Global menu

Our global pages

Close

SuperSars me: The Criminal Finances Bill 2016

  • United Kingdom
  • Financial services disputes and investigations
  • Fraud and financial crime

18-10-2016

The Criminal Finances Bill (the “Bill”) was introduced on 13 October 2016, and according to the press release by the Home Office, the Bill “will significantly improve the government’s ability to tackle money laundering and corruption, recover the proceeds of crime, and counter terrorist financing. The Bill is part of a wider package of measures aimed at strengthening the government’s response to money laundering and improving the amount of criminal assets confiscated by the state, and includes reforming the Suspicious Activity Reporting (SARs) regime and increasing the government’s international reach, through events like the Anti-Corruption Summit in May 2016, to build capacity with overseas partners”.

Summary of the Bill

The Bill will introduce new powers and safeguards to improve the government’s capability to tackle money laundering and terrorist financing and to recover the proceeds of crime. Its provisions fall into four key categories:

1. Significantly improving capability to recover the proceeds of crime

Seizure and forfeiture of the proceeds of crime: the Bill enables seizure and forfeiture of the proceeds of crime that are stored in UK assets, extending current law to include value stored in bank accounts and high-value property, such as precious metals (gold, silver or platinum), jewels, watches and artistic works.

“Unexplained Wealth Orders”: the Bill sets out the process to be followed in respect of unexplained wealth orders, which would require those suspected of obtaining properties with illegal funds to explain the sources of their wealth to enforcement agencies. In order to obtain such an order:

  • the relevant authority must make an application to the High Court which specifies the property in question, which must exceed £100,000 in value;
  • the court must be satisfied that there are reasonable grounds for suspecting that the respondent’s lawful income would have been insufficient to obtain the property; and
  • the court must be satisfied that the respondent is a politically exposed person or there are reasonable grounds for suspecting that they are or have been involved (or are connected to someone who is) in serious crime.

Once an unexplained wealth order is granted by the court, the respondent to the order must explain, by way of a statement, their interest in the property in question and how they obtained the property. Assets may be subject to an interim freezing order, if the government can show a legitimate risk that the unexplained wealth will be dissipated. Those ultimately unable to explain where their wealth came from would risk having their assets seized.

2. Transforming the relationship between public and private sectors

Enable the sharing of information between regulated companies: the Bill sets out mechanisms which enable regulated entities to share information, where they request information from each other or where the National Crime Agency (“NCA”) requests that information be shared. the regulated entity sharing the information must be satisfied that the information “will or may assist in determining any matter in connection with a suspicion that a person is engaged in money laundering”.

The Bill confirms that a disclosure made by a regulated entity, in good faith, will not breach confidentiality owed by the regulated entity.

Extension of the moratorium period for investigation into Suspicious Activity Reports (SARs):  the Bill proposes to create new powers to assist enforcement agencies investigations into money laundering, including a power to extend the moratorium period in which SARs can be investigated and giving the UK’s NCA new powers to request information from regulated companies.

As currently drafted, the Bill amends the Proceeds of Crime Act 2002 by enabling a “senior officer” (which includes the Director General of the NCA or any other NCA officer authorised by the Director General, a police officer of the rank of at least Inspector, the Director of the Serious Fraud Officer (or an authorised member of staff) or a designated member of staff at the Financial Conduct Authority) to apply to the court for an extension to the current moratorium period for SARs. Currently, where a regulated institution seeks consent from the NCA to proceed with a transaction, the NCA has an initial 7 working day period within which it can either provide consent or refuse it. If consent is refused, the relevant authority has a further 31 calendar days in which it can investigate and either take action to freeze the funds or consent to proceed can be provided. The Bill will enable this moratorium period to be extended, by the court, to a period of no more than a further 186 days. The court will only be in a position to grant an extension of 31 days at a time, with the relevant authority being required to continue to make further applications for further extensions should it be deemed necessary. This will enable the court to exercise judicial scrutiny over the relevant authorities and should aim to act as a mechanism to ensure that money laundering investigations proceed as quickly as possible.

Managing customer’s expectations and avoiding “tipping off” is already a challenge faced by regulated institutions within the current SAR regime. A potential further 186 days within the moratorium period will no doubt present additional practical challenges and concerns, which regulated institutions need to start thinking about. However, given the judicial oversight built into the Bill, we would not expect the normal course of action to be for the relevant authorities to apply for extensions to the moratorium period. We would anticipate this being the exception rather than the rule and as such we anticipate that many regulated institutions will continue to find themselves faced with the existing time limits.

It should also be noted that it is expected that the SAR regime will be subject to further improvements in due course.

3. Enhancing the UK law enforcement response

Failure to prevent facilitation of tax evasion: the Bill introduces a criminal offence for corporations which fail to stop their associated persons facilitating tax evasion, which will have extraterritorial jurisdiction. Statutory defences available for this offence will be either (i) to have “reasonable prevention procedures” in place or (ii) to show that it is not reasonable in all circumstances to expect the corporation to have any prevention procedures.

Disclosure Orders: permit investigating agencies to pursue “disclosure orders” (which already exist for corruption and fraud investigations) for money laundering investigations. A disclosure order requires someone suspected of possessing information relevant to an investigation to provide such information to an enforcement agency. These powers already exist for corruption and fraud investigations.

4. Combating the financing of terrorism

Mirroring proposed changes in counter terrorist financing law: the Bill will make complementary changes to the law in respect of terrorist financing so that they also apply for investigations into offences pursuant to the Terrorism Act 2000.

Notable omission in the Bill

One interesting aspect of the Bill is what it does not include. In May 2016, the Government had announced plans to introduce new corporate criminal liabilities arising from “failure to prevent economic crimes” such as fraud, money laundering and false accounting. Whilst it was anticipated that this Bill would implement those plans, the current provisions of the Bill do not do so. However, it should be noted that unlike the proposed corporate criminal offence for failure to prevent facilitation of tax evasion (which is included in the Bill), there is yet to be any public consultation on corporate criminal offence for “failure to prevent economic crimes”.