AML: HMRC flexes enforcement muscle to the tune of £7.8 million
This year has seen significant developments in the economic crime arena, all of which demonstrate that the government is bolstering its fight against white collar and corporate crime.
There has been a raft of legislation and proposals to support this aim and an emerging theme is greater collaboration and information-sharing between the public and private sectors. This was evidenced in February by Theresa May’s launch of the Joint Fraud Taskforce in which government, law enforcement and banks will work together to tackle fraud.
During that launch, May said, "Fraud shames our financial system. It undermines the credibility of the economy, ruins businesses and causes untold distress to people of all walks of life... For too long, there has been too little understanding of the problem and too great a reluctance to take steps to tackle it." The prime minister’s stance as home secretary indicates how she will approach economic crime in her new role.
The government has renewed its focus on international cooperation. The UK hosted the Anti-Corruption summit in May and worked with other countries to set up a Global Forum for Asset Recovery with the aim of bringing together governments and law enforcement agencies to recover stolen assets. The government also introduced an International Anti-Corruption Coordination Centre to allow police and prosecutors to work internationally to identify and prosecute corruption and seize assets.
Despite this, the UK faced criticism from Transparency International in May who described it as a safe haven for corrupt individuals and their stolen wealth who "enjoy luxury lifestyles and cleanse their reputations [through] lack of powers for law enforcement to seize stolen assets… professional enablers … and an anti-money laundering system that is easy to bypass."
In October, the government introduced the Criminal Finances Bill, proposed legislation which appears to have been drafted with these very criticisms in mind. The bill may be in force in early 2017 and includes measures to tackle tax evasion, corruption, money laundering and recover the proceeds of crime. This includes the introduction of Unexplained Wealth Orders (UWOs), swingeing powers through which investigating authorities will be able to seek a court order requiring wealthy individuals to explain the source of their wealth.
UWOs will apply to property valued at over £100,000 where there are reasonable grounds for suspecting this is inconsistent with an individual’s known income. The subject of the UWO must explain the origin of the property and if they don’t there will be a presumption that the property is recoverable which may lead to civil recovery proceedings. Assets will be frozen pending the provision of an explanation.
The bill also includes proposed reforms to the Suspicious Activity Report (SAR) regime including the extension of the moratorium period – the period where the proposed activity cannot proceed - from 1 month to 7 months. Ostensibly to allow further investigation time, it is also thought to be aimed at addressing the volume of SARs - of which there were over 380,000 in 2014/15 representing an 8% year-on-year rise - to ensure greater thought is given to the submission of a SAR so that there are fewer SARs, of a better quality, to consider.
Further proposals include the so-called super-SAR, another example of public-private collaboration, which would allow for information sharing among regulated entities in the private sector, bringing together multiple information sources into a single, comprehensive SAR.
The Criminal Finances Bill includes a new corporate offence of failing to prevent the facilitation of tax evasion, modelled on the existing offence of failure to prevent bribery. This is a strict liability offence meaning it is unnecessary to prove criminal intention, or senior management involvement, to establish guilt.
For a company to be guilty of the offence there must be proof of tax evasion to the criminal standard of proof - beyond reasonable doubt - but a prosecution and conviction of the individual taxpayer is not required. This could create a situation where an individual has disclosed his deliberate tax evasion through the civil process and thereby renders a company criminally liable for failing to prevent that tax evasion. There will be a "reasonable procedures" defence: that reasonable procedures were in place or it was unreasonable to have them.
Also aimed at tax fraud, a new offence of failing to declare offshore income and gains was created in September through the Finance Act 2016. Another strict liability offence, it will likely come into effect from April 2017, and will apply where a taxpayer fails to notify HMRC that he or she is chargeable to tax, fails to file a tax return or files an inaccurate return.
And finally, the government has continued to address corporate crime with a possible further extension of the corporate "failure to prevent" offences to encompass all economic crime. The government announced in May that it would consult on such an offence and the new attorney general has confirmed that this will start soon.
If successful, this would be a victory for David Green, the director of the SFO, who has been calling for such an offence since 2014 to increase his agency’s ability to prosecute companies. That said, the SFO has had a good year in terms of corporates, securing its second DPA, against XYZ Ltd, who were ordered to pay a financial package of $6.5m (£5.1m) while Smith & Ouzman – the first company to be convicted of bribery by a jury – were sentenced and made to pay $2.2m. The SFO also secured its first guilty plea to failure to prevent bribery when the Sweett Group pleaded guilty in February and were fined £2.25m.
What is clear from developments in the past 12 months is that the government is determined to tackle economic crime in all its forms and that this looks set to increase in the coming year.
This article was first published by Economia, 13 December 2016.
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