The Criminal Finances Act 2017 – What Directors Need To Know

by Wilford Smith on April 26, 2018

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The Criminal Finances Act (the Act) 2017[1] received its Royal Assent in April and came into force 30th September 2017  Comprising of four parts, the aim of the Act is to provide a hostile environment for corporate criminal activities and make it easier for government agencies to police money laundering, corruption, tax evasion and terrorist financing.

The Act is the most important piece of anti-corruption legislation since the Bribery Act 2010.

Background to the Criminal Finances Act 2017

Given London’s prominence in banking and finance and the possibility of uncertainty brought on by Brexit, it is imperative that Britain’s reputation as a clean, safe place to invest and do business is maintained.

Following the Panama Papers scandal, the UK government set up a taskforce and hosted the London Anti-Corruption Summit in May 2016.  Just prior to the summit, a paper entitled ‘Action Plan for anti-money laundering and counter-terrorist finance[2] was published, setting out new key developments for addressing these areas of corporate crime.

In addition, several risks were identified and suggestions made to strengthen the UK’s anti-money laundering and terrorist financing regimes in 2015 in the National Risk Assessment for Money Laundering and Terrorist Financing (NRA) report.

On the back of these developments came the introduction of the Criminal Finances Act 2017, in which the government sends a clear message to the international community, “we will not stand for money laundering or the funding of terrorism through the UK.”

The Criminal Finances Act 2017 is founded on a risk-based approach.  It is based on the UK’s successful counter-terrorism framework, which has four main elements: prosecuting and disrupting serious and organised crime (Pursue); preventing people from engaging in serious and organised crime (Prevent); increasing protection against serious and organised crime (Protect); and reducing the impact of serious and organised crime where it takes place (Prepare)[3].

How the Criminal Finances Act 2017 is constructed

The Criminal Finances Act 2017 is divided into four parts:

  • Part One relates to the proceeds of crime, money laundering, recovery, enforcement, and other offences
  • Part Two extends money laundering and asset recovery powers to apply to investigations under the Terrorism Act 2000 (“TACT”), as well as the Proceeds of Crime Act 2002 (“POCA”)
  • Part Three creates two new offences for failing to prevent tax evasion
  • Part Four slightly amends aspects of the POCA and other legislation

Find out more about financial and corporate crime here: https://www.wilfordsmith.com/services/criminal-defence/financial-crime.html

Unexplained wealth orders

It is a requirement under the UN Convention Against Corruption[4] (UNCAC) for states to consider introducing an illicit enrichment offence.

A new weapon created under Part 1 of the Act to combat corruption is the “unexplained wealth order” (UWO), whereby a person who is suspected of involvement in or association with serious criminality will be required to explain the origin of assets that appear to be disproportionate to their known income.

Failure to provide a response will give rise to a presumption that the property is recoverable, to assist any subsequent civil recovery action.  A person will also be liable to be convicted of a criminal offence if they make false or misleading statements in response to a UWO, with a maximum penalty of two years’ imprisonment[5].

A UWO can only be made against a Politically Exposed Person or where there are reasonable grounds to suspect a person has serious criminal involvement, and the value of the property exceeds £50,000.

An order could also be obtained against associates, so long as in all cases, the court is satisfied that there are “reasonable grounds to suspect” that a person’s known sources of lawful income are disproportionate to specified property worth, in total, more than £100,000.

To make a UWO, the High 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 for the purposes of enabling the respondent to obtain the property.

Failure to prevent corporate tax evasion

Two new offences for tax evasion are created under Part One of the Act:

  • Failure to prevent facilitation of UK tax evasion offences
  • Failure to prevent facilitation of foreign tax evasion offences

From 30 September 2017, companies and partnerships will be criminally liable if they fail to prevent tax evasion by either a member of their staff or an external agent, even where the business was not involved in the act or was unaware of it.

A defence is available if the company or partnership can show it had put in place reasonable prevention procedures or it can prove that in the circumstances it would have been unreasonable or unrealistic to have expected it to have had procedures in place.

The relevant guidance on reasonable prevention procedures focuses on six key principles:

  • Carrying out a comprehensive risk assessment
  • Implementing procedures which are proportionate to the specific risks identified in the risk assessment.
  • Performing due diligence of staff, third parties and clients in proportion to the risks that they pose to the business.
  • Ensuring that there is a top-level commitment within the organisation to preventing the facilitation of tax evasion.
  • Communication (including training) to employees and third parties to ensure procedures are embedded and understood.
  • Carrying out ongoing monitoring and review of procedures and risk assessment.

In summary

Whether the Criminal Finances Act 2017 meets its objective in deterring criminal activity remains to be seen.

One must also remember the bluster and fear generated within the business community when the Bribery Act 2010 came into force.  Many commentators predicted that a plethora of prosecutions would result from the liberalisation of UK bribery and corruption laws, and UK businesses would be hamstrung at an international level by the red-tape created.

None of this has come to pass.  The Serious Fraud Office has so far secured only one conviction under section 7 of the Bribery Act 2010.

However, the power the Criminal Finances Act bestows on investigators and enforcers cannot be underestimated.  Companies and partnerships should ensure that their risk management is compliant with the new legislation and seek legal advice on any points of doubt and confusion.

Wilford Smith Solicitors – Modern Law Firm, with expert solicitors advising on criminal defence, corporate crime, fraud, estate planning, conveyancing and more. Contact us today: Wilford Smith Solicitors, Meadowhall Business Park, MBP3, Carbrook Hall Road, Sheffield S9 2EQ 0114 205 1768 https://www.wilfordsmith.com/  

[1] http://www.legislation.gov.uk/ukpga/2017/22/contents/enacted

[2] https://www.gov.uk/government/publications/action-plan-for-anti-money-laundering-and-counter-terrorist-finance

[3] ‘Serious and Organised Crime Strategy’, HM Government, October 2013

[4] https://www.unodc.org/unodc/en/treaties/CAC/

[5] Nicola Padfiled, Crim. L.R. 2017, 7, 505-506

Wilford Smith
Wilford Smith Lawyers, Solicitors - Modern Law Firm, with expert solicitors advising on criminal defence, fraud, estate planning, conveyancing and more. Contact us today.
Wilford Smith
Wilford Smith

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