On October 13, 2016, the Criminal Finances Bill was introduced to the UK's House of Commons. The Bill contains provisions concerning the proceeds of crime, amendments to existing legislation concerning investigations, money laundering, civil recovery, and enforcement powers, concerning terrorist property. It also creates a new corporate offence of failure to prevent the facilitation of tax evasion. Alongside the Criminal Finances Bill, the Home Office has published a response to the consultation on the reform of the anti-money laundering and counter-terrorist financing regime (the "Response").
The Response makes a number of proposals, including the introduction of unexplained wealth orders and other forms of civil forfeiture. It also proposes reforms to the regime for Suspicious Activity Reports ("SARs"), as well as proposals for an increase in the information sharing powers within the private sector.
The Criminal Finances Bill
The current legislation for the recovery of criminal property and the money laundering reporting regime are contained within the Proceeds of Crime Act 2002 (POCA), with the law concerning terrorist financing being contained in the Terrorism Act 2000 and the Terrorist Asset-Freezing etc. Act 2010. The Bribery Act 2010 also creates an offence of corporate bodies failing to prevent bribery.
The October 2015 National Risk Assessment of Money Laundering and Terrorist Financing (the "National Risk Assessment") identified and assessed the money laundering and terrorist financing risks faced by the UK. It focused on the reform of the money laundering regime, with a commitment to building a new partnership with the private sector. The National Risk Assessment led to the Home Office consultation on the reform of the anti-money laundering and counter-terrorist financing regime. The response to the consultation was published on the same day as the Criminal Finances Bill—October 13, 2016.
The Criminal Finances Bill was introduced to the House of Commons on October 13, 2016. It contains four parts, as follows.
- Part 1 - concerning the proceeds of crime, amendments to existing legislation to investigations, money laundering, civil recovery, and enforcement powers.
- Part 2 - concerning terrorist property.
- Part 3 - creating a new corporate offence of a failure to prevent the facilitation of tax evasion.
- Part 4 - making some minor general amendments.
The Proceeds of Crime
A new innovation is the creation of the Unexplained Wealth Order ("UWO"). This is also discussed in the Response. This is an order requiring a respondent to provide a statement setting out the nature and extent of the respondent's interest in the property in respect of which the order is made. The respondent is also required to explain how he or she obtained the property. Where a respondent is unable to provide an explanation, the property could be seized by the law enforcement agencies.
There are limited circumstances in which a UWO can be made. These are as follows:
- The respondent must hold the property.
- The value of the property must be greater than £100,000.
- There must be reasonable grounds for suspecting that the known sources of the respondent's lawfully obtained income would have been insufficient for the purposes of enabling the respondent to obtain the property.
- The respondent must be either a politically exposed person, or there must be reasonable grounds for suspecting that the respondent is (or has been) involved in serious crime, either in the UK or elsewhere.
- There is also a new criminal offence of making a false or misleading statement in responding to a UWO.
The Bill also contains a new power in relation to the recovery of a listed asset, being one of the following:
- precious metal;
- precious stones;
- works of art; and
- postage stamps.
Whilst the Terrorism Act 2000 imposes requirements on regulated firms to report suspicions of terrorist activity, the Criminal Finances Bill aims to improve the sharing of information within the regulated sector in cases of suspected terrorist financing. This "information sharing gateway" is discussed in the Response and the proposals are discussed in the next section of this briefing note. There are a number of conditions and safeguards in relation to the disclosure of information, and the Bill also envisages a further information notice, which would direct the person to whom it is given to provide the law enforcement officer with further information.
Failure to Prevent Tax Evasion
The Criminal Finances Bill creates two new offences in relation to tax evasion. Both relate to "failing to prevent". These are as follows:
- a failure to prevent the facilitation of UK tax evasion offences; and
- a failure to prevent the facilitation of foreign tax evasion offences.
Under the Bill, it would be an offence for a company or a partnership (or a person associated with it) to commit a UK tax evasion facilitating offence, whilst acting in that capacity. A UK tax evasion offence is any offence of cheating the public revenue and any other offence in the UK concerning the fraudulent evasion of a tax, thereby including evasion of duty and VAT fraud. There is a defence where the company or partnership is able to prove that it had in place such prevention procedures as was reasonable in all the circumstances, or it was not reasonable in all the circumstances to expect prevention procedures to be in place. "Prevention procedures" are defined as procedures designed to prevent persons acting in the capacity of a person associated with the company from committing UK tax evasion facilitation offences.
There is also an almost identical offence in relation to the facilitation of foreign tax evasion. A foreign tax evasion offence means conduct which:
- Amounts to an offence under the laws of a foreign country.
- Relates to a breach of a duty relating to a tax imposed under the law of that country.
- Would be regarded by the courts of any part of the UK as amounting to being knowingly concerned in, or in taking steps with a view to, the fraudulent evasion of that tax.
There are similar defences to this offence.
The Criminal Finance Bill is still at the first reading stage and is likely to be amended significantly before it becomes the Criminal Finance Act 2017.
Home Office Response to Consultation on Reform of Anti-Money Laundering and Counter-Terrorist Financing Regime
The National Risk Assessment identified and assessed the money laundering and terrorist financing risks which are faced by the UK, focusing on a more robust law enforcement response; reforming the supervisory regime; and increasing the UK's international reach.
The National Risk Assessment lead to a consultation by the Home Office on the reform of the anti-money laundering and counter-terrorist financing regime. The response to this consultation was published on the October 13, 2016, being the same day as the Criminal Finances Bill. Accordingly, it complements the Criminal Finances Bill.
The Response sets out the ways in which the Government proposes to reform the anti-money laundering and counter-terrorist financing regime in the UK. The key areas of reform discussed in the Response are as follows.
SARs Reform Programme
The Government proposes to initiate a SARs reform programme, which will encompass IT and process improvements, as well as introducing immediate legislative changes to create a power for the National Crime Agency ("NCA") to obtain further information from a regulated business following receipt of a SAR; and to extend the investigative period in which law enforcement agencies can prevent a transaction from going ahead, whilst they gather the evidence necessary for a law enforcement intervention.
The Criminal Finances Bill proposes to amend POCA in order to allow the extension of the moratorium period by a court (at the request of a senior officer), for periods of up to 31 days, with a total of 186 days. This is likely to be the subject of some concern, as this protracted period of time could cause the failure of a corporate deal. Nevertheless, the NCA would be obliged to go to court to get an extension and would have to prove the rationale for it, so it is likely that the maximum 31-day consent period will be the normal position, with the extension being more unusual.
Unexplained Wealth Orders
This would require an individual to explain the origin of assets that appear to be disproportionate to that individual's known income. An UWO would have to be made by a court. In circumstances where a respondent refused to comply with the order (and failed to provide an explanation) the court would be able to make a rebuttable presumption that the property in question were "recoverable property" under the existing civil recovery powers in POCA. The UWO would be subject to the relevant property being aggregated to a minimum value threshold (a sum of £100,000 is proposed) and that there were reasonable grounds to suspect that known income was insufficient to obtain the property. UWOs could be used against any person that law enforcement agencies have reasonable grounds to suspect have links to serious crime; and also against overseas politically exposed persons ("PEPs").
Little information has been provided to date on the meaning of "reasonable grounds to believe the suspect has links to serious crime." This will need to be considered further. However, generally UWOs should assist participants in the industry. Currently, financial services firms are obliged to establish the source of wealth and the source of funds of high-risk customers, including PEPs. UWOs should give some of that responsibility to the enforcement agencies, rather than the entire onus falling on the firms.
Information Sharing Gateway
The Report outlines the proposals for a new information sharing gateway for the exchange of data on suspicions of terrorist financing and money laundering between private sector firms, with immunity from civil liability. The Criminal Finances Bill seeks to enable firms in the regulated sector to share information on suspicion of money laundering and terrorist financing with one another, under the legal "safe harbour" of immunity from criminal or civil liability, subject to sufficient safeguards. This will mean that it should be compatible with the data protection obligations. This will also enable the submission of joint SARs, allowing firms to provide a complete picture of a money laundering scheme that crosses multiple firms, rather than submitting individual SARs to the UK Financial Intelligence Unit, thereby providing an incomplete picture.
It is to be hoped that this new ability to share information will prevent the all-too-common scenario, where a bank refuses to provide banking services to a customer, but the customer moves to a new bank, with the first bank being powerless to provide information on that customer to the second bank. Some concern has been expressed that the measures could lead to customers being unfairly "blacklisted," but the legislation does contain safeguards, such as requiring information to be shared with the NCA, which it is to be hoped should prevent this happening.
Seizure and Forfeiture of Criminal Proceeds
New civil powers are to be introduced to enable the more effective seizure and forfeiture of criminal proceeds held in bank accounts, without the need to secure a conviction. The Response provides little information on this, but it does say that the Government believes that the existing civil recovery powers are too narrow and that the £10,000 de minimus threshold is too high.
Few details have been given, so it is difficult to anticipate how the Government anticipates this working. The FCA already has a significant ability to recover the proceeds of crime, so it is yet to be seen how the FCA would use this new power in practice—or if it uses it at all.
Power to Seize and Forfeit "Portable High Value Items"
A power will be introduced to enable the seizure and forfeiture of portable high value items which may be used to store and move the proceeds of crime, such as gold and precious stones. The concern here is that without this power, the stronger cash controls being introduced may divert criminal assets from financial institutions into such high value goods. Certainly, there is a gap in the current legislation that prevents law enforcement agencies from being able to take effective action against forms of property, such as precious stones and gambling slips, that are used for money laundering purposes. Hence, a new power will be introduced to seize and forfeit such readily moveable property. The new powers will have a threshold of £1,000 and will be operable in the Magistrates Court. They will have appropriate legal oversight, but the Government believes that they should provide "a more flexible and swift tool to tackle money laundering."
The Criminal Finances Bill is currently at the first reading stage and is likely to be subject to considerable amendment before becoming the Criminal Finance Act 2017.
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