The Criminal Finance Act will be a powerful weapon against money laundering & tax evasion

The Criminal Finances Bill is due to come into force this summer. When passed, it will be a major piece of legislation which will add further powers to combat money laundering and terrorist financing as part of the Government’s Serious and Organised Crime Strategy.

The Act will give additional powers to law enforcement officers to assist them in recovering the proceeds of crime and international corruption. There will also be provisions to assist in returning assets to victims.

In 2002 the Proceeds of Crime Act (or POCA) was passed. POCA was described by the Court of Appeal as deliberately Draconian, there can be no doubt however that it has been a particularly successful tool for law enforcement agencies. It gave extensive powers to law enforcement agencies to freeze monies or assets which were believed to be criminal in purpose or origin. The Act also required the courts to make orders to confiscate any available assets held by criminals convicted of certain acquisitive crimes (such as fraud, drug dealing and trafficking), in so far as these assets could be used to repay any benefit the criminals had received from criminal activity. Failure to repay would result in a further sentence of imprisonment being added on to the sentence already being served.  Frequently these default sentences are measured in years.

POCA also places obligations on regulated businesses, such as firms of solicitors and accountants to make Suspicious Activity Reports (SARs) to the National Crime Agency where there is suspicion that a client is seeking to launder money or finance terror. As such it became a requirement of regulated advisers to inform on their clients. One may ask how this can be right as conversations with a lawyer have always been considered confidential. There is clearly a difference however between approaching a lawyer for advice and seeking to use them as an unwitting vehicle for a criminal purpose. Where an SAR is made, it is a criminal offence to tip off a client that the report has been made. Regulated professionals have been sent to prison for tipping off.

This new Act will enhance the existing seizure and forfeiture powers already available under POCA. It will also allow a clear framework for regulated bodies can share information for anti-money laundering purposes. It will also give the National Crime Agency additional powers. They will be able to request further information from a regulated organisation which has made an SAR.

Unexplained Wealth Orders (UWOs) will be an important tool for investigators looking into the affairs of those they consider are involved in money laundering and who hold property valued in excess of £100,000. The Authority seeking the Order must demonstrate the court that the Respondent is a foreign Politically Exposed Person (PEP) or that there are reasonable grounds to suspect that the Respondent is or has been involved in serious crime, or is connected to such a person. The serious crime does not need to have occurred in the UK.  It will require the subject of an Order to explain to a Court the origins of their wealth and how they acquired it. A person suspected of money laundering may be required for example to explain how they acquired an asset – this may take into account their expenditure, including foreign holidays, mortgage, vehicle and school costs etc. as against their declared income. No doubt many will find this very difficult to do.

Where a satisfactory explanation is not given, then the property which was the subject of the UWO will be considered ‘recoverable property’ and can be seized and forfeited. This may include bricks and mortar and other items such as jewellery.

Underpinning the Criminal Finances Bill is “a commitment to building a new and powerful partnership with the private sector.” (Home Office 13 Oct 16)

Two new corporate offences will be introduced when the Act is passed, of failure to prevent facilitation of tax evasion. To commit this offence, the corporate body does not need to be based in the UK as long as it is UK tax which has been evaded by facilitation. This will be the case even if all acts of facilitation took place entirely outside the jurisdiction of the UK.

The Bill takes a similar approach to that seen in the Bribery Act (2010) in respect of the corporate events under that Act of failing to prevent bribery, in that associated persons may also commit an offence, taking into account all relevant circumstances. Certainly this would include agents and employees acting on behalf of a body corporate, but may also include far less formal relationships.

There is further similarity to the Bribery Act in that a defence is available to the body corporate if there were measures in place to prevent an associated person from facilitating the evasion of UK tax and that these measures were reasonable, bearing in mind the level of risk.

The Bill also makes provisions for civil recovery arising from proceeds of human rights abuse cases outside the UK. This will curtail the ability of those who abuse human rights to hide criminal assets within the UK.

The second offence which will be created when the Act is passed (and again on similar lines to the Bribery Act) is failing to prevent the facilitation of tax evasion offences abroad. This can be committed by bodies corporate based in the UK or carrying on part of their business in the UK. Again, there is a defence if the organisation can show the reasonable systems are in place to prevent facilitation of tax evasion offshore.

As with the Bribery Act, critics will argue that the new corporate offences do nothing more than make UK businesses less competitive abroad. Proponents will argue that as a World leading nation, organisations conducting business either wholly or in part within the UK ought to behave properly and with integrity, irrespective of what others are doing.

For my blog on the Bribery Act, please click here http://www.3d-regulatory.co.uk/blog/the-bribery-act-a-paper-tiger-or-a-well-trained-guard-dog

Another similarity to the Bribery Act which we are likely to see where a corporate offences occur may be the willingness of law enforcement agencies to enter into Deferred Prosecution Agreements. In a nutshell, if you’re caught with your hands in the till or you are about to be, or somebody has been in the tail on your behalf that you have found out about it; then you throw your organisation at the mercy of the Authorities, tell them everything, give full transparency, put robust systems in place and Scouts’ Honour not to do it again. If you behave, then at some point the DPA will fall away.

Ignoring the problem or worse, seeking to cover it up would no doubt lead to a prosecution, as we saw with Sweett Group PLC following very naughty behaviour of a subsidiary in the UAE.

There is no clarity yet on whether DPAs will be used when the Criminal Finances Bill is enacated for breaches of the corporate offences, yet the stated desire of the Government to work with businesses, the striking similarities to the Bribery Act and the effectiveness of DPAs make this very likely.

In regulated businesses, COLPs, COFA, MLROs will need to have a clear understanding of the new provisions and ensure systems are in place.

The Act, when past, will add new weapon to an already powerful arsenal available to law enforcement agencies in targeting money launderers, the proceeds of crime, monies intended for terrorism and organisations involved in evading tax.