As part of the process of strengthening our anti-money laundering and terrorist finance regime, the Government has introduced the Criminal Finances Bill (the ‘Bill’).

The Bill proposes new powers and safeguards in four key areas: (i) improving our capability to recover the proceeds of crime, including international corruption; (ii) improving cooperation between public and private sectors; (iii) enhancing the UK law enforcement response; and (iv) combatting the financing of terrorism.

The proposals as to suspicious activity reports (‘SARs’) are significant, creating a power to extend the moratorium period and to ask for further information following a SAR. In addition, the Joint Money Laundering Intelligence Taskforce is to be placed on a permanent footing, enabling a more efficient exchange of information between private sector firms. This article focusses on the introduction of the new corporate offence and unexplained wealth orders.

New Corporate Offence – Failure to prevent facilitation of tax evasion

The Bill presents the long-heralded extension of corporate liability (along the lines of the Bribery Act 2010) to a corporate failure to prevent the facilitation of tax evasion. Plans to extend this kind of liability to fraud and economic offences appear to have been shelved for now.

In much the same form as the government consulted on in spring this year, the new offence is presented as a complicated, triple layer-cake.

In order to find liability, there must be established:

  • A tax evasion offence (by a tax payer);
  • A tax evasion facilitation offence (by an “associated person”) – in this regard it is important to note three things:
    • The tax evasion need not be for the benefit of the company.
    • Accordingly, the “associated person” does not need to be aiming to benefit the company. However, he must be an employee or an agent acting in such a capacity, or must perform “services for or on behalf of” the company and be acting in such capacity. The draft guidance published with the Bill is full of references to persons who act “for or on behalf of a relevant body”. As with the Bribery Act, the question of who may fall into this category has regard to “all the relevant circumstances” and not merely the nature of the relationship. It is “intended to be broad in scope, to embrace the whole range of persons who might be capable of facilitating tax evasion whilst acting for the relevant body”.
    • The distinction between tax evasion and tax evasion facilitation offences is a subtle one. Indeed, a tax evasion facilitation offence appears to be in effect an offence of aiding, abetting, counselling, procuring or indeed even conspiring to commit a tax evasion offence, all with the caveat that a facilitation offence only occurs if the tax payer in fact evades tax as a result of the facilitation. Thus, a conspiracy to evade tax is plainly a tax evasion offence. However, it can only be a tax evasion facilitation offence if the tax payer is successful in his efforts.
  • A failure to prevent such facilitation by a “relevant body” (essentially any legal person that is not an individual), in circumstances where the relevant body does not have a defence that he had in place “such prevention procedures as it was reasonable in all the circumstances to expect [it] to have in place”.

There are both UK and overseas variants of the offence. As one might expect, the overseas variant requires an element of dual criminality and a jurisdictional link to the UK in respect of the facilitation offence.

In the draft guidance, the Government is at pains to try to reassure corporations that:

  • Not much has changed, apparently, regarding the substantive law; and
  • They are not proposing a “zero failure” regime and a relevant body that has put in place “reasonable prevention procedures… will be able to raise a defence”.

Unexplained Wealth Orders (‘UWOs’)

New powers proposed for enforcement agencies include the ability to apply for UWOs. The Bill introduces new sections to the Proceeds of Crime Act 2002 (‘PoCA’) which give the court powers to make an order requiring a person to explain the nature and extent of property in their possession and how they obtained the property, including how they met any costs incurred in so obtaining it.

The UWO may also require the respondent (who can be an individual outside the UK) to provide information, or produce documents, of a specified kind or description. There is no guidance given in the Bill or the Explanatory Notes to suggest what sort of documents might be requested or necessary in order to sufficiently prove it was lawfully obtained.

The only restrictions are that:

  • the value of the property must be over £100,000, but note that where the property in respect of which the order is sought comprises more than one item, the High Court is to look at the total value of the items; and
  • the respondent is a PEP (‘politically exposed person’), a definition which has been widened from that used in the Money Laundering Regulations 2007 and includes “family members” and “associates” of a PEP; or
  • there are reasonable grounds for suspecting that the respondent is, or has been, involved in ‘serious crime’ (such crime does not have to be in the UK), or a person connected with the respondent is, or has been, so involved.

Many consider these proposals go too far. There is no requirement that a PEP be suspected of a serious crime. The mere fact that they have unexplained wealth is sufficient. In relation to those suspected of involvement in serious crime, the authorities do not need to have made any arrests or charged anyone with an offence.

If a respondent fails to comply without reasonable excuse within the response period, the property concerned is to be treated as property obtained through unlawful conduct and as “recoverable property”. The enforcement authority may then seek to recover the property using the civil recovery powers provided by Part 5 of PoCA.

New criminal offences are introduced to PoCA whereby, if, in purported compliance with a requirement imposed by a UWO, a person commits an offence if they make or recklessly make a statement that they know to be false or misleading in a material way. Of course, contempt of court proceedings are another alternative.

New provisions allow the court to issue interim freezing orders in respect of property which is the subject of a UWO.

Disclosure orders

The existing powers under PoCA to make disclosure orders are being extended so that disclosure orders may now also be made in relation to investigations into a wider range of money laundering and other offences. Investigating authorities would no longer need to obtain authorisation from prosecutors in order to obtain disclosure orders and can instead rely on the authorisation of senior officers within the relevant investigating authority.

Enforcement officers already have the ability under PoCA to search premises for, and seize ‘cash’ defined as notes and coins, postal orders, cheques of any kind, bankers’ drafts and bearer bonds and bearer shares. Under the Bill, they may now search for and seize a broader range of items (defined as ‘Listed Assets’) and may carry out tests on anything found during the course of the search for the purpose of establishing whether it is a Listed Asset. The Listed Asset may be seized if there are reasonable grounds for suspecting that the item is recoverable property or intended by any person for use in unlawful conduct and it is more than £1000 in value.

Under POCA, cash may be detained for an initial period of 48 hours. The Bill provides for a detention period of Listed Assets of 6 hours, capable of extension up to 42 hours.

Forfeiture: Listed Assets and Money in Bank and Building Society Accounts

The Bill extends the powers of forfeiture to Listed Assets and to money held in Bank and Building Society Accounts, even in the absence of criminal charge or proceedings. Until now, such powers existed only in relation to physical cash of over £1,000.

Where there are reasonable grounds for suspecting that money (£1,000 or more) held in an account is recoverable property or is intended by any person for use in unlawful conduct, the enforcement officer may apply to the court for a freezing order in relation to the Listed Asset or the bank account in which the money is held.

Under the new Bill, not just cash but Listed Assets and money held in bank accounts may now be forfeited, even if the respondent is not charged or is charged and found not guilty.

Conclusion

In an age where criminals are becoming more astute and moving the proceeds of crime under the radar in portable high value items, arguably enforcement agencies need the resources to be able to expand their reach. Only time will tell whether the impact of these provisions will be as far reaching as is feared, or whether the inadequate resources of our enforcement agencies will constrain the successful execution of these new powers. The burden of proof is most certainly shifting and wealthy individuals would be wise to start keeping clear records to establish the provenance of their assets in the UK, in order to avoid them being seized and, potentially, forfeited.