Kleptocracy, Dodgy Money and Curtain Twitching in Surrey - Key Aims of the new Criminal Finances Bill

Anti-money laundering regulation is relatively mature in the UK. For example, it has nurtured a compliance culture which gives rise to about 400,000 suspicious activity reports in the UK per annum. However, according to the NCA, between £36 and £90 billion are allegedly laundered each year, largely through London, for example via the appropriation of state assets by the corrupt and powerful and the purchase of homes for the super-rich. A Deutsche Bank analysis in 2015 of the UK’s balance of payments data suggested that a good chunk of the UK’s £133 billion hidden capital inflows is related to Russia. James Ibori, a former governor in Nigeria, admitted stealing £160 million and spending a lot of it on 6 houses in London. Colonel Gaddafi’s son was found to have diverted Libyan state funds to buy a £10 million house in Hampstead, via a BVI company. Yet current legislation can often be thwarted by complex trust and corporate ownership models, which obscure the ultimate beneficial owners of high value assets. More than 100,000 UK land titles, relating to addresses as far apart as Harrogate and Canterbury with a large glut of titles in Surrey, are registered to anonymous companies in British overseas territories as well as other notorious secrecy havens abroad. Nearly half the companies named in the Panama Papers were registered in the British Virgin Islands. How can the law confront these threats to legitimate wealth and hold the corrupt to account?

The Criminal Finances Bill, introduced into Parliament last autumn, seeks to meet these challenges. When in force, it will amend the Proceeds of Crime Act 2002 and the Terrorism Act 2000. Among its provisions, Part 1 provides for greater powers to investigate the proceeds of crime through Unexplained Wealth Orders (UWOs), which can compel an individual to explain how an asset was obtained. Once in force, the High Court will be able to make UWOs if satisfied that (a) the respondent to the application holds the property and, (b) the value of the property is greater than £100,000, (c) that reasonable grounds exist for suspecting that the known sources of the respondent’s lawfully obtained income would have been insufficient for the purposes of enabling the respondent to obtain the property and, (d) that the respondent is a Politically Exposed Person (present and past holders of public office, their families and associates) or, (e) there are reasonable grounds for suspecting that (i) the respondent is, or has been involved, in serious crime (whether in the UK or elsewhere) or (ii) a person connected with the respondent is or has been so involved. This last sub-clause potentially widens the net considerably. The respondent must demonstrate how he legitimately came by the asset, or else it can be seized and forfeited. The provision is retrospective. Although a civil order, it is given extra teeth by the creation of criminal offences where misleading or false statements are knowingly or recklessly made in the course of complying with the order. The statement in compliance with an order can even be held against its maker where inconsistent statements are made in other proceedings. UWOs can be made in conjunction with freezing orders and can even apply to overseas property. It is also notable that a UWO can be served on a politically exposed person without any connection to serious crime.

In another part of the Bill, Part 3 seeks to penalise a corporate entity where an associated person commits a tax evasion facilitation offence, for example by being knowingly concerned in tax evasion or cheating the public revenue. So for example, a bank or other financial institution could be held to account for the actions of their employees. It applies to onshore and offshore tax evasion and will apply to all taxes, thus seeking to catch those who operate outside jurisdictions which recognise tax evasion as an offence. The onus is on the corporate entity to establish a defence by proving it had in place reasonable tax evasion prevention procedures, except where it wasn’t reasonable to have such procedures. The Chancellor of the Exchequer will publish guidance as to what can be put in place to prevent commission of these offences. So, in placing the burden squarely on the corporate body to prove its defence, this not only echoes the position of respondents under UWOs who have to justify their unexplained wealth but also Section 7 of our current Bribery Act, which provides for corporate criminal liability unless reasonable preventative measures are in place.

It remains to be seen whether this legislation, which clearly has a real potential to tackle corruption, will be matched by political will in a post-Brexit UK. The Bill is notably silent on requiring offshore havens such as the BVI and Jersey to keep public registers, which might be considered key to exposing the corrupt to investigation. We are also entering a time when new trade alliances are being sought, where the UK wants to show itself open to business and where there will be obvious pressure to reduce regulation in order that the UK can be competitive and attractive to investment. Will this mean getting into bed with more corrupt regimes and individuals? Will the Government insist on high or low corruption standards once divorced from the EU single market? What will benefit us in the long term? Watch this space!