Criminal finances

Jonathan Fisher QC briefs readers on the most radical overhaul of law on criminal property since the Proceeds of Crime Act 2002

The Criminal Finances Bill is currently making its way through Parliament with strong all-party support. 

When passed, it will represent the most radical overhaul of law affecting criminal property since the Proceeds of Crime Act 2002 (POCA 2002) was enacted 15 years ago. There are three headline measures, alongside a host of smaller provisions which are designed to improve the UK’s ability to recover the proceeds of crime, tackle money laundering, corruption and tax evasion, and counter terrorist financing.

Due to the size of the UK’s financial sector and its open economy, London attracts criminal money like a magnet, and it is clear from the National Risk Assessment for Money Laundering and Terrorist Financing published in October 2015 that criminals have outpaced the intelligence authorities with their sophistication and guile. In its executive summary, the report noted how little is known about the true volume of corrupt money moving in and out of the UK, with the financial sector said to be facing significant intelligence gaps, especially in relation to ‘high-end’ money laundering. This is a deeply worrying admission when it is remembered that over 380,000 suspicious activity reports (SARs) were filed with the National Crime Agency (NCA) last year. The proposed changes proceed on the assumption that the reports are properly made, but that the intelligence services do not have the necessary machinery to enable them to investigate all the suspicions properly. The Bill’s principal objective is to put this machinery in place.

Unexplained wealth orders

The introduction of an unexplained wealth order (UWO) is the measure which will attract most media attention. The NCA and other enforcement authorities will be able to apply to the High Court for an order which requires an individual to set out the nature and extent of their interest in identified property, and to explain how they obtained that property in cases where the person’s known income does not explain ownership of the property.

Before a UWO is made, the High Court must be satisfied that the respondent is a ‘politically exposed person’ (PEP) or a person who is, or has been, involved in serious crime, or is connected to a person who has been so involved, and the value of the property in question exceeds £100,000. The idea is that when a SAR or some other information has been received, if the enforcement authorities wish to discover more information regarding the individual’s source of funds, a UWO can be served. After a UWO has been made, the individual is required to explain the origin of the property, and in this way the burden of proof is reversed.

Failure to comply with a UWO will trigger contempt of court proceedings, and there is a new criminal offence of making a false or misleading statement in response to a UWO punishable by a maximum of two years’ imprisonment. If the enforcement authorities are not satisfied with the individual’s explanation, civil recovery proceedings under Part 5 of POCA 2002 will be initiated and the property can be confiscated as unlawfully obtained property.

Although this measure is potentially far-reaching in its application, since there is no shortage in the UK of persons involved in serious crime who are holding property valued over £100,000, the government estimates that UWOs will be made in approximately 20 cases a year and will ultimately result in somewhere between £3m and £9.1m being forfeited. Set against Transparency International’s recent assessment that in 2011 alone £3.8bn worth of UK property was acquired in the name of BVI registered companies, the assumption being that a significant proportion of this money constituted the proceeds of crime, the impact of UWOs is likely to be a drop in the ocean, at least in the early years.

Suspicious activity reports regime

The proposed changes to the SARs regime may have a much greater impact in practice. There are two key elements.

First, the NCA’s ability to prevent a party from proceeding with a transaction caught by the money laundering offences where a request for consent to proceed has been sought, invariably by solicitors, will be massively extended. The period during which no action to further a transaction can be taken is referred to as the ‘moratorium period’ and is outlined in s 335(6) of POCA 2002. Now, the NCA cannot withhold consent to proceed with a transaction for more than 31 days after the date when consent was refused. In future, the NCA will be able to apply to the Crown court for an extension of the moratorium period by a further 31 days. Subsequent extensions can also be sought, although there is a limit. The Crown court will not be able to grant an extension if the effect would be to extend the moratorium period by more than 186 days in total. The idea is to enable the NCA to have sufficient time to investigate, and to obtain evidence from overseas if necessary, before deciding whether to grant consent to proceed or not.

Again, the government’s assessment is that the initial impact of this change is likely to be small. There were 14,672 requests for consent last year, of these 1,374 requests were refused. The government estimates that 10.5% of these refused consent cases could not be taken forward because the moratorium period was too short, amounting to 144 cases a year. Since some of these cases will involve multiple extensions, 173 applications for extensions are anticipated each year.

It will be interesting to see how this provision develops in practice. Are there cases in which consent to proceed is granted in circumstances where the NCA has had insufficient information on which to support a refusal? And will Crown court judges exercise this power sparingly, mindful of the complications which follow when a commercial transaction is stopped in its tracks?

Secondly, the Bill will introduce measures to expand information sharing between the NCA and the private sector, and between private sector entities. Regulated entities will be able to share data between themselves, with a view to improving the quality of criminal intelligence disclosed in the SAR.

Additional measures

The Bill contains a miscellany of other proposed changes to the POCA 2002 regime. The cash seizure and forfeiture powers in Part 5 of POCA 2002 will be extended to apply to other forms of mobile property, such as precious metals, precious stones, watches, and art work. It is thought that there will be somewhere between 150 and 250 cases each year, with items valued at between £5,000 and £8,000 on average. Cash held in bank accounts is already subject to summary forfeiture following conviction or civil recovery powers where the value is more than £10,000 but there is no power to freeze and disgorge monies at an earlier stage, where a bank suspects the monies to have been illicitly obtained or linked to terrorism. This will be remedied in the Bill. The amount of money involved is estimated to be between £30m and £50m. Also, the category of applicants who can apply for a disclosure order under Part 8 of POCA 2002 will be widened to include a duly authorised investigating officer.

Corporate facilitation

More appropriately suited to a Finance Act, the Bill will introduce the government’s new corporate offence of failing to prevent the facilitation of tax evasion in relation to UK taxes as well as foreign taxes. The offence will be committed by a company or partnership where a person acting in the capacity of an associated person facilitates another person’s offence of tax evasion. The definition of an associated person is not confined to employees. It extends to the company’s agents, and any other person who performs services for or on behalf of the company or partnership.

Certainly, the new offence will afford prosecutors an additional option when seeking to capture firms of tax planning consultants whose employees overstep the mark and drift from aggressive, but lawful, tax avoidance arrangements into unlawful tax evasion. But more broadly, the underlying objective of the new measure is to encourage companies and partnerships to take measures which will prevent them from supporting a person or company who is cheating the revenue authorities, either in the UK or abroad. Modelled on the corporate offence in s 7 of the Bribery Act 2010, the offence has extra-territorial application and is punishable by an unlimited fine.

It is questionable whether the proposed offence will survive in its present form after its passage through Parliament. One controversial aspect relates to its application where an associated person facilitates another person’s evasion of foreign tax. It is one thing for the government to legislate to protect the interests of the UK revenue, but surely it is quite another where the country in question is not a respecter of the rule of law.

Contributor Jonathan Fisher QC, Bright Line Law & Red Lion Chambers, and Visiting Professor in Practice at the London School of Economics

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Jonathan Fisher QC

Jonathan (Bright Line Law & Red Lion Chambers) is a practising barrister in London specialising in financial crime and financial services cases.