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Known unknowns – The Criminal Finances Act 2017

  • United Kingdom
  • Financial services disputes and investigations
  • Fraud and financial crime
  • Litigation and dispute management

04-05-2017

On 27 April 2017 the Criminal Finances Bill (the “Bill”) received Royal Assent and became the Criminal Finances Act 2017 (the “Act”). As set out in our article on the initial publication of the Bill (click here), the Act is aimed at providing law enforcement agencies with new powers to improve the government’s capability to tackle money laundering and to recover the proceeds of crime.

 Unexplained Wealth Orders

 One of the most talked about features of the Act is the introduction of Unexplained Wealth Orders (“UWOs”). Their introduction is being heralded as a significant step in the UK’s fight against corruption; enabling enforcement authorities to target corrupt money coming into the UK.

 The Act makes provision for the court to grant UWOs, on the application of an enforcement authority, requiring a respondent to explain how they obtained certain property. Foreign property is included within the scope of the Act and the minimum monetary threshold for the value of the property of £100,000 set in the Bill was reduced to £50,000 in the Act.

 For a UWO to be granted, the court must be satisfied that there are:

  • reasonable grounds for suspecting that the known sources of the respondent’s lawfully obtained income would have been insufficient to enable them to obtain the property; and
  • that the respondent is a PEP or there are grounds for suspecting that the respondent is involved in serious crime, whether in the UK or elsewhere.

 If a UWO is made, the court can make an interim freezing order in respect of the property if the court considers it necessary to avoid subsequent recovery orders being frustrated.

 The Act also creates an offence if a person makes a false or misleading statement in response to a UWO.

 Money Laundering Investigations

Disclosure orders, requiring recipients to answer questions, provide information or produce documents, will now be available to authorities in the context of money laundering investigations. The extension of these powers, which already exist for corruption and fraud investigations, to money laundering investigations highlights the importance being placed on combatting money laundering.

A further strengthening of the powers for money laundering investigations comes in the form of the extension of the moratorium period for investigation into Suspicious Activity Reports (“SARs”). The Act permits the court to grant an extension to the current 31 day moratorium period, in which SARs can be investigated, of a further 31 days. Additional 31 day extensions can be granted, up to a total of an additional 186 days. If such extensions are granted, the challenges corporates already face in managing customer expectations and avoiding “tipping off” will only be intensified.

The Act also introduces information sharing powers for those in the Regulated sector. Following receipt by a regulated entity of a request from the National Crime Agency (“NCA”) or another regulated entity, they may disclose information which they are satisfied “will or may assist in determining any matter in connection with a suspicion that a person is engaged in money laundering”. On the basis of this shared information, regulated entities may submit joint ‘super’ SARs to the NCA.

In addition to the introduction of joined up reporting of suspicions of money laundering, the government has announced plans to launch the ‘Office for Professional Body Anti-Money Laundering Supervision’ (“OPBAS”) in an attempt to join up the response to money laundering. OPBAS will sit within the Financial Conduct Authority and is due to launch in early 2018.

Failure to prevent facilitation of tax evasion

The Act creates two new corporate failing to prevent offences which are likely to come into effect by Autumn 2017: failure to prevent facilitation of UK tax evasion offences; and failure to prevent facilitation of foreign tax evasion offences. These offences operate on similar lines to the Bribery Act 2010 corporate offence of failing to prevent bribery in that the corporate is liable if an associated person commits the offence. Similarly to the Bribery Act, there is a defence available to corporates if they are able to prove that they had reasonable prevention procedures in place in relation to tax evasion facilitation offences.

It seems inevitable that in due course this offence will be applied to a broader array of corporate crime; the question appears to be when, not if.

Terrorist property

The Act introduces amendments to the Terrorism Act 2000 enabling the making of disclosure orders in connection with investigations into terrorist financing offences.

What do you need to know

The Act represents a significant strengthening of the government’s powers to tackle money-laundering, with changes being introduced across the board; from joined-up reporting, to information sharing in the regulated sector, to increased time to investigate suspicious activity and the imposition of UWOs.

And the government have not restricted themselves to strengthening their hand on money laundering; the corporate offences of failing to prevent the facilitation of tax evasion mean that corporates will need to ensure they have adequate procedures in place to protect themselves.  

With new bodies and new powers on the horizon, the need to implement effective and integrated systems and controls to tackle financial crime must remain at the top of the priority list.

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