Financial Crime UpdateMark Fenhalls QC of 23 Essex Street reviews the latest financial crime developments

23 Essex Street is a set of barristers’ chambers specialising in criminal litigation and noted in the fi nancial fi eld for its work in white-collar crime cases, including money laundering, confi scation and asset recovery, revenue and customs,

business and market-related and intellectual property crime. In addition, it is noted for its expertise in the associated fi elds of professional regulatory and disciplinary proceedings.

MONEY, CRIME AND THE CITY OF LONDON …

nIn June 2013 David Cameron gave a speech in which he announced plans for a central register in British Overseas

Territories – the so called offshore tax havens – which would require that the “true” owners of companies be identified and recorded. He said he would fight the “scourge of tax evasion and aggressive tax avoidance”, with “transparency about who owns which companies”. In April 2016, the “Panama Papers” were published and the government announced a task force to analyse the leaked material. In May 2016, the government hosted the ‘London Anti-Corruption Summit’.

The government published papers in October 2015 and April 2016 setting out areas where anti-money laundering and terrorism finance regimes could be strengthened and the measures it contemplated.

The political momentum has been (largely) maintained through the latter half of the year.

In November in a written answer the Chancellor announced that several dozen individuals were under investigation in the UK for criminal/civil tax issues arising out of the Panama Papers.

The government has introduced the Criminal Finances Bill, describing it as “a key element of one of the most significant changes to our anti-money laundering and terrorist finance regime in over a decade”. Whether or not the Act eventually lives up to this billing, there are some interesting changes proposed and there will clearly be substantial changes necessary to the way in which banks and their advisors share information, report suspicions and approach their financial compliance obligations.

THE NEW OFFENCE OF FAILING TO PREVENT TAX EVASIONThe government intends to make it an offence for a “relevant body”, usually a corporation to fail to prevent the commission of tax evasion, whether in the UK or elsewhere, by a person with which they are “associated”. The proposed offence is similar in some ways to that of failing to prevent bribery under s 7 of the Bribery Act 2010. It seems likely that overseas tax evasion will be covered where the conduct concerned would amount to an offence in the jurisdiction concerned as well as in the UK. As presently drafted the new offence is broader than the equivalent Bribery Act offence because there is no need for the corporate body to have benefited from the tax evasion. However the available defences seem broader too, as the “adequate procedures” to prevent bribery have been replaced by having in place “reasonable

prevention procedures”, or showing that in the overall circumstances no such procedures were reasonable at all. The detail yet to emerge will no doubt be the subject of extensive debate during the passage of the Bill and with HMRC before it issues its guidance.

CHANGES TO THE SUSPICIOUS ACTIVITY REPORTS (SARs) REGIMEAt present when an organisation makes a SAR there is a back stop of 31 days for the authorities to investigate before consent to the proposed transaction is deemed to have been given. The current proposal is to extend this by court order by up to a further 186 days. Such extensions might afford law enforcement more time to investigate suitable cases, but at huge potential disruption to many lawful transactions if too many applications are made. Anecdotal evidence suggests the National Crime Agency is unable to handle the current number of SARs. Considerable thought and resource needs to be put in to strengthening the ability of the NCA to process these reports and the Bill makes some proposals in this area. One suspects that the vast proportion of these reports are made by organisations trying to adhere to their obligations under this “consent regime” and that the greater problem continues to reside with those businesses who do not pay sufficient heed to the regulatory/ compliance regime.1

UNEXPLAINED WEALTH ORDERSThe Bill will amend the Proceeds of Crime Act 2002 to allow for the making of “unexplained wealth orders”. The High Court may make such an order where a number of conditions are fulfilled. First that the individual holds property worth more than £100,000 and there are reasonable grounds for suspecting that the individual’s “lawfully obtained income would have been insufficient … to obtain the property”. Second that the individual is a “politically exposed person”2 or there are reasonable grounds for suspecting that s/he (or someone connected) has been involved in serious crime whether in the UK or abroad. It does not matter if the property was obtained before the Act is in force. The order will require the respondent to provide a statement explaining the extent of his interest in the property, how it was obtained and how any costs were met. Non-compliance will result in the property becoming the subject of the “civil recovery/cash seizure” provisions in the Proceeds of Crime Act 2002. Purported compliance will trigger an obligation on the investigating authority to decide whether to proceed, for example, with confiscation or civil recovery proceedings.

44 January 2017 Butterworths Journal of International Banking and Financial Law

FIN

AN

CIA

L CR

IME

UPD

ATE

Anyone who purports to comply with an order, but either recklessly or knowingly makes a statement that is false or misleading in a material particular will commit an offence punishable by imprisonment.

BREXIT: KEY CONSEQUENCES FOR CRIMINAL JUSTICE? MORE QUESTIONS THAN ANSWERSThe UK has an “opt out” with the EU on policing and criminal justice measures, but has chosen to “opt in” (and uses extensively) most of the measures designed to further police co-operation. It may be possible to renegotiate many of these, but whether this can be done collectively with the remaining EU members or will require 27 bilateral sets of discussions remains to be seen.

There are a series of agreements that mean courts and other authorities in EU states must give effect to judgments and orders issued by similar bodies in other EU countries. Of these “mutual recognition” measures, the best known is the European arrest warrant (EAW), which resulted from the “EU Framework Decision” (2002/584/JHA) (the “Framework Decision”). The UK’s international law extradition obligations were implemented in domestic law through part 1 of the Extradition Act 2003. The EAW requires acceptance of a foreign warrant by national judicial authorities without an inquiry into the facts or circumstances giving rise to the warrant and limits the grounds on which extradition may be refused.

Will the UK be able to renegotiate an EAW type agreement with the EU when our membership ceases? Iceland and Norway (members of EFTA and Schengen) took 13 years to negotiate such a deal. If we do not, the fall-back position may be reliance on the 1957 European Convention on Extradition. This would mean a reversion to a far more complex, time consuming and resource intensive process each time an extradition request was made or received. Of course the government could seek to negotiate separate bilateral agreements with each of the other EU member states, but the diplomatic and civil service time involved hardly bears contemplation.

DATA PROTECTIONEU data protection derives from Directive 95/46/EC “on the protection of individuals with regard to the processing of personal data and on the free movement of such data”. The Data Protection Act 1998 gives effect to this Directive in the UK. The UK has been happy to let Europe progress this area of law and new augmented EU laws are due to come into force for data protection in May 2018.3 The Information Commissioner had this to say post-referendum.

“If the UK is not part of the EU, then upcoming EU reforms to data protection law would not directly apply to the UK. But if the UK wants to trade with the Single Market on equal terms we would have to prove ‘adequacy’ - in other words UK data protection standards would have to be equivalent to the EU’s General Data Protection Regulation framework starting in 2018”.

On the current timetable the UK will still be an EU member in 2018 and there is little sign of any process intended to stop new EU laws applying to us until membership ceases. So until the question of whether or not the UK retains access to the Single Market is resolved, we may have little choice but to adopt or match any EU developments if we are to meet the “adequacy” requirements.

ANTI-MONEY LAUNDERINGThe EU Fourth Money Laundering Directive is due to come into force in June 2017. The directive puts further scrutiny on the risk based approach, particularly around situations where simplified due diligence may be applied and requires regulated entities to find out more about the money they hold. It is hard to see how the UK would not wish to be part of this attempt to make it more difficult to launder ill-gotten gains through banks and other regulated entities. n

1 https://www.fca.org.uk/publication/final-notices/sonali-bank-uk-

limited-2016.pdf

2 A person entrusted with prominent public functions by an

international organisation or by a state other than the UK or another

EEA state.

3 https://ico.org.uk/for-organisations/data-protection-reform/

overview-of-the-gdpr/

Biog boxMark Fenhalls QC is a barrister practising from 23 Essex Street, Temple, London. He is Chair of the Fraud Lawyers Association http://www.thefraudlawyersassociation.org.uk/. Email: markfenhalls@23es.com

45Butterworths Journal of International Banking and Financial Law January 2017

FINA

NCIA

L CRIME U

PDATE

Financial Crime Update