New UK laws on tax evasion and money laundering target global financial services
A reminder for global financial institutions that two new corporate criminal offences of failing to prevent the facilitation of UK or non-UK tax evasion came into force on 30 September, as part of the UK Criminal Finances Act 2017. The offences have extremely broad extraterritorial scope, cover anyone providing a service on behalf of a company (eg employees, agents, brokers, intermediaries) and are particularly aimed at financial services. Other provisions of the Act relevant for banks came into force on 31 October.
An article on the new strict liability tax offences, and how to mitigate the risk of committing one, appeared in the July edition of the Risk Note.1 Any non-UK bank that fails to prevent the facilitation of UK tax evasion, or any non-UK bank, with a business presence in the UK, that fails to prevent the facilitation of non-UK tax evasion, is potentially caught by the new offences. Banks must act now to ensure they can take advantage of the only defence available – that of having reasonable prevention procedures in place.
From 31 October, other provisions of the Criminal Finances Act 2017 relevant to financial services came into force:
SAR – Information sharing – The Act allows information sharing between certain regulated firms where there is a suspicion of money laundering; either on the firms' own initiative (with National Crime Agency (NCA) consent) or at the request of the NCA. Firms who share information under these provisions are protected from civil liability for breach of any confidentiality obligations.
Suspicious Activity Reports – extended moratorium period – In order to establish a defence to money laundering, a company must request approval from the NCA to engage in activity relating to property it suspects as being the proceeds of crime. Currently the NCA may refuse its consent. If this occurs, the refusal has the effect of stopping the activity occurring for up to 31 days – the so-called 'moratorium period'. The Act provides for the moratorium period to be extended for additional 31 day periods – up to a maximum of 186 days (ie six months).
Additional disclosure powers – New disclosure orders will be available to be used in money laundering investigations. Such orders are already available in confiscation and fraud proceedings. A disclosure order may be served on a third party (such as a bank) to compel the disclosure of relevant information. One can imagine UK regulated financial services firms being viewed as a comparatively easy source of information (compared to non-UK based individuals) in money laundering investigations.
We do not know yet when the provision of the Act relating to Unexplained Wealth Orders (UWO) will be coming into force. By way of reminder, a UWO is a court order which requires a respondent to provide a statement setting out the nature and extent of their interest in particular property and how they obtained the property (in particular how it was paid for). UWOs will be of significance to a financial services firm's private clients. To support the UWO regime, a court may grant interim freezing orders in respect of property subject to a UWO. Undoubtedly, financial services firms will be on the receiving end of such injunctions. Moreover, given the extensive extraterritorial scope of UWOs, a client with little or no UK connection may be surprised to find themselves and their property subject to such an order.
This case summary is part of the Allen & Overy Legal & Regulatory Risk Note, a quarterly publication. For more information please contact Karen Birch – firstname.lastname@example.org, or tel +44 20 3088 3710.