- Investigations Insight
The Criminal Finances Act
09 May 2017
On 27 April, the Criminal Finances Bill received Royal Assent. Now the Criminal Finances Act 2017, it represents the most significant development in the UK's anti-money laundering regime in more than a decade and the largest expansion of corporate criminal liability since the Bribery Act 2010.
We have covered key parts of the Criminal Finances Act previously (see here and here). While core provisions have emerged from Parliament without significant change, certain amendments undoubtedly merit attention.
What does the Act do?
In summary, the Criminal Finances Act introduces the following:
- A new corporate criminal offence of failure to prevent the facilitation of tax evasion. Part 3 of the Act criminalises a firm’s failure to prevent a tax evasion facilitation offence (domestic (section 45) or foreign (section 46)) by a person associated with the firm and acting in that capacity. The foreign tax evasion offence carries a dual criminality requirement (i.e. the offence must also be a crime under English law). It is a defence to both offences that a firm had in place ‘reasonable prevention procedures’.
- Unexplained Wealth Orders (UWOs). A UWO is an order granted by the High Court at the application of an enforcement authority relating to specific property. A UWO requires the respondent to explain the nature and extent of their interest in the property and how they obtained the property. UWOs may only be issued in respect of politically exposed persons or where the respondent is suspected to have been involved in serious crime (or is connected to someone who is).
- New disclosure orders in money laundering investigations. These expand powers already used in confiscation or fraud proceedings to money laundering investigations and may require a third party (e.g. a bank) to disclose relevant information.
- Amendments to the Suspicious Activity Report (SAR) regime. There is now an express provision allowing POCA regulated firms to share information (with the NCA’s approval) where there is a suspicion of money laundering. The Act also allows the NCA to extend the ‘moratorium period’ which prevents dealing in property that is the subject of a SAR from one month to six (by one month at a time).
- Enhanced Proceeds of Crime Act (POCA) powers. Finally, the Act includes a number of further modifications to POCA. Potentially of most significance to firms is the expansion of unlawful conduct under POCA’s non-conviction recovery powers to include property obtained by a gross abuse of human rights (see below).
Firms may breathe a sigh of relief that opposition efforts to include a broader failure to prevent economic crime offence were unsuccessful (for now at least - note the recent Ministry of Justice call for evidence). However, the financial threshold for property to be subject to a UWO has been lowered from £100,000 to £50,000.
Most significant is the inclusion of the so-called Magnitsky amendment. We will be covering this in more detail in an upcoming blog post. In brief, the amendment expands the civil recovery powers for unlawful conduct under Part 5 of POCA to property obtained by or in connection with a gross human rights abuse.
Conduct constitutes such an abuse if :
- it involves the torture (or cruel or inhuman or degrading treatment) of an individual who has sought to expose criminal activity by a public official or sought to promote human rights or freedoms;
- the torture is carried out as a result of the individual seeking to expose that criminality or promote those human rights; and
- the torture is carried out by a public official in the performance (or purported performance) of their public duties, or that official is complicit in the conduct.
The Act explicitly widens the definition of unlawful conduct to include such activity where it occurs outside the UK and would be an offence if committed in the UK.
The amendment is retrospective. It applies to property obtained by or in connection with such an abuse regardless of when that property was obtained. There is, however, a 20 year time bar to recovery from the date the human rights abuse occurred.
The Act and its impact
Unexplained Wealth Orders will inevitably be of more concern to individuals than firms. However, they are powerful investigative tools. Their related information gathering powers and supporting freezing orders will affect financial institutions.
While it is possible the extension of the SAR moratorium period may discourage defensive reporting, NCA refusals are likely to remain the exception rather than the norm. The ability to share information and submit joint reports may be a helpful tool for some firms. However, they could become a headache if institutions’ interests do not precisely align.
The enthusiasm and ability of authorities to prosecute the new (and complex) corporate tax evasion offence is not clear. Nonetheless, the increasing use of deferred prosecution agreements, the availability of special tools to settle tax disputes and the SFO’s recent Bribery Act successes indicate we may see its impact sooner than the equivalent s. 7 Bribery Act offence.
As regards civil recovery powers, one can imagine NGOs leading campaigns focused on the leaders of regimes complicit in human rights abuses – and the financial institutions which manage their assets. However, POCA already provided for civil recovery in relation to torture occurring abroad where it was a crime in that country. In that respect, the Act only closes a narrow loophole where a respondent claimed their act was not a gross abuse of human rights in their own country. The explicit inclusion of torture in POCA may of course encourage wider use of such powers.
However, the real impact of the new tax evasion offence and the Magnitsky amendment is likely to be in setting the corporate agenda.
Even if they turn out to be rarely used, the measures send a clear political message to firms - much like the reckless mismanagement of a bank criminal offence. Similarly, organisations may feel it necessary to improve their controls and governance to ensure they can defend against a charge of failing to prevent a tax evasion facilitation offence. Equivalent improvements were arguably the most significant impact of the Bribery Act, recent enforcement notwithstanding.
When will it come into force?
Most of the key changes require further implementing statutory instruments before coming into force - keep an eye on our blog for further information on these.
The Government’s original timetable had been to have the Bill enacted in Spring (which it has achieved) and in force by the Autumn. In particular, the Government has previously promised ‘rapid implementation’ of the tax evasion offence. What is certain is that there is much in the Act to digest at a time when most firms already have a full plate. Those who recall the work required to be able to demonstrate ‘adequate procedures’ for the purposes of the Bribery Act will know the importance of a head start.