The United Kingdom’s National Risk Assessment of money laundering and terrorist financing in October 2015 identified three priority risks faced by the UK and concluded that a more robust enforcement response is required. These changes were to be underpinned by a partnership between the government and the private sector to effect a significant change in the law.
In April 2016, the UK government published its action plan on anti-money laundering and counter-terrorist finance, setting out the steps to address such risks and resulting in the commissioning of the Criminal Finances Act 2017 (the “Act”), which received royal assent on 27 April 2017. The Act will come into force on 30 September 2017.
The Act is intended to strengthen the UK government’s ability to confiscate the proceeds of crime; to improve the international reach of enforcement; and to extend the applicability of enforcement to also cover investigations under the Terrorism Act 2000. The Act will bring about the most significant changes to the anti-money laundering and terrorist finance regime in the UK since enactment of the Proceeds of Crime Act 2012.
We previously published an article on a widely anticipated new offence of corporate failure to prevent economic crime (which offence would have incorporated the failure to prevent fraud, money laundering and false accounting), but the Act has not included this offence. However, the Act does include two new corporate criminal offences for the failure to prevent the facilitation of tax evasion, whether in the UK (Section 45) or abroad (Section 46). The Act also includes provisions relating to:
- The seizure and forfeiture of the proceeds of crime stored in UK assets, extending the current law to include value stored in bank accounts and high-value property.
- “Unexplained Wealth Orders”—increased powers to require those suspected of corruption to explain the source of their funding. In order to obtain an unexplained wealth order, the value of the unexplained funds must exceed £100,000 in value and the court must be satisfied that there are reasonable grounds for suspecting that funds have been unlawfully obtained.
- The sharing of information between regulated companies when requested from each other or when the National Crime Agency requests that information be shared.
- An extension of the current moratorium period in which Suspicious Activity Reports can be investigated.
- Two new corporate offences of the failure to prevent facilitation of tax evasion.
- Disclosure Orders for money laundering investigations, extending the powers already in existence for corruption and fraud investigations.
- Combating the financing of terrorism so that the existing legal regime for investigations into criminal finance can also apply to investigations relating to offences under the Terrorism Act 2000.
The UK government has issued draft guidance on the new corporate offences for the failure to prevent tax evasion, and the guidance confirms the government’s belief that a “relevant body” should be criminally liable when it fails to prevent those who act for it, or on its behalf, from criminally facilitating tax evasion. The guidance defines a ”relevant body” as an incorporated body (typically a company) or partnership; ”relevant body” does not include natural persons, i.e., individuals (as opposed to legal persons, which include entities).
The new offences will be committed when a relevant organisation fails to prevent an associated person from criminally facilitating the evasion of a tax, whether the tax evaded is owed in the UK or in a foreign country. The guidance is similar to the guidance to the UK Bribery Act 2010 (“Bribery Act”), which sets out six key principles that organisations should adopt, including the following:
- Risk assessment;
- Proportionality of risk-based prevention procedures;
- Top level commitment: Tone from the top;
- Due diligence;
- Communication (including training); and
- Monitoring and review.
Organisations should start to consider now whether they have reasonable procedures in place to prevent someone acting for them (or on their behalf) from facilitating tax evasion in the UK or in a foreign country.
A “prevention procedures” defence is available to corporate bodies, similar to the “adequate procedures” defence that is available under the Bribery Act. For a corporate body to avail itself of the “prevention procedures” defence under the Act, it must prove that it had “such prevention procedures as it was reasonable in all the circumstances to expect… or [that] it was not reasonable in all the circumstances to expect [the company] to have any.”
Some businesses will not be required to put in place prevention procedures where it is considered unreasonable to do so. For smaller businesses and certain low risk industries, the guidance sets out minimal steps that should be taken nevertheless, including the release of a statement from the board proscribing the illegal activities, training of staff, and implementation of clear reporting and whistleblowing procedures.