OPBAS UWOs and more a Money Laundering Update
Richard Simms provides an update of the changes to the new laws coming into force relevant to your AML compliance
The pace of change continues in AML, a new part of the Criminal Finances Act is now in force, OPBAS is in place and transparency continues as topic of interest.
You may have struggled to escape the discussion on the introduction of The Office of Professional Body Anti-Money Laundering Supervision (OPBAS) during the second half of last year. OPBAS is now in place (as of 18 January 2018) and the Financial Conduct Authority (FCA) Sourcebook for professional body anti-money laundering supervisors is also in place. OPBAS was constituted through The Oversight of Professional Body Anti-Money Laundering and Counter Terrorist Financing Supervision Regulations 2017.
The impact assessment document repeats the desire to ensure that the UK is a hostile environment for illicit finance.
It’s important to remember that OPBAS will not directly supervise accountants or bookkeepers.
Ultimate Beneficial Owners
In January, the Government announced plans for a register of the beneficial owners of overseas companies that own UK properties. The register is due to be in place by early 2021. The press release states that £180 million worth of UK properties has been bought under criminal investigation as suspected proceeds of corruption since 2004.
Financial Secrecy Index
Released on 30 January, this ranks countries from the most secretive to the least. Top of the list is Switzerland and the UK is 23 out of 112. The ranking is based on a number of factors. It should be a useful tool to consider along with reports such as Transparency International’s Corruption Perception Index.
Criminal Finances Act 2017 (‘CFA’)
The Criminal Finances Act has come into force in stages since it was enacted on 27 April 2017. Of particular note are the introduction of Unexplained Wealth Orders that came into force on 31 January 2018 and the introduction of Corporate Failure to Prevent Tax Evasion on 30 September 2017.
CFA updates the Proceeds of Crime Act 2002 (POCA) and Terrorism Act (2000) and creates legislation in its own right. The Act is split into four parts:
1) Investigations (including Unexplained Wealth Orders and Disclosure Orders), money laundering, civil recovery, enforcement powers and related offences.
2) Relevant ML (Money Laundering) and asset recovery powers will be extended to apply to investigations under TACT (The Terrorism Act 2000) and POCA (Proceeds of Crime Act 2002).
3) Two new corporate offences of failure to prevent facilitation of tax evasion.
4) Minor and consequential amendments to POCA and other enactments.
This article focuses in particular on the Unexplained Wealth Orders that are newly in force.
What should you be aware of:
• Unexplained Wealth Orders (UWOs)
UWOs are to allow for the use of civil rather than criminal powers to confiscate the proceeds of crime. This means that any person receiving a UWO does not have to have been found guilty of a criminal offence.
Interestingly, at the point that the idea of using UWO’s was introduced in the 2016 Action Plan, an additional offence of Illicit Enrichment was also considered. This was to apply to those in a public position who use their position to enrich themselves. Following comments in the reply to a consultation on the Action Plan, this idea was dropped.
It’s not an impossible leap to imagine that an accountant or bookkeeper could have a client who receives an UWO.
UWOs are used to force people to provide detailed evidence to support the source of their wealth – ultimately to prove that their wealth is from legitimate sources. Part 1, S.1 of the Act creates Unexplained Wealth Orders (‘UWO’). UWOs are added into the Proceeds of Crime Act 2002 (POCA).
On a successful application to the High Court, these will require 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. A failure to provide a response would give rise to a presumption that the property was recoverable as it was funded by the proceeds of crime. A person could also be convicted of a criminal offence, if they make false or misleading statements in response to a UWO.
As mentioned an application to the High Court must be made and the assets in question must be worth more than £50,000 in total. The application must be made by an Enforcement Authority which, of note, includes HMRC.
The test for a successful application includes, on reasonable grounds, that there is insufficient lawfully obtained income to obtain the property and reasonable grounds that the subject of the application has been involved in serious crime or is connected to someone who has been involved in serious crime.
As an alternative to the serious crime factor, simply that the subject appears not be to be able to afford the asset will be sufficient grounds for someone who is a Politically Exposed Person (‘PEP’).
The High Court could make an Interim Freezing Order at the point of making the UWO if there is concern that subsequent attempts to recover the assets in question could be frustrating. The order extends to anyone else who has an interest the property besides the person who is subject to the Freezing Order.
The CFA 2017 goes on to explain the duration of Interim Freezing Orders in relation to the date from which a UWO is complied with a maximum of 48 hours from the day after 60 days from the day of compliance with an UWO.
A judge may make an exclusion to an Interim Freezing Order to cover, for example, reasonable living expenses or to enable someone to carry on in business or meet legal expenses. So, we have to assume that accountancy costs could be covered by such an exclusion!
Disclosure orders for ML probes
Disclosure orders authorise a law enforcement officer to consider anyone that they believe has relevant information to an investigation to answer questions, provide information or to produce documents that they consider are relevant to an investigation.
Disclosure orders are already used in confiscation investigations and by the Serious Fraud Office (‘SFO’) in fraud investigations. The Act extends their use to money laundering investigations by amending section 357 of POCA.
Such a Disclosure order could easily be received by an accountant or bookkeeper in practice. Should this ever occur then seeking advice from the firm’s AML supervisor or an experienced solicitor would be a sensible course of action.
Shring of beneficial ownership info
A report on the assessing of the effectiveness of beneficial ownership information with the Channel Islands, the Isle of Man and British overseas territories, is due by 1 July 2019.
Information sharing and SARs
Greater information sharing between entities in the regulated sector (S.36) 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.
The moratorium period for which a consent application can be deemed to have been approved is extended to 31 days with the scope for a longer extension.
POCA 335 (6A) a & b provides for the extension of moratorium period by:
• Court order.
• Automatic extension in certain cases (extended if it would otherwise end before the determination of application or appeal proceedings etc.).
On application if satisfied that:
• Investigation is being carried out in relation to a relevant disclosure (but has not been completed).
• Investigation is being conducted diligently and expeditiously.
• Reasonable in all of the circumstances for the moratorium period to be extended.
The extension must end no more than 31 days after day after moratorium would have expired.
A further extension can be applied for but must be no more than 186 days in total after the original moratorium has expired.
Powers to the FCA 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 on the balance of probabilities that that 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.
Corporate failure to prevent evasion
The CFA creates two new offences of failure to prevent tax evasion.
There is some interesting background laid out in the explanatory notes to the CFA. Statutory offences of fraudulently evading taxes and the common law offence of cheating the public revenue already exist for individuals. It is also a crime to deliberately facilitate another person’s tax evasion.
Before the CFA, if an accountant criminally facilitated a customer to commit a tax evasion offence the tax payer and the accountant committed a criminal offence but the company employing the accountant did not. In cases where the company tacitly encouraged its staff to maximise the company’s profits by assisting customers to evade tax, the company remained safely beyond the reach of the criminal law.
The CFA introduces offences that hold the organisations to account for the actions of their employees. The offences focus on the organisations failure to prevent those who act for it or on its behalf from criminally facilitating tax evasion when acting in that capacity.
The defence for the organisation is that it can show that it had reasonable prevention measures in place or that it was not reasonable to expect such procedures.
Part 3, ss 45-46, of the CFA create two new ‘failure to prevent’ offences, based on the section 7 Bribery Act 2010 offence:
• Failure to prevent facilitation of UK tax evasion offences.
• Failure to prevent facilitation of foreign tax evasion offences.
Both are corporate offences and cannot be committed by individuals; they can only be committed by ‘relevant bodies’ (i.e. legal persons). A relevant body means a body corporate or partnership.
Moreover, they are only committed in circumstances where a person acting for or on behalf of that body, acting in that capacity, criminally facilitates a tax evasion offence committed by another person.
The foreign revenue offence will require the consent of the Director of Public Prosecutions or the Director of the SFO.
HMRC issued guidance on these offences on 1 September 2017, which includes 6 guiding principles which are:
• Proportionality of risk-based prevention procedures.
• Top level commitment.
• Risk assessment.
• Due diligence.
• Communication (including training).
• Monitoring and review.
There are also some suggested steps within the HMRC guidance for lower risk SMEs. There’s no space to repeat all of their guidance here but steps include a risk assessment of products and services and looking out for hallmarks of fraud or fraud ‘red flags’ such as staff that refuse to take leave or are particularly defensive over client relationships. Processes and procedures should be tailored to prevent and detect potential tax evasion facilitation.
• Richard Simms is Managing Director of the AMLCC