What is it?

The Criminal Finances Act 2017 received Royal Assent on 27 April 2017 ahead of the dissolution of parliament for the general election. The Act does not contain many of the items in the Criminal Finances Bill 2016 because of the last minute rush to get it on the statute books but there is plenty of bite in this latest weapon in the enforcement armoury! The Act is a direct relation to the Panama papers scandal in which journalists leaked details of “the secretive offshore businesses used to hide wealth, evade taxes and commit fraud by the world’s dictators business tycoons and criminals”.[1]

Main features

The main features of the CFA 2017 are:

  • It amends the Proceeds of Crime Act 2002 (POCA)
  • It makes provisions in connection with terrorist property
  • It creates corporate offences around tax evasion (which need a new commencement order before coming into force)
  • It gives investigators additional powers as to source of wealth enquiries

The main impact of the CFA will be in the creation of UWOs (Unexplained Wealth Orders) and in the strict liability corporate offences of failing to prevent the facilitation of tax evasion. These are considered in a little more detail below:

Unexplained Wealth Orders (UWO)

  • UWOs can be sought in the High Court where assets over £50k are considered disproportionate to known income – law enforcement agencies can apply for a UWO requiring the asset holder to explain and produce evidence of the origin of the assets.
  • There are special provisions for interim freezing orders to run alongside UWOs.
  • UWOs will be available against a Politically Exposed Person (PEP) and anyone reasonably suspected of being involved in, or connected to someone involved in, serious crime.
  • Failure to provide satisfactory evidence of the origin of an asset subject to a UWO will result in a rebuttable presumption that the asset was obtained unlawfully and render it recoverable property under POCA.

 Corporate offence of failing to prevent the facilitation of tax evasion.

  • Although aimed at the financial services sector, the new offences will apply to all
  • The offences are strict liability, which means no need to prove intent on the part of the corporate entity to secure a conviction.
  • The new strictly liability corporate offences of failing to prevent the facilitation of tax evasion will be similar to the section 7 Bribery Act 2010 offence of failure to prevent bribery, and will apply when the following three factors are in place:

(1) there is criminal evasion of tax by the taxpayer;

(2) there was deliberate facilitation of (1) by an associated person (it must be deliberate/dishonest act not negligent or unwitting conduct); and

(3) failure to prevent (2) by the company

  • A defence is available when a company can show “reasonable procedures” to prevent commission of the offence (again similar to the Bribery Act adequate procedures defence).

Guidance issued by HMRC has made it clear that corporate entities should not wait until the Act comes into force before acting. It is clear that the legislation is intended to be hard hitting and provide real powers for enforcement agencies. There are also significant changes to the money laundering regime and in particular the Suspicious Activity Reports (SAR) regime which will give the National Crime Agency longer than the current 31 days to investigate a transaction after refusing to give consent when a business in the regulated sector submits a SAR. The new maximum will rise to 217 days. The NCA has been given greater powers to request information and seek disclosure orders from regulated persons.

What is abundantly clear is the need for businesses to get their house in order now – the starting point is a risk assessment to identify where the potential risks are and then ensure there are adequate due diligence procedures in place to guard against that risk.

If you require further information or assistance, please speak to Ruth Armstrong or Simon Pigden.

[1] https://www.occrp.org/en

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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.