[co-author: Claire Lipworth]

In December 2016 we considered the changes proposed by the Criminal Finances Bill (the Bill) in "All change for money laundering regulation? - Impact for the private equity industry." On 27 April 2017, the Criminal Finances Act 2017 (the Act) received Royal Assent and is thought likely to come into force in September 2017.

The announcement of a general election in the UK was perhaps unexpected. It is conceivable however that, as a result, the Government accepted a number of amendments to the Bill in order to ensure that Royal Assent was received before the dissolution of Parliament. Accordingly, for those firms who haven't done so already, preparation for the coming into force of the Act should start now.

The Act is in four parts:

Part 1 deals with proceeds of crime, money laundering and civil recovery powers; allows information sharing in the regulated sector; extends Disclosure Orders to money laundering investigations; and facilitates the introduction of the Unexplained Wealth Order (UWO);

Part 2 extends money laundering and asset recovery powers to investigations conducted under the Terrorism Act 2000;

Part 3 of the Act creates two new corporate offences of failing to prevent the facilitation of tax evasion; and

Part 4 covers consequential and minor amendments to, among other current legislation, the Proceeds of Crime Act 2002 (POCA).

Unexplained Wealth Orders

The Act introduces the new UWO, an order granted by the High Court on the application of an enforcement authority and which requires an individual to explain the origin of any asset, the value of which appears to be disproportionate to that individual's known income. The value of any property that is the subject of an UWO must be greater than £50,000, a threshold reduced from the amount of £100,000 proposed in the Bill. A UWO will require the respondent to explain the nature and extent of any interest in the property and how they obtained it. 

Disclosure Orders

Disclosure orders authorise a law enforcement officer to require anyone that he/she believes has relevant information in connection with an investigation, to answer questions, provide information or to produce documents. These powers, which are already used in confiscation investigations, are extended to money laundering investigations by s7 of the Act. S7 amends POCA and can require a third party, for example, a bank, to disclose relevant information.

Changes to the SARs regime

Under the current POCA regime, if the National Crime Agency (NCA) refuses its consent to a transaction when a suspicious activity report (SAR) has been made, a 31 day moratorium begins and the NCA has the opportunity to take action against a suspected criminal. At the end of that 31 day period, if the NCA has not obtained a court order preventing or restricting the transaction, then the transaction can proceed. The Act provides for an extension of the moratorium by up to 186 days. Although this will make it easier for law enforcement to take action against money laundering, the delay will create difficulties for companies in the regulated sector and potentially lead to disputes with customers and counterparties.

The Act also provides for the introduction of so called 'super SARs' which will bring together information from different reporters with the intention of facilitating law enforcement agencies in their investigations.

Information sharing

Section 11 of the Act provides for information sharing in the regulated sector, dealing with concerns that sharing information about suspicious activity reports (SARs) could previously have amounted to the offence of 'tipping off' under POCA. Section 36 similarly deals with information sharing by the regulated sector under the Terrorism Act 2000.

The New Offences

There are two new offences created under the Act:-

• 'failing to prevent the facilitation of UK tax evasion'; and
• 'failing to prevent facilitation of foreign tax evasion'.

A corporate  body or partnership (not an individual) will be guilty of an offence if an associated person commits a tax evasion facilitation offence (i.e. becomes knowingly concerned in the fraudulent evasion of tax). An associated person for the purposes of the offences is:

• an employee of the corporate body or partnership, when acting in the capacity of employee;
• an agent of the corporate body or partnership, when acting in the capacity of agent; or
• any other person performing services for or on behalf of the corporate body or partnership, when acting in the capacity of provider of the relevant services.

As with the corporate offence of failure to prevent bribery in the Bribery Act 2010, the express focus of the new provisions is on tackling financial crime through corporate governance. It is therefore a defence to both offences for the corporate body to prove that it had in place reasonable procedures designed to prevent the commission of tax evasion facilitation offences by its employees, agents or service providers. 

The Government is clear that corporates must do more than simply add a module to their Bribery Act training procedures. The Government is expected to publish its final Guidance on the new offences soon but the draft guidance published by HM Revenue and Customs is in line with the existing guidance on the Bribery Act 2010 and sets out  six guiding principles of assessment, proportionality of risk-based prevention procedures, top level commitment, due diligence, communication (including training) and monitoring and review.