The Criminal Finances Bill – overloading the statute book?

The Criminal Finances Bill (CFB) was published on 13 October 2016. The CFB  contains four parts: part one amending and updating the provisions of the Proceeds of Crime Act 2002 (POCA), part two making similar updates to terrorist finance legislation, part three creating two new offences of failure to prevent tax evasion, and part four covering some ancillary matters. Although the CFB offers one innovative measure, expanding the range of failure to prevent offences (although not in respect of financial crime), many of the proposed measures seem unnecessary.

Section 1 of the CFB seeks to create a new power of Unexplained Wealth Orders (UWO), an order that requires a respondent to provide a statement setting out the nature and extent of their interest in property in respect of which the order is made, and explaining how the property was obtained, backed by criminal penalties for making a false or misleading statement. A respondent who is unable to provide an explanation could see the property seized.

A UWO can be made in the following circumstances:

  • The respondent holds the property.
  • The value of the property is greater than £100,000.
  • There are reasonable grounds for suspecting that the known sources of the respondent’s lawfully obtained income would have been insufficient for the purposes of enabling the respondent to obtain the property.
  • The respondent is either a politically exposed person, or there are reasonable grounds for suspecting that the respondent is, or has been, involved in serious crime in the UK or elsewhere.

Although media reports suggest “Hundreds of British properties suspected of belonging to corrupt politicians, tax evaders and criminals could be seized by enforcement agencies“, the same notions were mooted with the introduction of civil recovery powers in the original POCA legislation. Part 5 of POCA 2002 enables specified enforcement authorities to bring civil proceedings in the High Court to recover property that is or represents the proceeds of crime. The court must first decide, on the balance of probabilities, whether unlawful conduct has occurred. The court must then decide whether property has been obtained through that unlawful conduct. If it has, then that property is recoverable property. For more information on civil recovery, see Practice note, Obtaining a civil recovery order.

In addition, a proposed section 12 of the CFB contains a new power to recover listed assets, items of property comprising of precious metals, precious stones, watches, artistic works and postage stamps. Again, it is possible to recover such items under existing legislation.

The tendency to add to the statute book continues in chapter four, which extends certain powers under POCA to SFO, HMRC and FCA personnel, backed by criminal penalties. The intention of the extended powers is to provide greater autonomy for such personnel to act without police support. A new section 453B of POCA seeks to create offences of assaulting a SFO officer acting in the exercise of a relevant power, and resisting or wilfully obstructing a SFO officer acting in the exercise of a relevant power. Perhaps SFO searches have become rather more dangerous in recent years? However, considering it is already an offence to assault any member of the public, or to obstruct an investigation, these proposed laws serve little obvious purpose.

The CFB also creates two new “failure to prevent” offences for corporate entities, based on the offence under section 7 of the Bribery Act 2010.

Section 37 creates an offence where a company or a partnership is guilty if a person associated with it commits a UK tax evasion facilitation offence when acting in that capacity. A UK tax evasion offence means any offence of cheating the public revenue (see Practice note, cheating the public revenue) and any other offence in the UK concerning the fraudulent evasion of a tax, thereby including evasion of duty and VAT fraud. A facilitation offence includes aiding, abetting, counselling or procuring the commission of the principal offence.

Section 38 creates an almost identical offence concerning the facilitation of foreign tax evasion. A foreign tax evasion offence means conduct which:

  • Amounts to an offence under the law of a foreign country.
  • Relates to a breach of a duty relating to a tax imposed under the law of that country.
  • Would be regarded by the courts of any part of the United Kingdom as amounting to being knowingly concerned in, or in taking steps with a view to, the fraudulent evasion of that tax.

In both cases, it will be a defence for the company or partnership to prove that when the offence was committed they had in place such prevention procedures as  was reasonable in all the circumstances, or to prove that it was not reasonable in all the circumstances to expect prevention procedures to be in place. Prevention procedures are defined as procedures designed to prevent persons acting in the capacity of a person associated with the company from committing UK tax evasion facilitation offences. Similar to the Bribery Act, section 39 requires the Chancellor of the Exchequer to prepare and publish guidance about procedures that relevant bodies can put in place to prevent such offences. A draft is published here, and contains almost identical principles to the Bribery Act.

Both offences will require the consent of the Director of Public Prosecutions or the Director of the Serious Fraud Office.

The new failure to prevent tax evasion offences will no doubt be well received, and the forthcoming guidance from the Chancellor on prevention procedures will be a most important document for companies. However, there is a noticeable absence of the much discussed “failure to prevent economic crime” offence in the CFB.

The section 7 offence has been available for more than five years. So far, we have yet to see a contested case, and have no indication as to whether particular procedures are “adequate”. Such limited use of the failure to prevent offence has not gone unnoticed. An offence of failure to prevent economic crime was first proposed in 2014, only to be dropped in 2015 in a Parliamentary written answer (see Blog post, Failure to prevent economic crime fails to get off the ground). The then Justice Minister answered:

The UK has corporate criminal liability and commercial organisations can be, and are, prosecuted for wrongdoing. The UK Anti-Corruption Plan tasked the Ministry of Justice to examine the case for a new offence of a corporate failure to prevent economic crime and the rules on establishing corporate criminal liability more widely. Ministers have decided not to carry out further work at this stage as there have been no prosecutions under the model Bribery Act offence and there is little evidence of corporate economic wrongdoing going unpunished.

Perhaps exception was taken to the assertion that there is little evidence of corporate economic wrong doing going unpunished. On 12 May 2016, prior to an anti-corruption summit, the proposal was resurrected by the then Prime Minister of the UK, David Cameron, who commented:

In the UK, in addition to prosecuting companies that fail to prevent bribery and tax evasion, we will consult on extending the criminal offence of “failure to prevent” to other economic crimes such as fraud and money laundering so that firms are properly held to account for criminal activity that takes place within them.

The proposed offence has also long been championed by the Director of the SFO, David Green CB QC. Mr Green welcomed the consultation on the offence in his speech to the Cambridge Symposium in September 2016. However, while the failure to prevent tax evasion offences has reached the first reading stage, the economic crime version still waits for the consultation to be launched.

There seems to be a tendency in criminal law to respond to problems by creating new laws, rather than seeking to use existing laws more efficiently, or to put greater resources into investigation and prosecution. Some laws clearly need be amended to reflect changes in society, for example expanding the Computer Misuse Act 1990 to reflect changes in technology, or the difficulties of applying the identification principle to a complex corporate structure. Time will no doubt determine how successful the Criminal Finances Act has been at recovering the proceeds of crime, but perhaps the time and resources spent on it could have been better deployed using existing legislation.

Practical Law David Bacon

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