THE CRIMINAL FINANCES ACT 2017 – WHAT CAN WE EXPECT?

By Maya Paunrana & Robert Jappie

The Criminal Finance Act 2017 represents an expansion to the scope of investigating and prosecuting financial crime.

Maya Paunrana

On paper, the Act casts a wide net, targeting money laundering, corruption, and the corporate failure to prevent tax evasion amongst other offences.

The process of civil asset recovery has also been addressed with the aim of lowering the hurdles that prosecutors are sometimes required to jump.

Although the Act received Royal Assent in April this year, we are waiting for a commencement date to be announced. There is a great amount of publicity surrounding the Act, not least because it introduces a further burden on corporates to actively prevent criminal tax evasion.

However, we are still unsure about the potency of the Act and whether it will in fact lead to increased investigations and prosecutions.

The following developments of the Act are most notable:

1. Corporate failure to prevent the facilitation of tax evasion – The biggest challenge that we think will arise from the prosecution of this offence is the initial requirement of criminal tax evasion by a taxpayer. If this underlying offence is committed overseas, then it must amount to a criminal offence in that jurisdiction and meet a dual criminality test in the UK.

However, there is no requirement for the taxpayer to have been convicted, and a prosecutor would still need to prove beyond reasonable doubt that the offence had been committed in order to then prosecute the relevant corporate body.

1. The “Super SAR” – businesses which have filed a suspicious activity report (SAR) require deemed consent to be given by the National Crime Agency (NCA) before proceeding with a particular transaction. The moratorium imposed upon such transactions has been extended by the Act from 31 days to a total period of an additional 186 days. The rationale behind this extension is obvious in that it gives the NCA time to investigate a transaction more thoroughly.

However, the commercial impact of this increase could potentially be significant and unmanageable. Managing clients whilst actively trying to avoid tipping them off about a SAR having been made is challenging enough for 31 days, let alone for a further 186 days. Moreover, the value of the transaction may be large and suspending it for six months could be damaging to the cash flow of a small business.

1. Unexplained Wealth Orders (UWO) – the UWO reverses the burden of proof and requires an individual to explain the provenance of specified property situated in the UK above the value of £50,000. Law enforcement agencies can apply for a UWO against either a politically exposed person (either foreign or a UK national) or those associated with serious crime, if they can persuade the High Court that there is reasonable cause to believe that the subject holds assets that are disproportionate to their known income. 

Robert Jappie

Subjects of the UWO are required to disclose their interest in the property, failure of which can lead to the property becoming recoverable for the purposes of civil recovery under the Proceeds of Crime Act 2002.

This mechanism has been introduced with the clear intention of tackling international corruption, but the process for obtaining such an order leaves many questions unanswered.

For example, it remains unclear exactly what evidence will need to be adduced by the prosecution to establish “reasonable cause for belief”. Importantly, the High Court will need to ensure that UWOs are granted only in appropriate circumstances and remain fully compliant with the subject’s human rights, and in particular Article 6 (right to a fair trial) and Article 8 (right to privacy) of the Human Rights Act 1998.

Despite the ambiguities that will remain until the Act comes into force, as always, individuals and corporates are well-advised to err on the side of caution.

For individuals, it is important to be familiar with the wide-reaching scope of disclosure orders and civil recovery powers.

For corporates, much in the same way that they prepared for the Bribery Act 2010, they must undertake an in-depth review and implement adequate internal policies and procedures in order to mitigate risks as soon as possible.

By Maya Paunrana & Robert Jappie

The Criminal Finance Act 2017 represents an expansion to the scope of investigating and prosecuting financial crime.

Maya Paunrana

On paper, the Act casts a wide net, targeting money laundering, corruption, and the corporate failure to prevent tax evasion amongst other offences.

The process of civil asset recovery has also been addressed with the aim of lowering the hurdles that prosecutors are sometimes required to jump.

Although the Act received Royal Assent in April this year, we are waiting for a commencement date to be announced. There is a great amount of publicity surrounding the Act, not least because it introduces a further burden on corporates to actively prevent criminal tax evasion.

However, we are still unsure about the potency of the Act and whether it will in fact lead to increased investigations and prosecutions.

The following developments of the Act are most notable:

1. Corporate failure to prevent the facilitation of tax evasion – The biggest challenge that we think will arise from the prosecution of this offence is the initial requirement of criminal tax evasion by a taxpayer. If this underlying offence is committed overseas, then it must amount to a criminal offence in that jurisdiction and meet a dual criminality test in the UK.

However, there is no requirement for the taxpayer to have been convicted, and a prosecutor would still need to prove beyond reasonable doubt that the offence had been committed in order to then prosecute the relevant corporate body.

1. The “Super SAR” – businesses which have filed a suspicious activity report (SAR) require deemed consent to be given by the National Crime Agency (NCA) before proceeding with a particular transaction. The moratorium imposed upon such transactions has been extended by the Act from 31 days to a total period of an additional 186 days. The rationale behind this extension is obvious in that it gives the NCA time to investigate a transaction more thoroughly.

However, the commercial impact of this increase could potentially be significant and unmanageable. Managing clients whilst actively trying to avoid tipping them off about a SAR having been made is challenging enough for 31 days, let alone for a further 186 days. Moreover, the value of the transaction may be large and suspending it for six months could be damaging to the cash flow of a small business.

1. Unexplained Wealth Orders (UWO) – the UWO reverses the burden of proof and requires an individual to explain the provenance of specified property situated in the UK above the value of £50,000. Law enforcement agencies can apply for a UWO against either a politically exposed person (either foreign or a UK national) or those associated with serious crime, if they can persuade the High Court that there is reasonable cause to believe that the subject holds assets that are disproportionate to their known income. 

Robert Jappie

Subjects of the UWO are required to disclose their interest in the property, failure of which can lead to the property becoming recoverable for the purposes of civil recovery under the Proceeds of Crime Act 2002.

This mechanism has been introduced with the clear intention of tackling international corruption, but the process for obtaining such an order leaves many questions unanswered.

For example, it remains unclear exactly what evidence will need to be adduced by the prosecution to establish “reasonable cause for belief”. Importantly, the High Court will need to ensure that UWOs are granted only in appropriate circumstances and remain fully compliant with the subject’s human rights, and in particular Article 6 (right to a fair trial) and Article 8 (right to privacy) of the Human Rights Act 1998.

Despite the ambiguities that will remain until the Act comes into force, as always, individuals and corporates are well-advised to err on the side of caution.

For individuals, it is important to be familiar with the wide-reaching scope of disclosure orders and civil recovery powers.

For corporates, much in the same way that they prepared for the Bribery Act 2010, they must undertake an in-depth review and implement adequate internal policies and procedures in order to mitigate risks as soon as possible.