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Recent Developments in Financial Crime

The last year has been an eventful one in the sphere of economic crime. Aside from high profile enforcement successes for the Serious Fraud Office (SFO), on the legislative front there have been a number of key statutory developments that have brought into sharp focus the UK government's anti-financial crime agenda. These include the reform of certain aspects of the Proceeds of Crime Act 2002, to introduce new information gathering and information sharing measures; the establishment of a new offence of failure to prevent the facilitation of tax evasion; a new power for the Office for Financial Sanctions Implementation ('OFSI') to impose monetary penalties for sanctions breaches and a call for evidence on reform of corporate criminal liability.

We look at each of these developments in turn.

Reform of the Proceeds of Crime Act 2002 ("POCA")

Power to extend the 'moratorium period'

Under the existing provisions of the Proceeds of Crime Act 2002 (POCA), if an "authorised" disclosure is submitted to the National Crime Agency, requesting consent to deal with suspected proceeds of crime, and consent is refused, there is a moratorium period of 31 days for the suspicious activity to be investigated and a decision to be made as to whether a restraint order should be obtained to prevent the dissipation of funds or property.

The Criminal Finances Bill ('the Bill'), which will become law later this year, envisages allowing an an investigator, to apply to court to extend the above moratorium period. The amendment to POCA will allow the court to grant an extension of up to 31 days from the date when the initial moratorium period ends (that is, the initial 31 days). Additional extensions may be made (on further application) up to a total of 186 days from the date of the end of the initial moratorium period.

Concern has been expressed that extending the moratorium period places a burden on disclosing parties, since during that period they are unable to deal with the relevant property and cannot inform others of their reasons for not doing so due to the tipping off provisions of POCA. Clearly, this can cause significant client and transactional management issues. However, there have been (anecdotal) indications from law enforcement that it will not wish to use this power frequently, although they are keen to emphasise that the current timeframes for investigation are unrealistic.

Sharing of information within the regulated sector

The Bill envisages amendments to allow the sharing of information between regulated institutions in connection with suspicions of money laundering, thereby removing 'tipping off' and confidentiality concerns which prevent this information exchange at present.

The driver for change has, in part, been the desire for law enforcement to have richer and more comprehensive intelligence from the regulated sector and although, ultimately, that objective may be achieved, it is fair to say that there remain concerns in the regulated sector. For example, before information is sought from another regulated firm, the legislation envisages that a suspicion must already have arisen in relation to a particular customer or funds. Given that the regulated institution must then file a suspicious activity report anyway, questions have been raised as to whether institutions will go that step further and seek additional information from each other. In addition, the appetite for such cooperation between the UK's financial institutions remains to be seen, in balancing any residual reputational risk involved with sharing customer information, with the benefits of potentially being able expeditiously to corroborate suspicion with evidence.

Introduction of "Unexplained Wealth Orders"

Following through on the government's anti-corruption agenda, the Bill will allow law enforcement agencies to apply to the High Court for an "Unexplained Wealth Order" (UWO), requiring a holder of property (which must be valued at over £100,000) to explain their interest in that property, and the provenance of the funds used to obtain it.

There must be reasonable grounds for suspecting that the known sources of the respondent's lawfully obtained income would have been insufficient to enable the respondent to obtain the property, and the respondent must either be a politically exposed person (PEP), or there must be reasonable grounds to believe they are or have been involved in (or connected to someone involved in) serious crime.

If the Court makes a UWO, and the holder of the property fails to respond in the "response period" (which may be any time period that the court decides), the property will be presumed to be recoverable in any subsequent enforcement action under Part 5 (such as civil recovery proceedings).

The Facilitation of Tax Evasion

Two new criminal offences in relation to a failure to prevent the facilitation of tax evasion are proposed in the Bill. It is envisaged these will be in force in the autumn of 2017. The offences capture the facilitation of both UK and overseas tax. Both offences target a corporate whose "associated person" facilitates criminal UK or overseas tax evasion by a tax payer.

For a corporate to commit either of the offences, three elements must be made out. Firstly, there must be criminal tax evasion by a taxpayer (such as cheating the public revenue). Secondly, there must be criminal facilitation of the offence by an associated person, and, finally, there must be a failure by the company to take reasonable steps to prevent that facilitation – mirroring the approach taken in section 7 of the Bribery Act.

The "UK offence" under draft section 42 can be committed by both UK and non-UK based corporates. As well as those incorporated in the UK, foreign corporates carrying on a business in the UK will be in scope, including those doing so through a branch. Furthermore, foreign corporates not carrying on a business in the UK may also be brought within scope if the associated person's relevant conduct takes place in the UK.

The new offences therefore introduce a further shift in the risk profile of a corporate's business, whereby each of its agents (howsoever described) can render it liable for their wrongful conduct in relation to tax evasion unlessit has not put in place reasonable procedures to prevent that tax evasion.

Changes to the financial sanctions regime

Up until now, enforcement of breaches of the financial sanctions regime has been almost non-existent. That is set to change with the Policing and Crime Act 2017, which will create a more robust enforcement environment. Penalties for criminal breaches by individuals of the sanctions legislation will increase from one year to seven years imprisonment for individuals, and unlimited fines may be imposed.

In addition, and in a real departure from the previous approach, there is to be a new regime for monetary penalties to be imposed where the Office for Financial Sanctions Implementation decides there has been a breach of the regime. The evidential threshold will be the civil standard and the level of fine could be significant. Where it is possible to estimate the quantum of the funds or economic resources involved, the permitted maximum is the greater of £1 million or 50% of the estimated value of the funds or economic resources. In other cases (where it is not possible to estimate the amount in issue), the maximum is £1 million. In terms of process, OFSI's decision may, on request, be reviewed by the relevant Minister and ultimately, the Upper Tribunal may hear the case.

Proposed changes to corporate criminal liability for economic crime

The UK government recently issued a call for evidence on potential changes to the law governing corporate criminal liability to make it simpler to hold corporates to account for economic crime, envisaged to be offences of fraud, money laundering and false accounting. Currently, the 'identification principle' dictates that a corporation can generally only be held liable for criminal conduct when the actions of 'a directing mind and will' of the company (normally a director) can be attributed to the company.. Proposals include a reform of the identification principle(perhaps by broadening the scope of the types of person that can constitute the directing mind of the corporate), imposing strict liability on corporations for economic crime carried out by its employees, or creating a new offence of a failure to prevent economic crime carried out by persons associated with the corporation. The latter suggestion is modelled on the corporate offence of failure to prevent bribery contained in section 7 of the Bribery Act.

There is some scepticism as to whether there is a real appetite for any substantive change and indeed responses from industry and the financial services sector to the government's call for evidence have focused on whether in fact there is evidence of corporates going unpunished for engaging in economic crime (or failing to prevent it). After all, as recently as July 2015, there government stated publicly that it did not see a case for change.


These legislative changes seek to follow through on last April's "Action Plan for anti-money laundering and counter-terrorist finance" e by taking steps towards reducing the potential for serious organised crime and fraud to escape the punitive reach of the available UK enforcement measures. The combination of targeted legislative measures (such as the extensions to the disclosure regime in respect of money laundering) and potentially landscape altering shifts in corporate risk profile (in the case of the above "failure to prevent" offence) will have a wide-ranging impact on corporates of all sizes and sectors. Presumably, the intended net effect of introducing both the immediate, specific changes, and the broader potential ones, in parallel is to incentivise all those operating a business to consider the spirit as well as the letter of their broader compliance and corporate ethics strategies, to ensure they do not fall foul of any new, broader regime, once its exact form has been made clear.