Guy Bastable and Tom McNeill discuss the Government’s Action Plan for anti-money laundering and counter-terrorist finance.
The Government’s “Action Plan for anti-money laundering and counter-terrorist finance”, published in April 2016 shortly following the release of the Panama papers – and which the Ministerial Foreword notes “sends a clear message” that the Government will not stand for money laundering or the funding of terrorism through UK institutions – includes a raft of legislative proposals which, if enacted, would radically alter the AML/CTF landscape:
- Removal of the SARs consent regime
- New powers for law enforcement to require reporters to take actions in relation to their customers, and to request further information on SARs
- New power to require individuals to declare their sources of wealth and to forfeit assets if they fail to do so
- New criminal offence of illicit enrichment
- New power to designate an entity as being of money laundering concern
- New power to allow bank account balances to be swiftly seized and forfeited
- Changes to the civil recovery powers to allow administrative seizure up to £100,000
- Data sharing between private sector organisations to tackle money laundering and terrorist financing
While the Action Plan includes little detail on the proposals, which are presumably at an early stage, it initiates a consultation process and suggests a completion date for the legislative amendments of October 2018.
The proposed removal of the SARs consent regime is instructive. In many cases, the only defence available to one of the principal money laundering offences (ss. 327-329 of the Proceeds of Crime Act 2002 (“POCA”)) will be that of making an authorised disclosure and (if the disclosure is made before the act) seeking appropriate consent. The Action Plan reports a 2015 Home Office consultation exercise which included responses from law enforcement, the financial sector and the legal and accountancy sectors:
“The consent regime is seen by many in the reporting sector as problematic. They say it causes delays, and difficulties with customers, and some also view it as incompatible with their business. Law enforcement agencies believe that there has to be a mechanism that allows transactions that involve the transfer of criminal assets to be investigated and prevented.”
Interestingly, in explaining the consent regime, the Action Plan appears to (wrongly) suggest that it applies only to the regulated sector (whether or not a person is in the regulated sector is irrelevant); however, that might simply be an ambiguity in its drafting rather than betray a lack of understanding of the legislative framework. In any event, the Action Plan proposes the removal of the statutory money laundering defence provided by the current consent regime and suggests that
“POCA would be amended to ensure that reporters who fulfill their legal and regulatory obligations would not be criminalised.”
Short of actual or deemed consent, it is not clear what assurance could be provided to reporters that future actions in particular would not be considered criminal. Perhaps by way of explanation the Action Plan continues:
“The Government would create powers to enable reporters to be granted immunity for taking specified courses of action (e.g. maintaining a customer relationship when to terminate it would alert the subject to the existence of a law enforcement investigation). The Government would also legislate to provide a power for the NCA to oblige reporters to provide further information on a SAR where there is a need to do so.”
There appears to be no recognition that the consent regime provides a complete defence to the ordinary person in circumstances that would otherwise constitute one of the most serious criminal offences.
It has elsewhere been reported that one of the principal difficulties with the current system, as far as law enforcement is concerned, is that once financial institutions suspect money laundering they look to exit the relationship as quickly as possible by making “exit and pay away” requests to the NCA. Law enforcement will often not have the requisite grounds to apply for a restraint or freezing order and will be left in the invidious position of having to effectively consent to the financial institution returning funds to the suspected offender, unless they can come up with a more “innovative” solution. (One suggestion is that law enforcement might even encourage financial institutions to close customer accounts by reducing the balance to a cheque, which falls within the definition of “cash” in respect of cash seizure powers, enabling the circumvention of the higher standards required to pursue (court-sanctioned) freezing or restraint orders – see the Money Laundering Bulletin, Issue 230, February 2016).
Should law enforcement be granted new powers to, for example, require reporters to continue customer relationships which they would prefer to terminate, while at the same time providing enhanced intelligence to the NCA, it would take several stages further the notion (at the heart of POCA) that persons should be compellable under threat of criminal sanction to inform on their customers.
The appropriate balance between tackling money laundering and terrorist financing on the one hand and not penalising (or indeed criminalising) “innocent” parties on the other (not to mention not overburdening UK business with regulatory compliance), will naturally be a central consideration with all of these proposals. Not least as a number of them, to one degree or another, would burden individuals with proving their own innocence. These include that a new power be created to require individuals to declare their sources of wealth, with linked forfeiture powers, and the creation of an illicit enrichment offence (consideration of which is required by the UN Convention Against Corruption).
It is of note that the Action Plan justifies some of these proposals by reference to problems posed by alleged offending taking place abroad:
“In cases in which offences were conducted abroad, UK law enforcement agencies are forced to rely on the cooperation of the country in which the offence took place if they are to conduct a money laundering investigation with a realistic chance of successfully securing a conviction. But in many cases the country in which the offences took place lacks either the will, the capability, or the human rights record that would allow effective cooperation to take place. This can result in assets suspected of being the proceeds of crime overseas remaining in the UK out of the reach of our law enforcement authorities.”
Doubtless that is right. But how far would an individual have to go in proving their innocence? What of entirely lawful but perhaps insufficiently documented or cash businesses, which are not uncommon in a number of jurisdictions? Would corroboration be required by tax authorities and/or business partners or customers? What of those who might be subject to political persecution? If the UK government, with all of its resources and international agreements, was unable to obtain relevant evidence, what hope for an individual or business if it was required to produce corroborative records? One would expect the safeguards to be robust indeed to ensure that the appropriate balance was struck.
Another proposal, borrowing from Section 311 of the USA Patriot Act, would grant law enforcement the power to designate an entity as being of money laundering concern. As the Action Plan notes, this
“can have a very powerful disruptive effect against the entity in question, often, in effect, freezing them out of the international finance system”.
As mentioned above, law enforcement can already apply for freezing or restraint orders, if they can meet the (relatively high) standards required under POCA, which are safeguarded by high court or crown court judges. If those standards could not be met, how proportionate would it be to adopt a course of conduct which could cause significant financial loss, or indeed the collapse of a business, with the potential to impact not just “suspects” but entirely innocent third parties? Again, it remains to be seen what safeguards could be introduced.
A further proposal is to develop a new power to allow the seizure and forfeiture of money held in bank accounts along similar lines to the “highly effective” cash seizure and forfeiture powers under POCA. Under POCA, an officer can seize cash of over £1,000 if he has reasonable grounds to suspect that it has derived from or is intended to be used in unlawful conduct. It can subsequently be forfeited if the court is satisfied to the civil standard that the cash derived from or was intended to be used for some kind of (unspecified) criminal activity. In practice, officers have almost carte blanche to seize any significant amount of cash (which officers and increasingly the courts deem inherently suspicious) and those challenging the seizure will carry the burden (and expense) of persuading the police or failing that the court that the cash is legitimate. It is of course understandable why law enforcement would wish to extend this process to moneys held in bank accounts, which would circumvent the difficulties involved in persuading a court to issue a freezing or restraint order and then pursuing civil recovery or criminal proceedings, but without appropriate safeguards it would also significantly increase the potential for unfairness and abuse.
Taken together the legislative proposals in the Action Plan clearly signpost the Government’s desire to “send a message” that it will not stand for money laundering or terrorist financing; but until the proposals have been more fully developed it is difficult to judge their merits or indeed how serious the Government’s intention is to pursue them.
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Guy Bastable & Tom McNeill