The purpose of the Criminal Finances Bill (the "Bill") is to "tackle money laundering and corruption, recover the proceeds of crime and counter terrorist financing".
The Bill’s most significant innovation is the new corporate offence of failure to prevent facilitation of tax evasion in the UK and overseas. HMRC has now published draft guidance on the new criminal regime and, crucially, the defence of reasonable "prevention procedures".
The Bill also sets out a number of new anti-money laundering powers and enhances the investigative and recovery powers of enforcement agencies. These provisions are summarised below.
Failure to prevent facilitation of tax evasion
The offences
Our previous briefing sets out the draft offences and explains the relevant terminology (PDF) that underpins them.
In summary, the Bill sets out two new offences:
- failure to prevent facilitation of a UK tax evasion offence
- failure to prevent facilitation of a foreign tax evasion offence.
Together, the two offences criminalise three types of behaviour:
- A UK based body failing to prevent those who act on its behalf from criminally facilitating UK tax evasion
- A non-UK based body failing to prevent those who act on its behalf from criminally facilitating UK tax evasion
- A UK based body failing to prevent those who act on its behalf from criminally facilitating tax evasion overseas where such evasion is criminal under local law.
The offences utilise the same model of strict corporate criminal liability as first seen in the corporate offence of failure to prevent bribery as seen in Section 7 of the Bribery Act 2010. The model shifts the enforcement burden from criminal enforcement bodies on to UK businesses and overseas businesses operating in the UK.
The model is also expected to be used in the proposed offence of failure to prevent economic crime, on which we have published a separate briefing: Government resurrects proposed corporate offence of failing to prevent economic crime.
The defence of reasonable "prevention procedures”
The offences are subject to a defence of reasonable prevention procedures. The corporate must be able to prove that:
- it had in place such “prevention procedures”, meaning procedures designed to prevent associated persons from facilitating tax evasion offences, as it was reasonable in all the circumstances to expect it to have in place; or
- in all the circumstances, it was not reasonable to expect it to have any prevention procedures in place.
HMRC has published draft guidance (PDF) providing "lower risk SMEs" with assistance on the design and implementation of reasonable "prevention procedures".
The processes and procedures recommended by the draft guidance are based on six guiding principles. The principles are almost identical to those published in respect of the "adequate procedures" required by the Bribery Act 2010. The principles are: (i) risk assessment; (ii) proportionality of risk-based prevention procedures; (iii) top level commitment; (iv) due diligence; (v) communication (including training); and (vi) monitoring and review.
Suggested prevention procedures for "lower risk SMEs"
Risk assessment
The draft guidance states that an SME should first undertake a risk assessment (which we recommend should be carefully recorded in writing) of the products and services it offers, as well as internal systems and client data that might be used to facilitate tax evasion. As part of the risk assessment the SME should consider the following "red flags":
- Are there staff who refuse to take leave and do not allow anyone else to review their files, or are overtly defensive over client relationships?
- Do existing processes ensure that for higher risk activity at least a sample of files are routinely reviewed by a second pair of eyes?
Procedures
Once the SME has conducted its risk assessment, it should design procedures to deal with those risks. Such procedures should include the following:
- Having a commitment to preventing the involvement of those acting on the relevant body’s behalf in the criminal facilitation of tax evasion, which might be demonstrated by issuing a prominent message from the board of directors (or the leadership team) against all forms of tax evasion.
- An overview of its strategy and timeframe to implement its preventative policies.
- Having terms in contracts (with employees and contractors) requiring them not to engage in facilitating tax evasion and to report their concerns immediately.
- Providing regular training for staff on financial crime detection and prevention.
- Having clear reporting procedures for whistle-blowing of suspected facilitation.
- Ensure their pay and bonus policy/structure encourages reporting and discourages pursuing profit to the point of condoning tax evasion.
- Monitoring and enforcing compliance with prevention procedures.
- Having regular reviews of the effectiveness of prevention procedures and refining them where necessary.
Enhanced investigatory and recovery powers
The Bill introduces measures that improve the capability for investigating suspected money-laundering or terrorist financing and recovering proceeds of crime:
Unexplained Wealth Orders
UWOs require those suspected of obtaining properties with illegal funds to explain the sources of their wealth to enforcement agencies. The Serious Fraud Office (SFO), HM Revenue and Customs (HMRC), the National Crime Agency (NCA) as well as other agencies can obtain such an order if:
- the property is worth more than £100,000;
- there are reasonable grounds for suspecting that the respondent’s lawful income would have been insufficient to obtain the property; and
- the respondent is a politically exposed person or there are reasonable grounds for suspecting that they are or have been involved in serious crime.
Once a UWO is granted the respondent must explain, by way of statement, their interest in the property in question. Those ultimately unable to explain where their wealth came from would risk having their assets seized.
Seizure and forfeiture of the proceeds of crime
The Bill enables seizure and forfeiture of the proceeds of crime that are stored in UK assets, extending current law to include value stored in bank accounts and high-value property, such as precious metals, jewels, watches and art. The Bill also introduces provisions to ensure that bank accounts are easier to freeze.
Information sharing between regulated companies
The Bill also makes provisions for voluntary information sharing between nominated officers in the regulated sector where this may help determine any matters relating to a suspicion of money laundering. The Bill also introduces a new power for the NCA to serve a "further information notice" to persons in the regulated sector, following a Suspicious Activity Report (SAR). However, the private sector has entertained concerns about whether exchanging such further information could give rise to civil claims for breach of confidentiality. The Bill addresses these concerns by including proposals for immunity from criminal or civil liability in respect of further information provided to the NCA outside the context of a SAR.
SARs and extension of moratorium period
The Bill allows for the court to extend the moratorium period, within which consent to engage in activity involving property suspected of being the proceeds of crime, can be withheld from 31 days to a maximum of 217 days (in 31-day intervals). The rationale behind this is to allow enforcement agencies more time to respond to information contained in SARs before having to undertake the more burdensome task of seeking a court injunction. However, it could be the case that this will further exacerbate the already existing challenge faced by regulated institutions of managing customer’s expectations and avoiding “tipping off” under the current SAR regime.
Disclosure Orders
These permit investigating agencies to require someone suspected of possessing information relevant to an investigation to provide such information to an enforcement agency. These powers already exist for corruption and fraud investigations and the Bill extends them to money laundering investigations.
We will continue to monitor the Bill and associated guidance.