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Criminal Finances Bill - Unexplained Wealth Orders & Disclosure Orders
The Criminal Finances Bill: Proposed Amendments to the Proceeds of Crime Act 2002
The Criminal Finances Bill, currently under consideration by Parliament, includes a number of proposed changes to the laws on money laundering and civil recovery under the Proceeds of Crime Act 2002. In the first of a two-part article, John Binns looks at the proposals on Unexplained Wealth Orders and Disclosure Orders.
1. Unexplained Wealth Orders and Disclosure Orders
The powers of the state to restrain and recover assets that are thought to represent the proceeds of crime, already described as 'draconian' in the judgments of English courts, are set to be extended still further under a new bill under consideration by Parliament. The powers, set out in the extensive and much-amended Proceeds of Crime Act 2002 ('POCA'), were the subject of a set of proposals in a joint Home Office/HM Treasury Action Plan for Anti-Money Laundering and Counter-Terrorist Finance ('the Action Plan') in April this year. Some, but not all, of those proposals have now found their way into the Criminal Finances Bill 2016-2017 ('the Bill').
As a preliminary observation, it must surely be accepted as unfortunate that, after only 14 years, the various additions and amendments to POCA are now so numerous that fresh sections are thought to need numbers such as '303Z19'. This is not, it should be stressed, just a matter of aesthetics: laws, especially ones as important as this, need to be clearly understood by those who are affected by them, and the sprawling hodgepodge of provisions in POCA is increasingly forbidding to all but the most dedicated reader.
In terms of the substance, the proposed amendments to POCA are in Part 1 of the Bill, and fall into four categories: investigations (Chapter 1); money laundering (Chapter 2); civil recovery (Chapter 3); and enforcement powers (Chapter 4). This article considers the provisions in Chapter 1, which concern Unexplained Wealth Orders (‘UWOs’) and Disclosure Orders. Both types of order have the potential to have a real impact on those suspected of involvement in money laundering and acquisitive crime.
Unexplained Wealth Orders ('UWOs')
The concept of 'unexplained wealth', though familiar in other jurisdictions, is somewhat novel to English law: the framework of POCA until now has allowed assets to be frozen only where investigators have at least a good arguable case that they represent the proceeds of crime, or a reasonable suspicion that they belong to someone who has benefited from crime. The proposal for UWOs is that the High Court will be able to order a person to explain within a specified period what interest they have in specified property, and how they obtained it, in two rather different scenarios.
The first scenario is where the court is satisfied that the holder of the property is a Politically Exposed Person ('PEP'). This is a concept adapted from EU Money Laundering Directives, which broadly means an individual who has been entrusted with prominent public functions by an international organisation or a state (other than the UK or another EEA state), or a 'family member' or 'close associate' of such a person. Unhelpfully perhaps, the Bill refers the reader to the latest (Fourth) EU Directive for the detail of this concept. As an indication, PEPs include ministers, MPs and senior judges; 'family members' includes spouses (or equivalents), children (and their spouses), and parents; and 'close associate' includes people who own property with or for, or have close business relations with a PEP.
The second scenario is that the court is satisfied that there are reasonable grounds for suspecting that the holder, or a person 'connected' with them, has been involved in 'serious crime'. Again, the reader is referred to other documents for the meanings of these concepts: as an indication, 'connected' (as defined in the Corporation Tax Act 2010) includes (for example) spouses (or equivalents) of close relatives, and vice versa; and 'serious crime' (as defined in the Serious Crime Act 2007) includes corruption, fraud, and money laundering.
In both scenarios, the court also has to be satisfied that the value of the property exceeds £100,000, and that there are reasonable grounds for suspecting that the known sources of the holder's lawfully obtained income would have been insufficient for the purposes of enabling them to obtain the property. The property in question can (and no doubt invariably will) be frozen pending an answer from the holder, and if there is no answer, it will be presumed to be recoverable for the purposes of a civil recovery order, 'unless the contrary is shown' (in effect, reversing the burden of proof in those proceedings). If there is an answer, the investigators have 60 days in which to decide whether to try to take further action against the property, or release it. Making a false statement in response to a UWO is an offence, and a statement may not generally be used against the person in criminal proceedings.
These proposals do not go quite as far as those in the Action Plan itself, which also included an offence of 'illicit enrichment' (which would have effectively criminalised PEPs who could not explain their wealth). Conversely however, it must be noted that the context given for the proposal in the Action Plan was squarely about cases of foreign corruption where (for various reasons) it was impractical to expect assets to be restrained and recovered through a criminal justice route. The proposals in the Bill are far broader, and though they will no doubt make it easier for the proceeds of such offences to be recovered, there must be a risk that they will also cause inconvenience and injustice to innocent holders of perfectly legitimately property, for which explanations may be difficult to obtain, or not be readily accepted by the authorities. (Notably, there are no proposals to compensate the innocent holder of legitimate property, who has given an acceptable explanation at their own expense, and then had to wait 60 days for the investigators to accept it.)
POCA already contains powers to order people to answer questions, or provide information or documents, where they are subject to a confiscation investigation (under provisions for making orders against people convicted of an offence) or a civil recovery investigation. The Bill proposes extending this to people who are subject to a money laundering investigation. Although (as with UWOs) a statement made in response to such an order may not generally be used against the person in criminal proceedings, the proposed procedure could still provide investigators with valuable intelligence and documentary evidence, which could clearly have the effect of strengthening their case against that person or others. Given the breadth of the money laundering offences themselves, it seems clear that this procedure has the potential to assist investigators in many cases of suspected acquisitive crime.
It should be stressed that at the time of writing the proposals in the Bill may yet be amended in the course of their journey through the parliamentary process. If the provisions in Chapter 1 are enacted in their current form, it seems clear that there is huge potential for the new powers to make UWOs and disclosure orders to assist the enforcement authorities in restraining and recovering the proceeds of crime, and in prosecuting those responsible for it. But both types of order will also present significant challenges for those on the receiving end, who it must be remembered will not necessarily either be guilty or have any involvement at all in the offences suspected.