A look at the Criminal Finances Act 2017

The Criminal Finance Act 2017 is in four parts. Key changes lawyers will need to be aware of include:

• new criminal offences for corporations (including law firms) who fail to prevent ‘associated persons’, including their staff, from facilitating tax evasion in the UK or abroad
• unexplained wealth orders (UWOs), requiring those suspected of serious crime or corruption to provide a detailed explanation of the sources of their wealth
• the seizure and forfeiture of proceeds of crime and terrorist money stored in bank accounts (as well as certain personal or transportable items)
• extensions granted to law enforcement agencies to investigate suspicious activity reports (SARs)
• legal protections for the sharing of information between regulated companies when deciding whether to file an SAR, as well as the ability to submit a ‘joint disclosure report’
• disclosure orders to cover money laundering and terrorist finance investigations
• extending the existing civil recovery regime in the Proceeds of Crime Act 2002 to allow for the recovery of the proceeds of gross human rights abuses or violations overseas.

The corporate tax evasion offences

Part 3 of the act introduces two new corporate offences of failure to prevent the criminal facilitation of tax evasion, due to commence in September.

The first offence applies to the criminal facilitation of UK tax evasion, the second to the criminal facilitation of foreign tax evasion.

The new offences are modelled on section 7 of the Bribery Act 2010 and apply to ‘corporate bodies’, which includes law firms.

They are strict liability offences, but businesses will have a defence if they are able to demonstrate they had ‘reasonable prevention procedures’ in place.

The act has wide extraterritorial reach. It applies to all entities in the world where the underlying tax is owed to HMRC, but also applies to non-UK taxes where an entity is incorporated in the UK, has a place of business in the UK, or any aspect of the offences occur in the UK.

This means companies may be committing an offence where a similar offence exists and has been committed in another jurisdiction.

Similar to the 2010 act, firms will have a defence against the corporate offence where they can demonstrate they have put in place ‘reasonable procedures’, or that it was reasonable not to establish additional procedures at the time the offence was committed.

Unexplained wealth orders

Part 1 of the act creates unexplained wealth orders (UWOs), requiring 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.

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.

Enabling disclosure orders for money laundering investigations

Disclosure orders authorise a law enforcement officer to require anyone they believe with relevant information to an investigation, to answer questions, provide information or to produce documents.

Although disclosure orders are already used in confiscation investigations and by the Serious Fraud Office in fraud investigations, the act extends their use to money laundering investigations.

Information sharing and suspicious activity reports (SARs)

Under existing provisions, regulated companies have a duty to inform the National Crime Agency (NCA) of suspicious client activity which the reporter suspects may amount to money laundering, without tipping off the clients.

To facilitate this the act provides for greater information sharing between entities within the regulated sector (for example, banks) in order to encourage better use of public and private sector resources to combat money laundering.

The act will also enable the submission of so-called super SARs, which bring together information from multiple reporters into a single SAR that provides a holistic picture to law enforcement agencies.

Granting civil recovery powers to the Financial Conduct Authority and HMRC

POCA contains ‘civil recovery powers’ for the recovery of property in cases where there has not been a conviction, but where it can be shown that, on the balance of probabilities, the property has been obtained through unlawful conduct.

The act extends the use of these powers to the Financial Conduct Authority and HMRC, which may now bring proceedings in the high court to recover criminal property without the need for the owner of the property to be convicted of a criminal offence.

What should firms be doing?

Firms should not delay in assessing the impact of the act and should consider the HMRC guidance outlining reasonable prevention procedures:

• risk assessment: does it include measures for tax evasion?
• proportionality of reasonable procedures: are your policies and procedures up-to-date?
• top level commitment: is the COLP and/or senior management aware of the new offences?
• due diligence: are all staff aware of the new obligations?
• communication (including training): is it meeting the challenges?
• monitoring and review: are procedures in place to cover this?

Remember that where found guilty under the new offence, companies could face potentially unlimited financial penalties and orders for confiscation of assets.