Over the last decade Britain has passed an array of ground-breaking laws in an attempt to eradicate bribery, corruption, money laundering, terrorist financing and tax evasion.
The Criminal Finances Act 2017 (‘the Act’) represents the government’s latest weapon in its ever increasing arsenal, which was described by Jonathan Fisher QC in Counsel ('Criminal finances', January 2017) as ‘the most radical overhaul of law affecting criminal property since the Proceeds of Crime Act 2002 (POCA 2002) was enacted 15 years ago.’
What’s currently in force?
The Act received royal assent on 27 April 2017. The first through to fourth commencement regulations were introduced on 13 July 2017, 12 October 2017, 25 October 2017, and 20 January 2018 respectively. They brought into effect ss 1 to 3 (unexplained wealth orders), s 10 (power to extend the moratorium period), aspects of ss 11 and 36 (sharing of information within the regulated sector), s 12 (further information orders), s 15 (forfeiture of certain personal or moveable property) and ss 44 to 48 (failure to prevent the facilitation of tax evasion).
Sections 1 to 3 of the Act amend POCA to introduce unexplained wealth orders. The provisions provide enforcement authorities with the power to apply to the High Court for an order requiring a person to provide a statement explaining the origin of assets, when they appear to be disproportionate to the known income of the person and when they may be associated with serious crime. The High Court will make an order if it is satisfied that: (i) the respondent holds property to the value of greater than £50,000; (ii) there are reasonable grounds for suspecting that the known sources of the respondent’s lawfully obtained income would have been insufficient for the purposes of enabling the respondent to obtain the property; and (iii) either the respondent is a PEP outside of the EEA (or a family member, close associate or person otherwise connected with a PEP), or there are reasonable grounds for suspecting that the respondent, or a person connected with the respondent, is or has been involved in serious crime. The orders will shift the burden of proof to the respondent, who will have to demonstrate that the assets were acquired legally. If this cannot be achieved, the court will have the power to freeze the assets.
In relation to s 10, the law previously required parties to submit a suspicious activity report (SAR) to the National Crime Agency (NCA) to request consent to proceed with a transaction. The period during which a party could take no action on the transaction (the ‘moratorium period’) was 31 days from the initial refusal of consent. Pursuant to the new s 336A of POCA, the NCA can apply to the crown court for an extension of the moratorium period up to a maximum of 186 days beginning with the day after the end of the initial 31-day period.
Regulated entities, following a notification to the NCA, can now share information which may assist in determining any matter in connection with a suspicion that a person is engaged in money laundering, under ss 11 and 36 which amend POCA and the Terrorism Act 2000. The purpose of the provision is to increase the quality of criminal intelligence which will ultimately be detailed in a joint SAR to the NCA (known as ‘Super SARs’).
Magistrates’ courts are provided with the power (under s 12, which inserts a new s 339ZG into POCA) to order a respondent to disclose information which would assist in an investigation of a person thought to be engaged in money laundering or in determining whether an investigation of money laundering should commence following the receipt of a SAR. It provides the courts with the power to make a respondent, which carries on a business in the regulated sector, subject to a further information order when an external request for information has been made to NCA by a foreign law enforcement agency and that information is likely to be of substantial value to the foreign authority.
Cash seizures and forfeitures in summary proceedings are extended by s 15, which amends POCA by inserting a new Chapter 3A into Part 5. Part 5 now includes certain items of personal or moveable property, such as precious metals, precious stones, watches and art work. Under the new s 30 of POCA, such assets can now be forfeited where the court is satisfied that the property is the proceeds of crime or intended for use in unlawful conduct.
The new offence of corporate failure to prevent criminal facilitation of tax evasion is contained in ss 44-48 of the Act. An entity will commit an offence where an ‘associated person’ has criminally facilitated the evasion of tax, unless the entity can prove that it had reasonable procedures in place to prevent the criminal conduct by the associated person. ‘Associated person’ is widely defined as any person or entity who provides services for or on behalf of the entity. Despite the fact that the corporate criminal offence will not apply to individual barristers, it will apply to any bodies corporate and partnerships, which may employ or instruct barristers.
In July 2017 there was a joint consultation by the Attorney General’s Office and the Home Office with regards to revising codes of practice. On 25 October 2017, following responses to the consultation, three draft revised codes (concerning cash searches, investigations, and searches, seizure and detention of property) and one new draft code on listed assets, were published. When in force the codes will outline the amendments made to existing legislation by the Act, new provisions, the relevant procedural requirements and will provide guidance for the exercise of extended and new functions.
Although there have not yet been any criminal prosecutions under the Act, HMRC in particular has spent the last few years positioning itself well to investigate and prosecute organisations for such offences. During 2014 to 2015, HMRC received specific funding to extend the scope of its work to tackle tax fraud. In 2015 it set up the Fraud Investigation Service to deal with serious financial crime. In the same year it sought and received funding to increase the number of investigations it undertakes into corporates and wealthy individuals to 100 a year by 2020. HMRC funding is not sector specific; barristers, whether practising at the Independent Bar, or employed, will be just at risk of investigation as any other individual.
HMRC has utilised media to actively publicise its success on tackling tax fraud; for example, it publishes an annual ‘top ten most significant fraud and organised crime cases of the last year’ (see left). The Act has also received a great deal of media attention from elsewhere. In September 2017, a major news publication published an article detailing occasions where senior individuals were allegedly aware of criminality within their organisations, yet no prosecutions have been mounted against the corporations for failing to prevent such criminality.
In November 2017, Duncan Hames, Director of Policy at Transparency International UK commented on the Act when discussing the Paradise Papers. He called on the government to use the unexplained wealth orders to hold people accountable to explain how they amassed large sums of money. This case highlights the fact that events such as the Paradise Papers may lead to increased pressure on governments to address tax evasion.
Despite the potential far-reach of the Act, how effective it will be at reducing criminality is yet to be seen. The 2017 National Risk Assessment of Money Laundering and Terrorist Financing concluded that although many of the changes recommended in the action plan of the 2015 risk assessment have now been implemented, new typologies continue to emerge, including risks of money laundering through capital markets and the increasing exploitation of digital or cryptocurrencies, which tend to have enhanced anonymity when compared to traditional fiat currencies. The report points out that with the increase in number of businesses accepting crypto or virtual currencies, comes an increase in criminals utilising the cryptocurrencies to launder money.
It is clear therefore that if the law enforcement agencies are to win the fight against bribery, corruption, money laundering, terrorist financing and tax evasion, the legislature will need to have a comprehensive understanding of relevant modern technologies and methods in order to prevent such means being utilised to commit crimes.
Contributor Anthony Eskander, is a barrister in KPMG’s legal services team and a door tenant at Church Court Chambers