But they cannot ring fence assets derived from fraud
On 26 March 2021, John Bracken was convicted of New Zealand’s largest GST fraud having fraudulently obtained $17,311,262.29 in GST refunds over a period of four years.
On 23 February 2026, the Commissioner of Police applied to the High Court for a profit forfeiture order over property in which Mr Bracken had an ‘interest.’ In other words, the Commissioner sought to recover assets unlawfully obtained from Mr Bracken’s criminal activities.
The most valuable assets acquired from Mr Bracken’s criminal activities, however, were held by the Bracken Family Trust and not himself personally.
Despite this, under the Criminal Proceeds (Recovery) Act 2009 (CPRA), the court determined that the trust must forfeit $13 million of its own assets in response to Mr Bracken’s offending as he had an ’interest’ in the trust property.
Criminals may not profit from their actions
For the court to make a profit forfeiture order, it had to be satisfied that Mr Bracken had ‘unlawfully benefited from significant criminal activity’ and that he had ’interests’ in property.
It was quite clear that Mr Bracken had unlawfully benefitted from a significant criminal activity, so the question turned to whether he had an ‘interest’ in the trust’s property.
Discretionary beneficiaries cannot usually be said to have an ‘interest’ in trust property, because the property is legally owned and controlled by the trustees, not the beneficiaries. Discretionary beneficiaries do not have a legal right to the trust’s property, only a hope that the trustees might decide to distribute something to them, or that they will receive what is left when the trust comes to an end.
The Bracken Family Trust was unusual though, because Mr & Mrs Bracken had reserved a lot of power to themselves: they were settlors, trustees, discretionary beneficiaries, final beneficiaries and, as ‘Principal Family Members’, had the power to remove beneficiaries, and appoint and remove trustees.
Moreover, under the CPRA, an ‘interest’ in relation to property is much broader than simply owning something. It includes not only a legal or equitable interest in property, but also a right, power or privilege connected with the property.
In addition, the court can treat having ‘effective control over property’ as an ‘interest in property.’ As a part of this analysis, the court can have regard to ‘any trust that has a relationship to the property.’
The court determined Mr Bracken had both:
- An ’interest’ in the trust property both because he was a final beneficiary of the trust and due to his powers as a ‘Principal Family Member,’ and
- Effective control over the trust property, which was also due to his powers as a ‘Principal Family Member’ and that he was a trustee.
After much complex legal argument, the profit forfeiture order was granted with a maximum recoverable amount of $16,019,231.16, around $13 million of this was trust-owned property. The trust could retain the family farm (valued at $3.780 million), as this would allow the innocent beneficiaries to continue to benefit from this generational family asset. All the other remaining trust property was to be forfeited.
Trusts cannot shield ill-gotten gains
This case shows that while well-drafted trusts remain valuable and legitimate estate planning tools, they cannot be used as a shield for assets that have been acquired through crime – particularly in cases where the perpetrator has retained so much power over the trust assets that such power is tantamount to property (or an ‘interest’).
The court’s decision was said to be a strict statutory interpretation exercise, and there are clearly legitimate policy (and societal) reasons behind the CPRA having such a strong stance. It remains to be seen, however, whether a case involving a trust over which a criminal has few or no powers would result in the same outcome.
This case shows an intriguing relationship between statutory intervention and orthodox trust principles – giving us much to ponder.
