The Home Secretary, Amber Rudd, has confirmed that the Criminal Finances Bill (CFB) will receive Royal Assent this Spring and that its provisions will come into force later this year. If enacted, the CFB will introduce significant changes to the UK's anti-money laundering regime, giving law enforcement agencies new investigatory powers and additional tools to help recover the proceeds of crime. The CFB was introduced into Parliament on 13 October 2016 and is currently at the Report stage in the House of Commons.
If enacted in its current form the CFB will introduce the following key changes:
1. Reform of suspicious activity reporting regime
The Proceeds of Crime Act 2002 (POCA) will be amended to extend the amount of time law enforcement agencies have to prevent transactions from going ahead whilst they gather evidence. Under the current regime, if a bank files a suspicious activity report (SAR) seeking consent from the National Crime Agency (NCA) to proceed with a transaction, where that consent is refused there is then a moratorium period of 31 days before consent is deemed to be given. Under the new regime a court may extend this moratorium period by further periods of up to 31 days, to a total of 186 days.
2. Information sharing
Provided that the NCA is notified, firms in the regulated sector will be able to request information about specific suspicious transactions from other regulated entities in order to help determine any matter in connection with a suspicion that a person is engaged in money laundering. If information is forthcoming the relevant entities can then file a joint SAR. Entities making such disclosures will be immune from criminal and civil claims for breach of confidence provided that the disclosures are made in good faith.
3. Disclosure orders for money laundering investigations
Enforcement agencies will be able to seek and obtain "Disclosure Orders" which will require those suspected of possessing information relevant to a money laundering investigation to provide that information. These powers are similar to those which already exist in relation to fraud and corruption investigations but will be available to a wider range of agencies.
4. New criminal offences of corporate failure to prevent facilitation of tax evasion
At present when a company employee criminally facilitates the commission of a tax evasion offence by a customer, both the taxpayer and the employee commit an offence. However, the company does not. The CFB changes this by introducing two new corporate offences, which apply to a "relevant body" (i.e. a body corporate or partnership, wherever incorporated or formed), of failing to prevent the facilitation of tax evasion by "associated persons" (i.e. anyone providing services for or on behalf of the company anywhere in the world). The first offence applies in relation to evasion of UK taxes, by anyone, anywhere in the world, the second to evasion of foreign taxes by UK citizens anywhere in the world. Such offences will attract strict liability.
A relevant body will, however, have a defence if it can show that it had in place at the relevant time reasonable "procedures" designed to prevent the facilitation activity or it can show that, in the circumstances, it would not have been reasonable to expect it to have had any such procedures in place. The Government will publish guidance on the procedures that corporate entities might put in place to prevent staff from committing tax evasion facilitation offences. Draft guidance was published by HMRC alongside the CFB in October 2016 but this may change to reflect changes to the legislation during the Parliamentary scrutiny process.
5. Introduction of Unexplained Wealth Orders (UWOs)
Where law enforcement agencies have reasonable grounds to suspect that someone has links to serious crime they will be able to apply for a court order requiring that person to explain the origin of assets worth over 100,000 which appear disproportionate to their known income. Failing to provide an adequate explanation will lead to a rebuttable presumption that the asset in question was obtained through unlawful conduct and can be treated as "recoverable property" under the existing civil recovery powers in POCA.
6. Enhanced civil recovery measures
Law enforcement agencies will have a wider range of seizure and forfeiture powers over personal property stored in the UK where there are reasonable grounds to suspect that the property represents the proceeds of crime. This will apply to a range of high value portable assets such as precious metals and stones, stamps, watches and works of art. Enforcement agencies will also be able to obtain freezing orders over bank accounts where a court is satisfied that there are reasonable grounds to suspect that the accounts hold the proceeds of crime.
Banks and other financial institutions will need to keep track of the progress of the CFB as it moves through the Houses of Parliament and keep their own legal and regulatory exposure under review. Existing policies and guidance may need to be reviewed and supplemented.
Two areas will merit particular consideration. First, the extension of the moratorium period under the SARs regime could cause significant problems for banks anxious not to fall foul of the tipping off provisions and might result in more civil claims by customers whose transactions are put on hold. Second, banks should take steps now to begin risk assessing their business to identify possible areas where policies and procedures may need to be augmented in relation to the new offence of failing to prevent the facilitation of tax evasion. As part of this, banks should keep track of the Government/ HMRC guidance on procedures that might be put in place to prevent associated persons from facilitating tax evasion, ensuring that internal policies and procedures are designed and implemented to reflect the guidance.