Summary The law in England and Wales will shortly be reformed so that those enabling the criminal activities of an organised crime group, including professionals, can be prosecuted more easily. All businesses need to be alive to the risk of not asking questions, or of failing to reconsider the wider context of their work once a suspicion arises. The new offence comes into force on 3 May 2015. We discuss the background and implications of this reform below.
The problem It is a perennial complaint that major economic crime can only occur, or be sustained, because of its ‘enablers’. These are professionals who knowingly facilitate money laundering, fraud, corruption, drug-dealing and other organised crime. They provide the financial, legal and administrative cover which makes ‘Mr Big’ untouchable, and rich. Pop-cultural references are not far to seek: from Tom Hagen in The Godfather, Maurice Levy in The Wire, the Swiss bankers in Wolf of Wall Street and Saul Goodman (real name James McGill) in Breaking Bad; these are the people usually a long way from any dirty work but who make the crime really pay.
There can be no doubt that this is a problem. Professional enablers rarely get convicted or even charged. They are, almost always, intelligent people who are, in the parlance, highly forensically aware.
Until now, prosecutors in England and Wales suspicious of professionals who seemed to be involved in organised crime had to rely on either the offence of encouraging or assisting a crime, or of conspiracy. They have not had much success. Proving that someone was encouraging and assisting crime requires proof that the accused believed that the offence would be committed and that their act would encourage or assist it. The offence of conspiracy requires agreement by two or more persons to carry out a criminal act. There must be spoken or written words or other overt acts to prove that a person had knowledge of the crime. To rely on either of these two offences, therefore, prosecutors had to prove their mental components: knowledge or belief. This made it harder to convict those, such as lawyers, accountants or persons within the financial services sector, who may have ‘asked no questions’, yet provided materials, services, infrastructure or information to those they suspected of criminality.
The UK government believes that a new offence will change this. It has passed reforming legislation, the Serious Crime Act 2015, section 45, which creates an offence of participating in the criminal activities of an organised crime group.
What the new participation offence requires Section 45(1) of the Act provides:
“A person who participates in the criminal activities of an organised crime group commits an offence.”
The remainder of the section unpacks this apparently simple provision and we can divine the following:
- A person will be guilty if he knows or reasonably suspects that activities in which he participates are criminal activities of an organised crime group, or will help an organised crime group to carry on criminal activities.
- “Criminal activities”, in this context, is limited to activities to obtain directly or indirectly any gain or benefit, including a non-financial benefit. In principle, this would include terrorism, though the clear target is economic crime or crime which generates a lot of money, such as drug dealing or fraud.
- The activities must constitute an offence in England and Wales, or if they take place abroad, be illegal under local law and be an offence if they had taken place in England and Wales. Only offences punishable upon conviction with imprisonment for a term of seven years or more are within the definition1.
- “Organised crime group” means a group of three or more persons, that has as its purpose or one of its purposes the carrying on of criminal activities2.
- A person may be guilty of the offence even without knowing any of the persons who are members of the crime group.
Somewhat counter-intuitively, the maximum sentence for participating in organised crime activities which carry sentences of at least seven years is a sentence of five years. The explanation lies in the fact that persons convicted under section 45 may well have been convicted on the basis of a mere suspicion their customers/clients were fraudsters, rather than on the basis they were fraudsters themselves.
Who may be liable? The offence applies to everyone. The Government’s Fact Sheet on the Act gives, as examples of participation, delivering a package, renting warehouse space or drafting a contract, so the offence is intended to cover both professional and non-professional participants. That said, professionals seem to be firmly in the Government’s sights; the Fact Sheet on the participation offence itself notes that the new offence will “send a clear signal to discourage corrupt and complicit professionals and others who provide the materials, services, infrastructure, information and other support that organised crime groups need.”
In a presentation at the Law Society AML day in November, National Crime Agency Director Donald Troon predicted that the agency would use this new offence to prosecute “professional enablers”.
The mental element of the participation offence: knowledge or suspicion The mental element of the new offence was originally that the person knows or has “reasonable grounds to suspect”. This is an objective test: it does not require a guilty mind and would potentially have imposed criminal liability on the merely careless person with no actual knowledge or suspicion that they were participating in or helping criminal activities. On this formula, a banker, broker, lawyer or accountant who failed – for whatever reason – to appreciate that his services were helping criminal activities would therefore have been liable to prosecution.
After lobbying from the Law Society, the Institute of Chartered Accountants of England and Wales, and other bodies concerned about over-criminalisation, the test was amended in October last year to require that a person knows or“reasonably suspects” that they were participating in or helping criminal activities. This amendment tightened the mental element of the offence by requiring both a subjective and an objective test; a prosecutor must prove that the person in fact had knowledge or suspicion (the subjective test) and, in the case of a suspicion, that it was reasonable (the objective test).
This two-limbed test provides important protection; using an unqualified subjective test (simply “suspects”) would potentially criminalise the paranoid, the naive or the ill-informed. By adding the objective limb, a person would not commit the offence if she suspects that she is participating in criminal activities or helping an organised crime group to carry out such activities, but her suspicion is in fact irrational or baseless. For the suspicion to be reasonably held, it must be based on some reasons that can be comprehended by a court; it must have some basis in fact, rather than fear or conjecture. In practice, prosecutions for the participation offence may draw upon the considerable jurisprudence relating to “reasonable suspicion”, which has developed around police powers of search and arrest.
The amendment to tighten the mental element of the offence was made precisely to exclude those described by the Home Office Minister in the Lords debate as “unwitting or naïve” participants. But does it go far enough? One can easily imagine circumstances where the view of what one would reasonably suspect will differ between a seasoned criminal prosecutor who is a veteran of the Old Bailey and a somewhat less worldly tax-accountant, or a junior employee cowed by his superiors into suppressing his suspicions. We explore this a little further below.
Overlap of the participation offence with the Proceeds of Crime Act 2002 (POCA)
Section 328 POCA: The participation offence overlaps with the existing offence of “facilitating an arrangement” under s. 328 POCA. For that offence to be committed, however the prosecutor must show active involvement in money laundering. The participation offence, in contrast, applies to all serious crime (including non-financial crime).
Section 330/ 331 POCA: The participation offence also overlaps with the existing offence of failing to disclose knowledge of, or reasonable grounds to suspect, money laundering (s. 330/331 POCA). These sections only apply to the regulated sector and are in fact little-used by prosecutors, even though they only require the lower, objective mental test of “reasonable grounds to suspect”. Given how few prosecutions have been brought for offences under s. 330 and 331, despite their lower mental threshold for guilt, law enforcement agencies may struggle to secure convictions in the 100 to 200 additional prosecutions for the new participation offence which the Government estimates in its Impact Assessment.
No questions asked? Unlike POCA, the participation offence does not impose any reporting obligations. Despite this, the offence should not be dismissed as merely a concern for those with a tolerance for the dodgy. Although the unwitting participant is protected, liability for the new participation offence could in practice fall surprisingly widely. Those working in the regulated activities such as banking or legal services will – one hopes – have been trained to be alert to the taint of criminal activities and regulated entities will have established mechanisms for internal reporting. These ought to work even when the POCA regime is not engaged, because the criminal activity relates to a serious crime other than money laundering. Businesses unfamiliar with the POCA regime, however, may lack the institutional reflexes which the money laundering regime has developed in banks, law firms and other regulated entities.
Take as an example an IT consultant who is working on the IT system of a client company. Suppose that the consultant forms the reasonable suspicion that the company is engaged in some sort of sophisticated fraud, and that it wants its IT security upgraded to help evade detection or surveillance by law enforcement agencies. He does not have fully particularised proof, only a suspicion which has some reasonable, factual basis. Suppose the IT consultant then dismisses his suspicion, perhaps after pressure to do so from his manager, who is not close to the detail and is too-focussed on revenue. In these circumstances – setting aside whether a prosecution is likely – the elements of the participation offence may all be present, and the consultant would be liable to prosecution.
The upshot Other examples are conceivable from other fields of work where someone turns a blind eye when criminal activities are merely suspected, rather than known. Despite its two-limb knowledge requirement, the new participation offence casts a potentially wide net of liability. The upshot is that all businesses need to be alive to the risk of not asking questions, or of failing to reconsider the wider context of their work once a suspicion starts quietly to buzz in the back of the mind.
Wider trends This new offence fits a wider trend in the regulation of the business and professional worlds towards vicarious and/or strict liability, and imposing positive obligations to prevent crimes or other misbehaviour by others. The approach is most clearly apparent in the law of money laundering discussed above, but is also to be seen in, for example, section 7 of the Bribery Act 2010, by which businesses can be liable for bribery committed by their agents without their knowledge3. A liberal – or at least a libertarian – would be suspicious of such a trend, despite the good intentions no doubt embodied by each individual new law, and despite the distaste all will feel for the Saul Goodmans of the world. We may, unwittingly, get to a position in commercial life where risk aversion does more harm than good. Some would argue we are already there.