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Does He Have A Point? – Wayne Patterson’s Complaint of the Crown’s Unjust Enrichment


Benefit fraudster par excellence Wayne Patterson – now well into his eight-year prison term for perpetrating New Zealand’s most spectacular benefit fraud to date – has written to the media complaining of the Crown’s “legalised theft” of profit from investments Patterson made before being caught.  (See ) He claims that he has been ordered to pay as “pecuniary penalties” much more than he bilked in benefit payments over a  three-year period.  His complaint has been laughed off by Ministry of Social Development chief executive Peter Hughes.

Though, it seems that the Crown is not denying that it has recouped – or will eventually recoup – much more than it paid out.  As well as being a consummate con-man, Patterson was seemingly a canny investor.   He reportedly invested a significant chunk of his ill-gotten gains in gold and stocks – particularly shares in Apple Inc.  The value of gold has of course been heading north for the past couple of years, courtesy of the global financial crisis and attendant “flight to safety”.  As I write this, an ounce of gold is fetching around US$1,500 on international markets, compared with $600-odd during 2006, Patterson’s third and last year of offending.  And Apple can seemingly do no wrong these days.  At the beginning of 2007, around the time the Crown was in a position to seek control of Patterson’s investments, a share in Apple Inc traded at around US$85.  At the beginning of this month – April 2011 – the share price was $350 give or take.  To put it simplistically, every dollar of benefit receipts which Patterson put into Apple stock in, say, 2006 is worth four to five dollars today.  We’ll have that, thanks very much, says the Crown.

But it’s worth keeping in mind that, under the statutory regime by which the Crown claims the benefit of Patterson’s investments, the gold bullion and the stocks which he acquired are not the Crown’s property.

The operative legislation is the Proceeds of Crime Act 1991, since replaced by the Criminal Proceeds (Recovery) Act 2009, but still in force for cases which arose during its lifetime.  In essence, the Proceeds of Crime Act provided for forfeiture of specific assets used in the commission of a crime (eg, a getaway car used in a bank robbery or a house converted to a P lab) and for the making of a “pecuniary penalty” order in respect of the proceeds of a crime.

It is this second mechanism which applies in the Patterson case. Under s. 25 of the Act, the court making the order had first to be satisfied that the defendant had “derived benefits” from the commission of the crimes of which he’d been convicted and had then to assess the value of such benefits.  Having done so, the court could order the defendant to pay to the Crown an amount “not greater than” that assessed benefit.  The order operated in law as a debt due to and recoverable by the Crown in civil proceedings.

The underlying assumption is that, at some fixed point in time (the point at which the order is to be made), there will be evidence of an identifiable benefit to the perpetrator which derived from the offending.  The benefit could be in the form of cash (Patterson reportedly had $750,000 in folding stuff stashed in his garden) or it could be property of any conceivable type, so long as the link back to the crime could be established to the court’s satisfaction.

It’s also apparent from s. 28(2) of the Act that the “pecuniary penalty” could reflect any accretion in the value of such benefit (called “excess”) in the period up to the point at which the order was made.

There was nothing in the Proceeds of Crimes Act to say that a pecuniary penalty order had to be equated with the monetary gain from the offending per se.  The inquiry was directed to the difference in value of the defendant’s assets before the offending started and some point during or after it had ceased.  But an underlying presumption is surely that, from the moment the order was made, the value of those assets would be fixed.  Certainly there was no mechanism – at least no specific mechanism – in the Act for the Crown to keep going back to the court to get a new pecuniary penalty order at an inflated amount to reflect an ongoing appreciation in the value of the defendant’s property.  Yet, presumably, this is what has been happening in Patterson’s case.

Moreover, a pecuniary penalty order under the Proceeds of Crime Act did not operate to transfer to the Crown ownership of property acquired by the defendant – known as “tainted” assets.  Instead, another provision – s. 29(3) – empowered the court to “make an order declaring that the property is available to satisfy the [pecuniary penalty] order”.  Given that (as noted above) recovery of the pecuniary penalty was to mimic civil proceedings for debt,  s.29(3) seemingly operated as a charging order in favour of the Crown over the specified asset.  That is to say, the Crown could if needs be (ie, if the defendant didn’t acquiesce) seek an order compelling the sale of the asset, with its liquidated value being applied in satisfaction of the pecuniary penalty order.

So far, so good.  But applying ordinary principles, if a creditor obtains and executes  a charging order over its debtor’s asset and it transpires that the asset is worth more than the debt, there is no question of the creditor being able to keep the excess.  Manifestly that would be seen as an unjustifiable windfall.  The balance left after the debt is discharged would belong to the debtor.  Again, it needs to be stressed that it is not the creditor’s asset – its interest is only to the extent of the debt due.

Is the position otherwise with a pecuniary penalty order under the Proceeds of Crimes Act?  Well, in the limited opportunity afforded me by the World Wide Web from here in Bulgaria, I can’t say with any certainty.  In particular, I haven’t been able to find any authoritative statement one way or the other.  There may be a case exactly on point but accessible only via a pay website (such as LexisNexis in New Zealand).

So I’m sticking with general principles.  Responding to Patterson’s complaint, MSD boss Hughes  retorted that Patterson was “deluded” if he thought he had any entitlement to the profit to be had on liquidation of the bullion and stocks acquired by him from the proceeds of his benefit fraud.

Indeed the very idea, according to Hughes, was “as appalling as it is outrageous”.  And yet, s. 28 of the Proceeds of Crimes Act contains words which suggest that Patterson’s grievance should not be so easily dismissed.  Sub-section (3) stated that if the defendant could satisfy the court that all or part of the increase in value of a proceeds-derived asset “was due to causes unrelated to the commission of the offence or offences”, that “excess” was not to be included in the amount of the pecuniary penalty.

We have here a situation where Patterson defrauded the Crown of $3.4 million or thereabouts.  Ergo, he owed the Crown that amount (plus costs of detection and recovery, let’s assume).  Through savvy investment, he converted the proceeds of his criminal conduct into assets worth a great deal more than $3.4 million.  The increase in the value of the gold bullion is attributable to the global financial crisis;  the increase in the value of Apple stock is attributable to the continuing Steve Jobs miracle and the spectacular success of recent Apple product launches, notably iPad.  It seems clear enough that these are events unrelated to Patterson’s offending.

Additionally,  it needed Patterson’s  investment choices to materialise these gains.  Is there not the basis of some intervening cause or causes of the kind envisaged by s. 28(3)?  Of course, Patterson would not have been in the position to make these choices had he not perpetrated his massive frauds in the first place.  But he could have squandered the bulk of the proceeds, as many of his ilk do, on gambling, loose women and high-living.  Instead, it seems (again courtesy of MSD’s Hughes, in a 2007 press release) that Patterson contented himself with “tropical fish and gardening” – albeit on a lavish scale.

We now know Wayne Patterson was an experienced fraudster on an international scale.  He had done time in the United States and Australia. His crimes in New Zealand were enormous.  But he acknowledged them when caught (he pleaded guilty), he co-operated with the Crown in recovery of the amount he obtained (the MSD said so), and he got eight years in jail (with a non-parole period of five years).  In short, it might be thought, justice has been done.

Yet, the stance of the MSD’s Hughes is that his outfit is entitled to extract as much as it wants – and is able to get – from the assets Patterson purchased with the benefit payments.  Back in 2007, the ministry published a table showing that it would actually recoup $467,000 more than it had paid out to Patterson (see its press release at and the link at the bottom to a spreadsheet “Reconciliation of Payments Made ).  But now it seems the windfall will be in the millions of dollars.

Let’s note again:  the assets which the Crown is – apparently – exploiting for this purpose do not belong to it.  If the Crown is – as seems to be the case – holding on to the Apple shares (and the gold) in order to ride the market and extract even more funds at the end of the day, on what basis can it justify that behaviour?  The notion that “crime doesn’t pay”?  The Crown, through the ineptitude of the MSD, lost $3.4 million.  It got it back with interest.  The rationale of the Proceeds of Crime Act has seemingly been manifested and satisfied.  Is it not now the Crown that might be accountable for its unjust enrichment?


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