9 The Government's strategic response to money laundering is founded upon a risk-based approach. The 2013 Serious and Organised Crime Strategy aims to substantially reduce the level of serious and organised crime affecting the UK and its interests. The 2015 SDSR set out the Government's intention to introduce new measures to make the UK a more hostile place for those seeking to move, hide or use the proceeds of crime or corruption or to evade sanctions.
10 In October 2015, the Government published the National Risk Assessment for Money Laundering and Terrorist Financing (NRA), which identified areas of risk and how the current regimes for combating these threats could be strengthened.
11 In April 2016, the Government published an Action Plan for Anti-Money Laundering and Counter-Terrorist Finance, setting out the steps that it will take to address the weaknesses identified in the National Risk Assessment. It focused on three priorities: a more robust law enforcement response; reforming the supervisory regime; and increasing our international reach. All three are underpinned by a commitment to building a new and powerful partnership with the private sector. The Bill is the vehicle to implement the legislative elements of the Action Plan, which included a consultation document on legislative proposals. The proposals outlined below have been developed through that consultation and through wider discussion. A summary of the responses to the consultation was published on 13 October 2016.
Unexplained Wealth Orders
12 The Bill would create Unexplained Wealth Orders (UWOs) that require a person who is suspected of involvement in or association with serious criminality to explain the origin of assets that appear to be disproportionate to their known income. A failure to provide a response would give rise to a presumption that the property was recoverable, in order to assist any subsequent civil recovery action. A person could also be convicted of a criminal offence, if they make false or misleading statements in response to a UWO. Law enforcement agencies often have reasonable grounds to suspect that identified assets of such persons are the proceeds of serious crime. However, they are unable to freeze or recover the assets under the current provisions in POCA due to an inability to obtain evidence (often due to the inability to rely on full cooperation from other jurisdictions to obtain evidence).
13 The Bill would also allow for this power to be applied to foreign politicians or officials or those associated to them i.e. Politically Exposed Persons (PEPs). A UWO made in relation to an overseas PEP would not require suspicion of serious criminality. This measure reflects the concern about those involved in corruption overseas laundering the proceeds of crime in the UK; and the fact that it may be difficult for law enforcement agencies to satisfy any evidential standard at the outset of such an investigation given that all relevant information may be outside of the jurisdiction.
Enabling disclosure orders for money laundering investigations
14 A disclosure order is an order authorising a law enforcement officer to require anyone that they think has relevant information to an investigation, to answer questions, provide information or to produce documents. They are used to gather the information required for a successful criminal investigation, although the compelled evidence may not be used in criminal proceedings against the person who gave the information.
15 Disclosure orders are already used in confiscation investigations and by the Serious Fraud Office (SFO) in fraud investigations. The Bill would extend their use to money laundering investigations. The Bill would also amend the application authorisation process that exists in England, Wales and Northern Ireland by transferring this function from a prosecutor to a senior officer in the investigator’s own organisation (this arrangement does not apply in Scotland).
Suspicious Activity Reports
16 Where a regulated company – that is one subject to the Money Laundering Regulations 2007 (MLRs), such as a bank, accountancy firm, legal firm or estate agent – suspects that a transaction relates to money laundering, they must submit details to the NCA to avoid committing an offence under section 330 of POCA. This is known as a "Suspicious Activity Report" (SAR). SARs are a critical intelligence resource. They provide important opportunities for law enforcement agencies to intervene to disrupt money laundering and terrorist financing, and build investigations against those involved. Over 381,000 SARs were received by the NCA in the period September 2014 – October 2015.
17 Under section 335 of POCA, the SARs regime currently allows the NCA to allow or refuse consent to the person making an authorised disclosure (the reporter) to undertake activity involving property suspected of being the proceeds of crime – these are consent SARs. 14,672 of the SARs received in 2014/15 were consent SARs. Where the NCA refuses consent, the regulated company loses the statutory defence provided to the money laundering offences (s327 – s329 of POCA) for a period of 31 days from the date of the refusal. This has the effect of preventing the activity from going ahead during that period. This is known as the ‘moratorium period’. The purpose of the moratorium period is to allow investigators time to gather evidence to determine whether further action, such as restraint of the funds, should take place. This period, which is not currently renewable, often does not allow sufficient time to develop the evidence, particularly where it must be sought from overseas through mutual legal assistance. The Bill would amend this provision to allow for extensions of up to 31 days, totalling a period of no more than 186 days from the end of the initial 31 day moratorium period.
18 In order to enhance the effectiveness of this regime, the Bill would also create a power for the NCA to request further information from any person in the regulated sector (as defined by section 9 of POCA), following receipt of a SAR; or where they have received a request from a Financial Intelligence Unit (FIU) in another country. The Bill would amend Part 7 of POCA to allow the NCA to direct the reporter, or another regulated sector entity, to provide further information relating to the SAR. If it is not provided, the NCA could apply to a magistrates or sheriff’s court for an order compelling the person to provide it; and failure to comply would result in a fine. This power is required to allow the NCA to perform its analytical functions. The decision of the court would be appealable in the normal way.
19 There are appropriate exemptions relating to the provision of legally privileged information. Any information provided would be given immunity from any restriction on the disclosure of information, such as confidentiality clauses in contracts or the law of confidence. The compelled information could not be used in criminal proceedings against the person who made the statement.
20 The Bill would provide for a legal gateway for the sharing of information between entities within the regulated sector (e.g. banks), in order to encourage better use of public and private sector resources to combat money laundering.
21 The private sector holds data on financial transactions and related personal data; the law enforcement agencies hold details of criminals, and intelligence on crime. When this data has been shared, such as under the Joint Money Laundering Intelligence Taskforce (JMLIT) pilot, there have been positive outcomes for both sectors. Although existing data protection legislation allows for the sharing of information for the prevention and detection of crime, regulated companies are concerned that there should be express legal cover that is directly related to the anti-money laundering regime, in order to reduce the risk of civil litigation for breach of confidentiality.
22 The Bill would allow for regulated bodies to share information with each other, where they have notified the NCA that they suspect activity is related to money laundering. This measure will enable the submission of "super SARs", which bring together information from multiple reporters into a single SAR that provides the whole picture to law enforcement agencies. To begin with, this measure will extend to financial sector organisations – some of which are already part of the JMLIT – but will be extended to all of the regulated sector in due course.
Seizure and forfeiture powers
23 The Bill would create new civil powers, similar to the existing cash seizure and forfeiture scheme in Chapter 3, Part 5 of POCA, to enable the forfeiture of monies stored in bank accounts and items of personal property, like precious metals and jewels. There is evidence that these items are being used to move value, both domestically and across international borders. There will be a list of items specified in the Bill, which can be amended by affirmative order as required. The power will be exercisable where there is reasonable suspicion that the property is the proceeds of crime, or that it will be used in unlawful conduct in a manner similar to cash.
Granting Civil Recovery powers to the Financial Conduct Authority and HMRC
24 POCA contains a set of provisions for the recovery of property in cases where there has not been a conviction, but where it can be shown on the balance of probabilities that that property has been obtained through unlawful conduct. These powers are known as "civil recovery". The Bill would extend powers to the Financial Conduct Authority (FCA) and HMRC to allow proceedings to be taken in the High Court to recover criminal property, without the need for the owner of the property to be convicted of a criminal offence (and to the supporting investigation powers). At present, the NCA, SFO and Crown Prosecution Service (CPS) (or Public Prosecution Service of Northern Ireland) have access to these powers. Only Scottish Ministers can pursue civil recovery in the Scottish courts and the amendments to POCA will not alter that position.
Extending Investigation powers to members of staff at the Serious Fraud Office
25 Staff at the SFO do not have direct access to the investigative powers in POCA, unlike officers of all other national law enforcement agencies. The Bill would grant them direct access to those powers.
Making it a criminal offence to obstruct/assault law enforcement officers
26 Officers from a range of agencies – Immigration Enforcement, the CPS, the SFO and others – are able to use the various search and seizure powers as defined in POCA. Currently, there are criminal offences of obstruction or assault which apply in respect of some officers who are carrying out duties under POCA, but not all officers are captured. The Bill would ensure that all officers are afforded the same degree of protection, while exercising powers under POCA. This will bring consistency of approach and ensure that all users of POCA powers are protected.
Enabling the use of POCA investigation powers for confiscation order "re-visits"
27 Confiscation orders are made to recover the financial benefit that a criminal obtained from their crimes. However, they are made not for the full amount of the benefit, but for the amount that is available at the time the order is made. This is to ensure that orders are not made in unrealistic amounts that exceed the sum which is actually recoverable from the offender. However, POCA also contains a provision to enable investigators to "re-visit" any confiscation order that has been paid off but was made for an amount lower than the total criminal benefit figure. This means that, if a criminal pays off an order but goes on to make more money in the future, the court can consider whether it would be proportionate to recover more money or property.
28 At present, the financial investigation powers in POCA – for example, powers to monitor bank accounts, search property, or require the production of evidence – are not available for investigations linked to re-visits. The Bill would extend these powers to ensure they are available for re-visits.
Allow the writing-off of orders made under the Drug Trafficking Offences Act 1986 in the same way as orders made under POCA
29 The Serious Crime Act 2015 allowed for confiscation orders made against people who have subsequently died to be written off. This only covered orders made under POCA. There are still some orders made under earlier legislation – the Drug Trafficking Offences Act 1986 – to which the amendment did not apply. The Bill would address this gap.
Amending the levels of authorisation needed for the use of POCA search and seizure powers
30 POCA contains search and seizure powers to prevent the dissipation of property that may be used to satisfy a future confiscation order following a conviction. Their use must be authorised by a senior officer. At present, AFIs can only obtain that authorisation from a senior civilian AFI, working for a police force, not from a senior police officer. The Bill would allow for AFIs to receive authorisation from a senior police officer.
Expand the circumstances in which "mixed property" is recoverable
31 The existing civil recovery provisions within POCA allow for other property to be recovered when the criminal property has been mixed with "clean property".
32 POCA contains a non-exhaustive list of situations where so called "mixed property" (i.e. where "clean property" is associated with that connected to criminal conduct) can be recovered. The Bill would add to that list to include property that has been used to redeem a mortgage, providing greater clarity of the extent of civil recovery powers.
33 Operational agencies in Scotland have identified two bespoke amendments to POCA to reflect the nuances of the Scottish criminal justice system. The Bill would:
a. allow the High Court of Justiciary and the Sheriff Court the power to order money in accounts and money held as cash productions to be paid in satisfaction of a confiscation order.
b. give the Court of Session the power to grant the trustee for civil recovery a decree of removing and a warrant for ejection to recover possession of heritable property;
34 The Bill would clarify minor and technical inconsistencies in various definitions in existing legislation – the concept of "distress", a mechanism for taking control of goods; the definition of a bank (where POCA refers to the now-repealed Banking Act 1987); and the definition of "free property" in POCA.
35 Countering terrorist finance is an important part of the Government’s response to terrorism and financial investigation is a key tool in the investigation of a number of terrorism offences. The vulnerabilities in the financial sector which are at risk of being exploited are broadly the same as those for the proceeds of crime. For that reason, the following powers in the Bill would also be extended to apply to investigations in relation to under terrorist property and terrorist financing, as well as POCA:
a. The powers to enhance the SARs regime;
b. Information sharing;
c. Seizure and forfeiture powers – for bank accounts and mobile stores of value; and
d. Disclosure orders.
36 The Bill would also extend a number of powers under TACT and the Anti-Terrorism, Crime and Security Act 2001, which are currently only available to constables, to civilian Accredited Financial Investigators (AFIs) employed by the police. Counter-terrorism policing indicate that the extension of these powers to AFIs will increase the capacity of the police to apply for the orders in question by over 50%. AFIs are currently used frequently in proceeds of crime investigations.
Corporate failure to prevent tax evasion
37 There are a range of statutory offences of "fraudulently evading" taxes. For example, section 72 of the Value Added Tax Act 1994 makes it a crime to be knowingly concerned in, or take steps with a view to, the fraudulent evasion of Value Added Tax. Section 106A of the Taxes Management Act 1970 creates a similar offence in relation to income tax. Beyond these statutory offences of fraudulent evasion, there is a common law offence of cheating the public revenue, committed by a person who engages in any fraudulent conduct that tends to divert funds from the public revenue.
38 It is also a crime to facilitate deliberately another person to commit tax evasion. The above offences are committed where a person is knowingly concerned in, or takes steps with a view to, the fraudulent evasion of a tax owed by another. Moreover, like any offence, it is a crime to aid and abet another person to commit a tax evasion offence and as such where a banker, accountant, or any other person, deliberately facilitates a client to commit a tax evasion offence, the banker or accountant commits a crime.
39 At present, where a banker or accountant criminally facilitates a customer to commit a tax evasion offence, the taxpayer and the banker or accountant commit criminal offences but the company employing the banker or accountant does not. Even in cases where the company tacitly encourages its staff to maximise the company’s profits by assisting customers to evade tax, the company remains safely beyond the reach of the criminal law.
40 The new offences in Part 3 will aim to hold these organisations and corporations to account for the actions of their employees. This power will give effect to the former Prime Minister’s commitment to legislate following the International Consortium of Investigative Journalist’s (ICIJ) publication of what are known as the "Panama Papers". The clauses have been developed following a pair of consultations on the broad approach, and then the detail, of the proposed offences. Rather than focusing on attributing the criminal act to the company, the offences focus on – and criminalise – the company’s failure to prevent those who act for or on its behalf from criminally facilitating tax evasion when acting in that capacity.
41 Therefore, where a person acting for or on behalf of a relevant body, acting in that capacity, criminally facilitates a tax evasion offence by another person, the relevant body would be guilty of the corporate failure to prevent the facilitation of tax evasion offence, unless the relevant body can show that it had in place reasonable prevention procedures (or that it was not reasonable to expect such procedures).
42 The new corporate offences cannot be committed by individuals; they can only be committed by "relevant bodies", that is, legal persons (companies and partnerships). Moreover, they are only committed in circumstances where a person acting for or on behalf of that body, acting in that capacity, criminally facilitates a tax evasion offence committed by another person. Thus where the taxpayer commits a tax evasion offence contrary to the existing criminal law, and a person acting for or on behalf of the relevant body also commits a tax evasion facilitation offence contrary to the existing law by criminally facilitating the taxpayer’s crime, the relevant body commits the new offence. However, absent an existing offence at the taxpayer and associated person level, the new offences cannot be committed. Where a company’s staff member commits a tax fraud in relation to another’s tax without facilitating another, the offence is not committed. It is an offence to unreasonably fail to prevent the criminal facilitation of tax evasion, not tax evasion itself.
43 The new offences do not make companies responsible for the crimes of their customers (unless those who act for or on behalf of the company criminally facilitate such crimes). Nor are the new offences committed:
a. Where the taxpayer engages in aggressive avoidance falling short of fraudulent evasion or is otherwise non-compliant.
b. Where the person acting for or on behalf of the relevant body inadvertently or negligently facilitates the taxpayer’s fraudulent evasion of tax.
c. Where the taxpayer’s fraudulent evasion is facilitated by a person who is not acting for or on behalf of the relevant body at the time of doing the facilitating act (for example if an employee, in their private life, criminally facilitates his or her partner’s fraudulent evasion of their tax; or where a sub-contractor criminally facilitates tax fraud when working for an entirely different contractor during work unconnected to the relevant body). The new offences are only about ensuring that relevant bodies have reasonable procedures to prevent those acting for or on their behalf from criminally facilitating the fraudulent evasion of tax, when acting in that capacity.
d. Every time somebody acting for or on behalf of the relevant body criminally facilitates another’s tax crime (only reasonable procedures, not fail proof procedures, are required: a risk based, rather than zero tolerance, approach is adopted).
e. Where tax evasion offences are currently being committed by those acting for or on behalf of a company, the new offences will require nothing more than for that company to have reasonable procedures in place to prevent such offences being committed by those acting for or on its behalf.