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Criminal Finances Bill - Money Laundering, Civil Recovery & Enforcement Powers

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 second of a two-part article, John Binns looks at the proposals on money laundering, civil recovery, and enforcement powers.

2. Money Laundering, Civil Recovery, and Enforcement Powers

Introduction

The powers of the state to restrain and recover assets that are thought to represent the proceeds of crime, set out in the 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 of which have now found their way into the Part 1 of the Criminal Finances Bill 2016-2017 ('the Bill'). This article concerns the provisions in Chapters 2 to 4 of Part 1 of the Bill, which concern money laundering, civil recovery, and enforcement powers.

Money Laundering

The provisions on money laundering in POCA are complex, involving very broad offences (notably, a person can be guilty of simply possessing assets that he merely suspects represent the proceeds of crime) and a specific defence of consent, where the person first makes a Suspicious Activity Report ('SAR') to the National Crime Agency ('NCA'). Importantly, consent is assumed where the NCA does not refuse consent within seven working days of the SAR, or if they do so refuse, after the passing of another 31 calendar days (the 'moratorium period'). In practical terms this means access to bank accounts (the most common example) can be blocked until the end of the moratorium period, because the bank fears that to allow access would constitute a money laundering offence on its part.

The aim of this system (the 'consent regime') is to give the authorities time to decide whether to open an investigation and restrain the assets. Unfortunately, the NCA has found it difficult to cope with the large numbers of SARs, principally from banks, which led to the Action Plan making a somewhat unrealistic proposal to abolish the consent regime altogether. Instead of that, the Bill proposes a facility to apply to court to extend the moratorium period, where it is satisfied that an investigation is being conducted 'diligently and expeditiously', that further time is needed, and that an extension is 'reasonable in all the circumstances'. Importantly, the provisions would enable the moratorium period to be extended not just once, but a maximum of six times, each lasting another 31 calendar days.

While it is clearly essential to give the authorities enough time to make a decision on how to proceed, it should be remembered that the thresholds for freezing assets under the civil or criminal processes in POCA are now quite low, and so the scenario under discussion is where the investigators have no good arguable case that they represent the proceeds of crime, and no reasonable basis to suspect that they belong to a person who has benefited from crime. In circumstances where banks are understandably keen to submit SARs on often flimsy grounds, and the NCA and investigators are chronically under-resourced, there seems a very real prospect of inconvenience and injustice to people whose access to assets is effectively blocked for nearly two-thirds of a year. While the oversight of the court is welcome, it should be noted that people affected can be excluded from the relevant hearings, and/or denied access to information on which the investigators rely.

The Bill also contains provisions for the sharing of data between banks and others about proceeds of crime issues. While it may seem unobjectionable in principle, the reality for many banks' customers may be an increased likelihood of their accounts being blocked, for reasons that may not be the strongest: notably, while the banks may share this information between themselves, they will still routinely withhold it from the customers, for fear of POCA's provisions of 'tipping off' someone about a SAR or an investigation.

Civil Recovery

The Bill also proposes an extension of the civil recovery powers in POCA, which already allow the detention and forfeiture of cash (including cheques) in the magistrates' courts (worth over £1,000) if it is thought either to represent the proceeds of crime, or to be intended for use in crime (and related powers of search and seizure for investigators). The new provisions would introduce similar procedures for certain categories of personal property (precious metals and stones, watches, 'artistic works', 'face-value vouchers', and stamps; other categories could be added later by regulations), and money in bank and building society accounts.

The latter proposal in particular is significant, and will in effect move a large number of civil recovery cases from the jurisdiction of the High Court into the magistrates' courts (subject to only a limited right of appeal). It might also be noted that, under the controversial Asset Recovery Incentivisation Scheme ('ARIS'), a higher proportion of assets forfeited in this way are ultimately paid to the investigating agencies, creating a perverse incentive to opt for this route rather than criminal confiscation.

Enforcement Powers

Finally, the Bill proposes extending various investigatory powers under POCA to the Financial Conduct Authority ('FCA'), HM Revenue and Customs ('HMRC'), and the Serious Fraud Office ('SFO'). It is axiomatic of course that all of these agencies deal with suspected offences that involve the proceeds of crime, but the extension of these powers to them is far more than a formality: in the context of an increasingly broad panoply of powers, it presents both a prospect of significantly more  enforcement action under POCA, and a challenge in terms of ensuring that the powers are used in appropriate cases, and that they are used properly (noting that critics would point out that this is not necessarily true of the police).

Conclusion

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. The common theme of Part 1 (including the provisions for Unexplained Wealth Orders ('UWOs') and disclosure orders in Chapter 1, as well as those discussed above) is clearly a determination to make it easier to investigate and secure appropriate recovery of assets to which POCA applies. With the appropriate resources to investigators and enforcement agencies, this is surely a laudable and achievable goal. Few would argue, however, that the various enforcement agencies involved are either adequately resourced or beyond criticism in terms of how they utilise these new powers (noting in particular the perverse incentives provided by ARIS). Time will tell whether there are sufficient safeguards in this Bill to afford due process to those who find themselves caught up in this increasingly draconian set of laws, whether they are guilty or innocent parties.

John Binns

BCL

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