Towards the end of last year, the Serious Fraud Office (SFO) recovered £295,000 ($382,000)from two pension funds of a convicted fraudster. Virendra Rastogi was convicted in 2008 of masterminding a worldwide metals trading scam that defrauded financial institutions out of hundreds of millions of dollars. 

Following the conclusion of the criminal trial, the SFO has pursued confiscating cash and other assets from Rastogi and his criminal associates. A confiscation order of £20m ($26m) had been awarded against him. Having received an original sentence of nine and a half years, in 2013 he was sentenced to a further seven years in prison after failing to pay the confiscation order. In 2015, Rastogi contributed £5.4m ($7m) towards the confiscation order when his mansion was sold to satisfy the court order. 

The recovery of his pension funds 16 years after the original sentence is another example of the reach of the Proceeds of Crime Act 2002, both in terms of assets law enforcement can go after and in terms of time frame.

Pension savings targetted

So what pension savings can law enforcement go after? When an individual is convicted in a criminal court, the prosecuting authority can seek a confiscation order as part of the sentencing. In essence, a confiscation order is an order to pay a sum of money to the state which represents the benefit from that person’s offending. It has been described as an order designed “to deprive defendants of the benefit they have gained from relevant criminal conduct, whether or not they have retained such benefit, within the limits of their means.”

The confiscation order can be enforced against any “realisable property” held by the accused/defender or the recipient of a tainted gift, regardless of whether that property has been obtained legitimately or not.

The definition of realisable property is wide, and broadly speaking can be all forms of property – it can therefore include pension funds. This may arise where the individual has paid contributions into a pension fund using money obtained from “unlawful conduct.” These are usually paid into a personal pension. Given the wide reach under the Proceeds of Crime Act, law enforcement bodies may deem pension benefits built up in occupational pension schemes to be “realisable property” as well, even if those benefits haven’t come from “unlawful conduct.”

Civil recovery powers

In short, civil recovery powers enable law enforcement agencies, such as the police, to seek a recovery order to recover property that was obtained from “unlawful conduct”, on a civil standard of proof.  Civil recovery proceedings may be brought whether or not criminal proceedings have been raised. 

While the law enforcement priority remains prosecution followed by confiscation, civil recovery proceedings provide a useful tool where for example a criminal prosecution cannot proceed, has failed or confiscation is not an option. This can arise for example where an accused/defendant has died prior to the case reaching trial, there is insufficient evidence to the higher criminal standard of “beyond reasonable doubt” or the accused/defendant has disappeared/has fled to a jurisdiction from which there is no prospect of extradition.

Again, the civil recovery powers can be enforced against all forms of property which are alleged to be derived from unlawful conduct. It can therefore also include funds held in pensions if they are alleged to be derived from unlawful conduct, whether in their entirety or in part and whether the funds are held in the name of the person who committed the unlawful conduct or not.

Key points

So how does this affect pension providers and trustees of pension schemes? As noted above, law enforcement bodies may wish to investigate whether benefits built up in occupational pension schemes or personal pension funds could be recoverable in confiscation proceedings or under the civil recovery powers.

Unless a case is high profile and the accused/defender’s name is splashed across the front pages, it is likely that the first you will learn that you are holding pension funds that are of interest as part of a confiscation or civil recovery investigation is when an investigatory order is served on you by law enforcement using powers under the Proceeds of Crime Act 2002.

Often the law enforcement bodies will first want to obtain further information about the individual’s pension savings – they achieve this through investigatory orders.

Investigatory orders

There are various types of investigatory orders which might be sought, most commonly production orders or disclosure orders.  The type used in each case will depend on a range of factors, including the facts and circumstances of the case and the information/material that law enforcement is interested in. 

However, all of these orders are court-approved, meaning that before you can be served the court must be satisfied that you hold information likely to be of substantial value to the investigation, and that it is in the public interest to obtain this information.

The powers these confer can be broad ranging, potentially requiring the provision of documents, or more broadly information, and within an often limited timeframe.

That an investigatory order is served doesn’t suggest any wrongdoing by the person it is served on, rather that they may hold information which is relevant to that particular investigation. 

The investigatory order, whatever its form, does not extend to any documentation or information covered by legal privilege. Generally, this will be stated in the order, but even if not, materials which are privileged cannot be recovered and if you’re in any doubt, please seek our advice on what should and should not be done.

However, these orders do generally “trump” other restrictions on disclosure of information, for example under data protection provisions or common law duties of confidentiality.

It may seem obvious, but you should not share the information that an investigatory order has been served on you beyond a “need to know” basis. That means you should not tell the person whose pension is the focus of the investigatory order that this is the case. To do so is a criminal offence, punishable by imprisonment of up to five years in jail. 

Confiscation or recovery orders

If the investigatory process ultimately leads to a confiscation order or a recovery order, this will result in an order from the court which will set out clearly what funds are to be paid over. This may determine that some or all of the pensions savings are to be paid over in satisfaction of the order.

This can be a complex area to navigate alongside complying with requirements under pensions legislation in relation to the individual’s pension, particularly if the individual is looking to take their benefits or are requesting information about their benefits. Having a clear understanding of the law enforcement process and what can be communicated to the individual is key to appropriately manage any requests from the individual.

Where pension savings are in an occupational pension scheme there is additional complexity to be cautious of. There is a conflict between trustee duties under section 91 of the Pensions Act 1995 (which prevent inalienability of pensions in occupational pension schemes except in prescribed circumstances) and the Proceeds of Crime Act.

There can also be tax implications where pension funds need to be drawn down/realised to meet a confiscation order.  This needs to be carefully navigated based on the specific circumstances of the case and the terms of the order made by the court.

Seek legal advice

Where you look after a pension scheme it is important that, prior to satisfying/responding to requests from law enforcement bodies, you fully understand your obligations under pensions legislation, and that the orders you receive are in a form that you can comply with in the specific circumstances of the case.

Often close liaising is required with the law enforcement body prior to orders being complied with to manage the competing legal obligations.

If you’re served with a production order or a disclosure order or receive an enquiry from the police or other law enforcement agencies, it is advisable to seek legal guidance on the response/engagement process.