Further, the issues are not discrete. There would be wide-reaching ramifications both in changing the definition of one of the key concepts in the Act and in classifying proceedings as civil or criminal. The scope of our review does not extend that far.
The restraining stageTop
16.24Under MACMA and CPRA, this intervention may take one of two forms. The New Zealand authorities can obtain an interim foreign restraining order, or they can register a foreign restraining order. The aim of these orders is to secure the potential proceeds or instruments of crime whilst foreign confiscation proceedings are conducted.
16.25In accordance with international best practice, New Zealand would ideally register and directly enforce a foreign restraining order. However, in many cases, it may not be feasible to wait to obtain a restraining order overseas and then register it in New Zealand, as property might be dissipated in the meantime. In this case, the foreign country can request New Zealand to obtain an interim foreign restraining order.
Interim foreign restraining orders
16.26An interim foreign restraining order is a provisional order to secure property for a period of 28 days, during which a restraining order must be made overseas and then registered in New Zealand. The High Court can extend an interim order for a period of up to three months at one time.
16.27The two potentially significant problems with the current provisions are:
- there are different threshold tests for processing the foreign request by the Attorney-General under MACMA and granting the requests by the High Court under CPRA; and
- the process for obtaining an interim foreign restraining order may take too long for it to be effective.
The tests for interim foreign restraining orders
16.28The provisions governing interim foreign restraining orders are contained in CPRA. MACMA only contains an empowering provision, which provides that the Attorney-General may authorise the Commissioner of Police to apply for an interim foreign restraining order. The Attorney-General must be satisfied that:
- there is a criminal investigation in the foreign country in relation to:
- tainted property;
- property that belongs to a person who has unlawfully benefited from significant foreign criminal activity;
- an instrument of crime; or
- property that will satisfy some or all of a pecuniary penalty order; and
- there are reasonable grounds to believe all or part of the property to which the criminal investigation relates is located in New Zealand.
16.29The court must treat an application for such an order as if it is an application for a domestic restraining order and thus must consider whether the property does, in fact, fall within one of the four categories of property described above. This requires a much more extensive examination of the foreign evidence than that conducted by the Attorney-General.
16.30The tests applied by the Attorney-General and the High Court should not be so different. The Attorney-General might be satisfied as to the nature of the foreign investigation, but on the same information, the High Court may not have a clear understanding of the connection between the relevant property and the criminal activity.
16.31As a matter of principle, whether there should be an interim foreign restraining order should be determined by the likelihood of a foreign restraining order being obtained and then registered in New Zealand. It is for the foreign court to ultimately decide whether there is sufficient evidence to justify restraint, and there seems no need for a New Zealand court to make a preliminary decision on this matter. Accordingly, we consider that the Attorney-General and the Court should focus on the foreign proceeds investigation and proceedings rather than focusing on the link between the property and the criminal activity. A focus on the foreign proceedings rather than on the substantive case is consistent with international best practice and New Zealand’s international obligations.
The efficacy of interim foreign restraining orders
16.32The second potentially significant problem with the interim foreign restraining order is delay. Delay can be caused by:
- New Zealand explaining the MACMA and CPRA requirements to the foreign country;
- the foreign country preparing a MACMA request in the requisite form; and
- the Attorney-General considering and authorising the request under MACMA requirements.
Delay undermines the core function of an interim foreign restraining order, which is to secure property as expeditiously as possible pending the registration of a foreign restraining order.
16.33Cabinet has asked whether there is a need for an additional provisional measure to secure property on behalf of a foreign country. The potential features of such a temporary freezing mechanism could be:
- the foreign country could make its request directly to the New Zealand Police or another specialist law enforcement unit;
- the Police could then apply to either:
(i) the Attorney-General for an administrative foreign freezing notice; or
(ii) the court for an interim foreign freezing order;
- the application would be granted if the decision maker has grounds to believe that a mutual legal assistance request for an interim foreign restraining order or to register a foreign restraining order is pending; and
- the notice or order would be temporary, lasting at least 72 hours but no more than a month, and would expire if the mutual legal assistance request was not received within that timeframe.
16.34The Model Legislation supplementing the Harare Scheme includes an optional provision that is of similar effect.
16.35In our view, there is no particular need for CPRA to contain two separate provisional measures for the following reasons:
- Interim foreign restraining orders are unique to the MACMA context. There is no domestic equivalent. Deviation from the domestic confiscation regime should be kept to the minimum required to give effect to New Zealand’s international obligations.
- New Zealand’s international obligations require timely assistance but state that, wherever possible, direct enforcement of foreign orders is preferable to obtaining a domestic order based on foreign evidence.
- The existence of two provisional measures may cause confusion. It may not be obvious which mechanism should be used in a particular case. Further, the New Zealand authorities may find themselves routinely obtaining both types of interim order prior to eventually registering the foreign order. At the least, this would be unnecessarily duplicative.
16.36It would be better to have one process. One possible option would be to move from an order to a notice and allow the Attorney-General to make the notice without reference to a court. As originally drafted, the Criminal Proceeds (Recovery) Bill provided for administrative examination and production notices rather than court orders. As the Bill passed through the House, Parliament decided that these notices were sufficiently intrusive as to require judicial oversight. This is because the order prevents a person from dealing with his or her own property. On the other hand, it is only a temporary measure that could potentially last for as little as 72 hours. If the notice lasted for such a short time, however, this would create an additional difficulty of what to do next, as the foreign country’s mutual assistance request would not be ready within that timeframe. In the end, we are not convinced that there is a need for an administrative foreign restraining notice. There is no domestic equivalent to such notices, and we have not been informed of any real-life cases where property was dissipated before a court could be adjourned.
16.37The better option would be to streamline the existing process for obtaining an interim foreign restraining order. The time taken to prepare a formal MACMA request seems to be the main source of delay. One possible solution might therefore be to remove the requirement in MACMA that the Attorney-General must receive the formal request from the foreign country before authorising an application for an interim foreign restraining order.
16.38However, it would not be appropriate for New Zealand to provide this type of assistance solely on the basis of an informal request. The balance between the law enforcement need for expeditious restraint and protecting individual property rights might be struck by the following process:
(a) The foreign central authority should make the request.
- Only a central authority could provide an assurance that a formal request for such assistance is pending.
(b) The New Zealand Central Authority should receive the request.
- There is still a need for the New Zealand Central Authority to play a gatekeeping role over interim foreign restraining orders. The foreign country is requesting the use of coercive powers, and it would not be appropriate for New Zealand to provide this type of assistance solely on the basis of an informal request.
(c) The request should contain the requisite assurances that:
- the foreign central authority understands the MACMA requirements governing the registration of a foreign restraining order and that the relevant MACMA request is pending; and
- the foreign country will contribute to, or meet, any costs order associated with the interim foreign restraining order proceedings in New Zealand.
(d) In deciding whether to allow an application for an order, the New Zealand Central Authority should consider:
- whether it is likely to receive a MACMA-compliant request from the foreign central authority to register a foreign restraining order within 28 days; and
- whether the foreign country understands New Zealand’s requirements for registering a foreign restraining order and being satisfied with the foreign country’s assurance that their pending request is likely to meet those requirements.
(e) In decided whether to grant an order, the High Court should consider:
- whether the Attorney-General has followed due process (that is, the court should check that the Attorney-General certifies satisfaction with received assurances).
Question
Q61 Should the current interim foreign restraining order regime in MACMA be reformed?
Foreign restraining orders
16.39The process for registering a foreign restraining order is largely contained in MACMA. Under MACMA, the Attorney-General may authorise the Commissioner of Police, in writing, to make an application for registration.
16.40The Commissioner of Police’s application must be accompanied by a sealed or authenticated copy of the foreign restraining order. If the court is satisfied that the restraining order is in force in the foreign country, it must register the order. The foreign restraining order will then have effect in New Zealand as if it was a restraining order made under CPRA, subject to certain exceptions.
16.41CPRA contains specific procedural rules governing matters such as the process of applying for registration, the duration of registration, and the ability of the court to grant relief to affected third parties.
16.42Several concerns have been raised regarding the process of registering foreign restraining orders in New Zealand. Two concerns are addressed by the Organised Crime and Anti-corruption Legislation Bill, which proposes:
- extending the period for which foreign restraining orders may be registered beyond the current three-year maximum limit; and
- providing that an application for the registration of a foreign restraining order may be made on a “without notice” basis.
Legal expenses
16.43There remains a concern as to whether there should be any constraint on a respondent’s ability to pay legal expenses out of restrained assets.
16.44Under CPRA, the High Court may make a domestic restraining order subject to any conditions it considers fit. This may include conditions that provide for expenses (such as living or business expenses) to be met out of a respondent’s restrained property. The court, however, may not allow legal expenses to be paid out of restrained property.
16.45This legal expenses exception does not apply to MACMA foreign restraining orders registered in New Zealand. This means that the High Court currently has discretion to release funds that are subject to a registered foreign restraining order to allow the respondent to pay their legal expenses. If legal proceedings in New Zealand become protracted, this could have a significant effect on the value of the assets that are restrained.
16.46Historically, the Proceeds of Crime Act allowed for restrained funds to be released for legal expenses, regardless of the type of restraining order. CPRA changed this position but only in relation to domestic restraining orders. The expectation was that legal aid would be available for respondents. This policy shift was not universally endorsed.
16.47The relevant provisions of the Legal Services Act 2011 that allow for legal aid also appear to apply to respondents whose property is restrained by virtue of a registered foreign restraining order.
16.48The concern that foreign law, and foreign restraining orders, might contemplate payment of legal fees could explain the different treatment of legal expenses in this context, but that explanation would only apply to some, rather than all, foreign restraining orders.
16.49Arguably, the possibility of a foreign restraining order containing a provision allowing for the release of funds to pay legal fees is covered by section 135 of CPRA, which provides that, if a foreign restraining order is registered in New Zealand, the property “is not to be disposed of, or dealt with, other than is provided for in the order”. If the foreign order contains a provision allowing for the release of funds to pay legal fees, that provision can be given direct effect in New Zealand, that is, the person can apply to the Official Assignee to release funds in accordance with the foreign order.
16.50We do not wish to re-open the debate as to whether the legal expense exception is appropriate in the context of domestic restraining orders. Again, that issue is outside of the scope of our review. However, we see no basis to distinguish between domestic and registered foreign restraining orders in relation to legal expenses. Accordingly, we see the current options as being:
- extending the exception in CPRA so that it applies to both kinds of orders;
- retaining the High Court’s unfettered discretion for foreign registration orders; or
- circumscribing the High Court’s discretion. This could be done by creating a presumption against releasing restrained funds for legal expenses if the relevant order is a foreign restraining order. The onus would then shift to the respondent to show why his or her case should be treated as an exception to the norm.
Question
Q62 Should the High Court be able to release funds restrained under a registered foreign restraining order to allow a respondent to pay legal expenses?
The forfeiture stageTop
16.51We are not aware of any concerns regarding the appropriateness or effectiveness of the assistance that New Zealand provides at the forfeiture stage in the confiscation process.
16.52The Commissioner of Police can register a foreign forfeiture order, which vests the property specified in the foreign forfeiture order in the Crown absolutely. The property is then taken into the custody and control of the Official Assignee.
16.53The registration process itself is similar to the process for registering a foreign restraining order. MACMA empowers the Attorney-General to authorise the Commissioner of Police to make a registration application to the High Court. The application must be made on notice. The High Court must then register the foreign forfeiture order if it is satisfied that the order is in force. The Court does, however, have the power to grant relief to an individual who has an interest in the forfeited property, in certain circumstances. This may include the person who is the subject of the order. An application for relief must be made to the High Court within six months of the registration of the foreign forfeiture order.
The disposal stageTop
16.54Unlike the other stages in the confiscation process, the international assistance that New Zealand provides at the disposal stage is not prescribed by statute.
16.55International best practice on confiscation requires that countries be willing to share assets and to enter into general agreements, including formal bilateral asset-sharing agreements, with other countries. In negotiating these general agreements, international treaties and best practice suggest that consideration should be given to:
- returning property to its legitimate owners;
- compensating victims of the crime;
- returning property to the requesting foreign country; and
- deducting the reasonable expenses of the requested country. This would usually include costs associated with the storage, administration, and realisation of forfeited assets but not the costs of the domestic investigation or proceedings relating to the execution of the mutual assistance request.
These considerations may be prioritised in a different order depending on the nature of the underlying crime.
16.56Given New Zealand’s relative size and geographical isolation, it may not be feasible to negotiate a comprehensive round of general asset-sharing agreements. Statutory guidance on New Zealand’s preferred approach would, however, help to create a framework for future negotiations, and it would at least provide a greater degree of transparency for foreign countries than is currently the case. This guidance could be as broad as a statement that the Central Authority (in consultation with the Ministry of Foreign Affairs and Trade) may enter into an agreement with the requesting country for the final disposal of the confiscated or forfeited property. Alternatively, it could provide the broad statement and could list, and even prioritise, the considerations that the Central Authority will take into account in making such an agreement.
Question
Q63 Do you think MACMA should acknowledge the ability of the Central Authority to enter into case-by-case asset-sharing agreements with foreign countries?
