Impact of the Criminal Finances Act 201711-Jan-2018
The Criminal Finances Act 2017 (CFA) came into force on 30th September 2017. It represents a radical overhaul of the Proceeds of Crime Act 2002 (POCA) anti-money laundering and confiscation regime. The act also creates a new offence that is relevant to solicitors and other professionals providing any form of tax advice - failing to prevent the facilitation of tax evasion. CFA strengthens civil recovery of the proceeds of crime; creates ‘unexplained wealth orders’ and extends existing investigation powers in relation to money laundering and terrorist finances.
Reinforcement of civil recovery powers
The new Act adds a further 45 new sections to Part 5 of POCA (which deals with civil recovery) and brings in to force two entirely new chapters - 3A ‘Recovery of listed assets in summary proceedings’ and 3B ‘Forfeiture of money held in bank and building society accounts’.
Chapter 3 of POCA 2002 already allowed officers to:
- search for cash;
- detain cash (on ‘reasonable grounds’ that cash is suspected to be ‘recoverable property’ – i.e. the proceeds of crime); and
- forfeiture of seized cash where the court is satisfied (on the civil standard - balance of probabilities) that the cash is ‘recoverable property’.
- The new provisions extend powers far beyond just cash, allowing all but the search provisions to apply to monies in bank or building society accounts. The practicalities are that bank accounts may be frozen (for up to 2 years) under an ‘account freezing order’ followed by forfeiture.
There is provision for the account holder to be informed of the making of the freezing order and for monies to be withdrawn – for example to meet living expenses or to allow the running of a business, as well as to meet appropriate legal costs. There are also provisions to set aside or vary the order and for late objections and appeals.
Chapter 3A, extends similar provisions (including search powers) to assets including precious metals, precious stones, watches, artistic works, face-value vouchers and postage stamps. As with bank accounts a minimum value of £1,000 applies.
s14 of CFA extends the POCA definition of cash to include gaming vouchers, fixed-value casino tokens and betting receipts. The idea is to cover what might be described as ‘cash substitutes’ which could be used by criminals as alternative means of holding and transferring value.
Unexplained wealth orders
In the aftermath of the Panama Papers scandal the government gave law enforcement agencies new powers to seize suspected criminal property without bringing a prosecution. Two groups of individuals – politically exposed persons (PEPs) or those involved or associated with serious crime can be made subject to an unexplained wealth order (UWO).
Serious crime refers to an offence set out in Schedule 1 to the Serious Crime Act 2007 (including some drug trafficking, arms trafficking, people trafficking and modern slavery offences, organised crime, money laundering, firearms offences, prostitution offences, fraud, tax evasion, bribery, counterfeiting and trade mark offences, poaching and environmental offences).
In the case of PEPs, no proof of a link to criminal behaviour is required. Orders for disclosure of the nature and extent of their interest in property and an explanation as to how they obtained it can be made by the High Court where there are reasonable grounds for suspecting that a person holds assets disproportionate to their known income. Failing to comply with an order can mean that the property is deemed to be ‘recoverable’ for the purposes of the civil recovery provisions of part 5 of POCA.
UWO’s require an individual to set out the nature and extent of his interest in the property specified in the order, and to explain how he obtained that property in cases where that person’s known income does not explain ownership of that property. Amending the original proposals, the House of Lords lowered the threshold so that a UWO can be made with property valued at £50,000 rather than £100,000.
Failure to prevent the facilitation of tax offences
The Act creates, at sections 44 to 52, a new offence of failing to prevent the facilitation of tax offences. This new offence may be committed by an organisation such as a limited company or a partnership (but not by an individual). The essence of the offence is that where an individual has committed an offence which has facilitated a tax offence by another, then the organisation with which he is connected (typically his employer) may be prosecuted for its failure to prevent the individual committing his offence.
The new offence is modelled on s7 of the Bribery Act 2010 offence of failure of commercial organisations to prevent bribery.
For example, if an employee of a bank or a firm of accountants facilitates a tax offence by a customer or client, then not only will that employee be liable to prosecution (as he is now) for his criminal conduct in facilitating the tax offence but the organisation will be liable to prosecution for this new offence. In this way the government intends to hold organisations to account for the criminal misconduct of their employees and other persons acting on their behalf.
Under existing law, the organisation would only be liable to prosecution if the ‘directing minds’ of the organisation were engaged in criminal conduct. Because employees who commit tax evasion facilitation offences are typically not at the most senior level of the organisation which employs them the organisation itself is not currently at risk of prosecution. The Act changes that.
As with the Bribery Act offence, guidance will be issued to assist organisations to set up appropriate procedures to prevent tax evasion facilitation offences by their employees and agents. Key principles are likely to include risk assessment, prevention procedures, due diligence, staff training, monitoring and review.
Suspicious Activity Reports and the moratorium period
Powers in CFA aim to make the Suspicious Activity Reports (SAR’s) regime more effective. New s12, allows the National Crime Agency (NCA) to require any person within businesses subject to the Money Laundering Regulations, and obliged to make a Suspicious Activity Report, to provide relevant information to the NCA where the NCA has received a SAR (whether from that person or another) or a request by an overseas authority. If necessary, an order may be made compelling disclosure of the required information (with a penalty of up to £5,000 for non-compliance).
The previous SARs regime meant that where a bank/accountant/lawyer made a SAR, they were then relieved of any obligation of client confidentiality with regard to the content of the SAR, but were not able to provide follow up information or further details to the NCA where ordinary client confidentiality prevented that disclosure. So once the report had been submitted the reporter was effectively stopped from providing further details. The provisions in the Act remove any obstacle to the supply of further information (except where legally privileged).
Increasing investigation powers
CFA contains various provisions relating to powers of investigation. In particular amendments made by s7 allow ‘disclosure orders’ under s357 POCA 2002 to be obtained in connection with money laundering investigations and, by s33, the investigation powers of Part 8 POCA 2002 become available for revisits under s22 POCA 2002 to a defendant’s available amount in relation to an existing confiscation order.
The CFA is intended to significantly improve the UK government’s ability to tackle money laundering, corruption, tax evasion and terrorist financing. Financial profit is at the heart of almost all forms of serious and organised crime and the new provisions in the Act are intended to create new powers to help both law enforcement agencies and the private sector investigate and tackle these types of crimes.
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