The new Criminal Finances Bill was published on 13 October 2016. Consideration of the detailed provisions of the Bill by MPs and Lords has now been completed and limited amendments have been made to the original Bill. When this blog post was last updated (16 April 2018) the final version of the Bill had received Royal Assent and had become the Criminal Finances Act 2017. However most of the operative sections of the Act are being brought into force by regulations which are being made in stages (updates to the text below indicate provisions which are in force).
The new Act strengthens civil recovery of the proceeds of crime; creates ‘unexplained wealth orders’; creates new offences of failing to prevent the facilitation of tax evasion; and extends existing investigation powers in relation to money laundering and terrorist finances.
It appears that the provisions in the Bill were largely based on suggestions from investigators and prosecutors. Insofar as the Bill was criticised in parliament those criticisms were to the effect that the Bill’s provisions did not go far enough.
WARNING – THIS IS A LENGTHY BLOG POST – OVER 2,000 WORDS
Strengthening civil recovery powers
Originally Part 5 of the Proceeds of Crime Act 2002, which deals with civil recovery, contained 87 sections (numbered 240 to 326). Previous amendments have deleted two of those sections but added 31 new ones. The new Act adds a further 45 new sections to Part 5 in two entirely new chapters, chapter 3A ‘Recovery of listed assets in summary proceedings’ and chapter 3B ‘Forfeiture of money held in bank and building society accounts’.
The existing chapter 3 of PoCA 2002 (which continues in force) makes provision for officers to search for cash, for the detention of cash where (on ‘reasonable grounds’) that cash is suspected to be ‘recoverable property’ (which broadly means proceeds of crime) or is suspected to be intended for use in crime, and is more than the ‘minimum amount’ (which is £1,000), and for the forfeiture of seized cash where the court is satisfied (on a balance of probabilities) that the cash is ‘recoverable property’ or is intended for use in crime (or where no objection has been raised to forfeiture).
In essence the new chapter 3B, inserted by s16, extends similar provisions (except the search provisions) to monies in bank or building society accounts. That will involve a bank or building society account initially being ‘frozen’ for a period of up to 2 years by an ‘account freezing order’ made in the Magistrates’ Court (which, like a Crown Court restraint order, may initially be made on an ex parte basis). Application could then be made, by way of an ‘account forfeiture notice’, for monies in the ‘frozen’ account to be forfeit to the Crown without the necessity of a further appearance in the Magistrates’ Court. Alternatively, or if an objection were made (in writing and normally within 30 days) to the ‘account forfeiture notice’ (for example by the account holder or another interested party), a hearing in the Magistrates’ Court would be required before the monies could be forfeit.
There is provision for the account holder to be informed of the making of an ‘account freezing order’ and the issue of an ‘account forfeiture notice’ and for allowances to be made for monies to be drawn from a ‘frozen’ account – 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 cater for setting aside or variation of an ‘account freezing order’ and for late objections and appeals.
The new chapter 3A, inserted by s15, extends similar provisions (including search provisions) to ‘listed assets’ which include precious metals, precious stones, watches, artistic works, face-value vouchers and postage stamps. The chapter 3A provisions also cater for associated property and joint property (where only part of an asset is subject to forfeiture). Again a ‘minimum value’ of £1,000 applies.
The Act also provides, s14, for the definition of “cash” in s289 PoCA 2002 to be extended. The definition already included cheques (including travellers’ cheques), bankers’ drafts, postal orders, bearer bonds and bearer shares. It will now 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 an alternative means of transferring value. A similar amendment is made to the Anti-Terrorism, Crime and Security Act 2001 in respect of “terrorist cash”.
The scope of ‘unlawful conduct’ which may be the basis of civil recovery action under Part 5, PoCA 2002 is extended by s13 to include ‘gross human rights abuse or violation’ which is defined by a new section 241A PoCA 2002.
[UPDATE: The provisions of s16, inserting a new chapter 3B into PoCA 2002, came into force on 31 January 2018. The provisions of s15, inserting a new chapter 3A into PoCA 2002, and s14, extending the definition of cash, came into force on 16 April 2018.]
Unexplained wealth orders
The Act creates ‘unexplained wealth orders’ by s1. An ‘unexplained wealth order’ requires 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.
It therefore allows an enforcement authority to require an individual to explain the origin of assets that appear to be disproportionate to his income. It is important to recognise that ‘unexplained wealth orders’ form part of chapter 8 of PoCA 2002 which deals with powers of investigation (new sections applicable to England and Wales are inserted after s362 of PoCA 2002) – rather than part 5 which deals with civil recovery.
Applications for ‘unexplained wealth orders’ are to be made to the High Court, who would need to be satisfied either that there are reasonable grounds for suspecting that the respondent is, or has been, involved in serious crime (or a person connected with the respondent is, or has been, so involved) or that the respondent is an overseas ‘politically exposed person’ (meaning an individual who has been entrusted with prominent public functions by an international organisation or a State outside of the UK or the European Economic Area, or a close relative or associate of such a person).
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 an overseas ‘politically exposed person’ there would be no requirement for a suspicion of serious criminality.
In the original Bill, an application for an ‘unexplained wealth order’ could only be made in connection with property having a value greater than £100,000. During the Bill’s passage through parliament this figure was reduced to £50,000.
Where a person provides information in response to an ‘unexplained wealth order’ the authority may use that information as a basis for civil recovery proceedings under Part 5 or in connection with any confiscation proceedings under Part 2 PoCA 2002.
Where a person fails to provide information in response to an ‘unexplained wealth order’ (without reasonable excuse) there will be a rebuttable presumption that the property in question is ‘recoverable property’ for the purposes of any civil recovery proceedings taken subsequently.
Alongside the proposed new ‘unexplained wealth orders’ will be new ‘interim freezing orders’, introduced by s2, to ‘freeze’ assets subject to ‘unexplained wealth orders’ to prevent their dissipation.
[UPDATE: The provisions relating to unexplained wealth orders came into force on 31 January 2018.]
Failing 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.
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.
The new offence is modelled on the s7 Bribery Act 2010 offence of failing to prevent bribery.
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, and monitoring and review.
[UPDATE: These provisions came into force on 30 September 2017.]
Suspicious Activity Reports and the moratorium period
Provisions in the Act aim to make more effective the Suspicious Activity Reports regime. There is a new power, introduced by s12, allowing the National Crime Agency to require any person within the ‘regulated sector’ (that is businesses subject to the Money Laundering Regulations and obliged to make a Suspicious Activity Report in appropriate circumstances) 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 in the Magistrates’ Court compelling disclosure of the required information (with a penalty of up to £5,000 for non-compliance).
Previously the SARs regime operated on a ‘shop and stop’ basis. Where a reporting entity, such as a bank or firm of accountants or lawyers, made a report it was relieved of any obligation of client confidentiality with regard to the content of the SAR. But the reporter was not in a position to provide follow up information or further details to the NCA where ordinary client confidentiality prevented that. 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 in respect of information covered by legal privilege).
Another change, introduced by s11 of the Act, facilitates the exchange of information about suspicious activities between different businesses within the ‘regulated sector’ so that, where appropriate, they can co-ordinate their reports and actions in relation to those suspicions.
Customers of banks in particular may be concerned by further provisions, inserted by s10 of the Act, allowing the ‘moratorium period’ (during which, for example, a bank account may be frozen) to be extended by up to six months longer than was previously permitted.
Under previous legislation a bank could freeze a customer’s account pending consent from the NCA initially for a period of seven working days and then for an additional period of no longer than 31 calendar days. This 31 day period is known as the ‘moratorium period’. Under the new provisions the NCA (or other appropriate investigator such as the police or HMRC) can apply to the Crown Court for the moratorium period in respect of a particular SAR to be extended. Initially the Crown Court could grant an extension of (up to) 31 days and the court would have power, upon further applications by the investigator, to grant further (up to) 31 day extensions – up to a maximum extension of 186 days from the end of the original moratorium period. Extensions could be granted where the Court is satisfied that it is necessary and reasonable, and where an investigation is being conducted diligently and expeditiously. The Court may exclude from any part of its hearings concerning extending the ‘moratorium period’ the ‘interested person’ (the holder of a frozen bank account for example) and his legal representatives.
It follows that a customer’s bank account could be frozen for more than seven months without the customer having an opportunity to hear the evidence upon which the suspicion of money laundering was based and to effectively challenge that evidence or provide appropriate explanations. Such a long period of account freezing could have very serious implications for the customer.
These provisions of the Act add new sections to Part 7 PoCA 2002.
[UPDATE: These provisions came into force on 31 October 2017.]
Tidying up investigation powers
The Act also contains various provisions to tidy up the PoCA 2002 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 Act also extends PoCA 2002 enforcement and investigation powers more coherently to HMRC, the Serious Fraud Office, the Financial Conduct Authority and immigration officers.
[UPDATE: Some of these provisions have now come into force.]
The Criminal Finances Act 2017 makes significant changes to a variety of PoCA 2002 provisions with corresponding amendments to the law relating to terrorist property.
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(Note: This article deals with the Criminal Finances Act 2017 so far as it applies in England and Wales. At the time of writing not all of the operative provisions of the Act had been brought into force. Appropriate professional advice should be sought in each individual case.)