The UK's Proceeds of Crime Act 2002 already allows the authorities to seize people's property without anyone being convicted of a crime but a new Bill aims to extend this power further, with "unexplained wealth orders" in the offing.

The Criminal Finances Bill was introduced in the House of Commons on 13 October. It proposes to facilitate the seizure and forfeiture of the proceeds of crime that are stored in assets in the UK, extending the law to include value stored in bank accounts and highly valuable property such as precious metals and jewels. Most crucially for compliance officers, it proposes to allow regulated companies to share more information with each other without falling foul of libel laws. If it becomes law in its present form, the National Crime Agency is to receive new powers to ask regulated companies for information as part of a general reform of Britain's suspicious transaction reporting regime.

The bill contains the long-awaited details of a criminal offence for corporations that fail to stop their staff from facilitating tax evasion. It also seeks to require people suspected of possessing information relevant to an investigation to provide the state with information. It contains some clauses on the subject of terrorist finance. In an unexplained but hilarious attempt to appear similar to the website of the US House of Representatives, the Parliament website has called the Bill 'HC Bill 75.'

Unexplained wealth orders

Clause 362A suggests that the High Court should be able to make an 'unexplained wealth order' in response to any application from one of the other organs of the state. This will have to specify or describe the property in question and the person whom the enforcement authority thinks holds the property, who might not reside in the UK.

Such an order ought to require that person to make a statement that sets out the nature and extent of his interest in the property and explains how he obtained (dwelling especially on any costs he incurred in doing so).

By clause 362A(4), the order ought to specify the form and manner in which the statement is to be given, the person to whom it is to be given, and the place at which it is to be given or, if it is to be given in writing, the address to which it is to be sent.

The phrase "the place at which it is to be given" points to the prospect of dawn raids with orders being handed over on the doorstep in the same way as subpoenas are sometimes served in the United States. The Bill reinforces this impression by saying that the order might also require the targeted person to provide information or to produce documents. He must then comply "within whatever period the court may specify," which theoretically might be instantly.

Who should apply for orders?

The Bill lists the "enforcement agencies" that it wants to allow to apply to the court for orders. These are the Financial Conduct Authority, the director of the Serious Fraud Office (which has the still-unusual power to compel people from all walks of life to talk to it), the Director of Public Prosecutions, the National Crime Agency and Her Majesty’s Revenue and Customs.

The value of the property has to be greater than £100,000 and the High Court must satisfy itself that the targeted person is actually in possession of it. There must be reasonable grounds for suspecting that the known sources of his lawfully obtained income were too minor to allow him to obtain the property – an apparent 'let-out clause' for money launderers who are already high-net-worth individuals in their own right. This applies to property obtained at any time in the past and not merely after the Bill becomes law. It is to be assumed that the person obtained the property at its market price – something that does not always happen in innocent transactions.

PEPs in the crosshairs

The court in question must pronounce itself satisfied that there are reasonable grounds for suspecting the property holder's involvement in a crime. This is not always true, however; the Bill also proposes to allow the court to sign an order if it believes that the target is a 'politically exposed person.' The Bill defines a PEP as an individual who is, or has been, entrusted with prominent public functions by an international organisation or by a state other than the United Kingdom or another state in the European Economic Area, or a family member or close associate of such a person.

The Bill points to the European Union's fourth money-laundering directive for further details. In Article 3(9) of that directive, PEPs can be heads of state, heads of government, ministers and deputy ministers; members of parliaments; members of the governing bodies of political parties; members of supreme courts; people on the boards of central banks; ambassadors, chargés d'affaires and high-ranking military officers; people on the boards of nationalised industries; and people on the boards of international organisations. Once the Bill is passed, the High Court will be able to force all office-holding PEPs in the UK to co-operate with unexplained wealth orders if they are not known to dabble in business and their official salaries are too small to explain their wealth. This is a weapon to use against visiting PEPs such as General Sani Abacha, the former military dictator of Nigeria who owned billions but whose presidential salary was $25,000 per annum.

Interim freezing orders

While a court is deciding whether to issue an unexplained wealth order, the law enforcement agency might also want to ask it to issue an 'interim freezing order' in respect of the property if it wants to stop the targeted person from absconding with it; this is provided for in clause 362I. This type of order is designed to stop the person (or anyone else) from dealing in/absconding with the property. If an application for an unexplained wealth order in respect of any property is made without notice, an application for such an order in respect of the property must also be made without notice.

Scant safeguards for the HNW

Will this new system protect HNW suspects from the emotionally draining and potentially damaging prospect of the Government spending indefinite amounts of time after it has obtained an unexplained wealth order before telling them whether it will take further action? Clause 362D offers some relief, stating that when the HNW hands over the property/information, thereby complying with an unexplained wealth order, the enforcement authority must determine what enforcement or investigatory proceedings, if any, it considers ought to be taken in relation to the property within 60 days of the date of his compliance. In other words, assuming that it tells him of its decision, he will know within two months whether he can get on with his life or not. This is only the case, however, if an interim freezing order is in effect; otherwise, the Bill proposes to allow the powers that be to keep the HNW wondering about his fate forever. It also suggests that people who lie about the information demanded of them in an unexplained wealth order should face up to two years in prison.

Disclosure orders

These orders, which already exist for investigations into corruption and fraud, can compel people who are suspected of possessing information that is relevant to an investigation to give it to the authorities. The Bill calls for the extension of the disclosure order regime to cover money laundering and terrorist financing cases, and to allow regulated bodies to share a wider range of information between each other.

The sharing of information between regulated firms

Money-laundering disclosures in accordance with the Proceeds of Crime Act 2002 are the main part, although not the sole part, of the UK's AML suspicious transaction reporting regime. These happen when a money-laundering reporting officer suspects (or should suspect) that someone is laundering money and tells the UK Financial Intelligence Unit at the National Crime Agency. The disclosure contains the information on which his suspicion is based.

This information, which today is a confidential matter between the financial institution and the NCA, could be divulged to a galaxy of other people if the Bill becomes law. It proposes the insertion of a new subsection in POCA, s339ZB, which states that person A should be allowed to disclose information to person B as long as:

• they are both in regulated financial services;
• the information came to A in the course of his business;
• either person B or an NCA member of staff has asked for A to make the disclosure to B;
• A has told an authorised NCA staff member about the transfer of information; and
• A is satisfied that the transfer of information will help in the fight against money laundering.

A disclosure request must always say that it is made in connection with a suspicion that someone is engaged in money laundering.

Sitting on a transaction

At present, the MLRO at a bank must ask the NCA for consent to go ahead with a prospective transaction that he finds suspicious. When he does so, he has to block that transaction for anything up to seven working days, during which time the NCA will make up its mind about whether to let him continue. Usually it takes little time to do so, but sometimes it refuses consent during that period. In that case, another wait of 31 actual (not working) days begins. At the end of that, the transaction can go through. During that time, the bank must lie to or 'stonewall' the customer when he asks it to explain the delay; not to do so would be a 'tipping off' offence which carries a maximum penalty of five years' imprisonment for the MLRO or other tipster.

The new Bill proposes to compound this disastrous situation by extending the wait. Even with the magnificent advantage that comes from being able to tell banks to delay transactions, the British authorities are not obtaining good results. The reason is that money-laundering is not a high enough priority for them and they are consequently failing to deploy AML investigators in sufficient number or with sufficient resources. Another reason is that foreign countries are often late in responding to requests for "mutual legal assistance." HM Government is claiming that there are other reasons why investigators do not have enough time to decide on the veracity of STRs, but this claim is deeply spurious. Its answer to the problem is to use the Bill to allow for further extensions of 31 days, each one following on from its predecessor, until a period of 186 days has passed since the end of the first 31-day period. In other words, it wants to see people having their accounts frozen for 60% of a year without being told why.

Do not do business in the UK!

By proposing this, the Government is sending out a very clear message to all HNW individuals from overseas: do not do business in the United Kingdom. Compliance Matters talked to Barry Vitou, a partner at the City law firm of CMS Cameron McKenna, about the effect that this rule is likely to have if Parliament enacts it.

He said: "This is an ill-thought-through proposal at a time when government should be doing everything it can to encourage commerce in the UK. Businesses already struggling with Brexit uncertainty would be faced with a six month wait to do deals while police work out what to do under the proposals. They may decide to go elsewhere in Europe to do those deals.

"The rules which already apply for up to a month already cause serious tensions as banks and advisors can be in the position of being required to stall a transaction with an increasingly irate customer seeking an explanation which the bank or adviser can't give. This proposed change highlights once again that our cash-strapped law enforcement agencies are woefully underfunded to be able to do the job. The victims in this are business and individuals."

Clause 336A says that the period ought to be extended by court order only. The long list of people allowed to apply for such an order consists of:

• the director-general of the National Crime Agency or anyone to whom he delegates the job;
• any policeman of at least the rank of inspector;
• anyone at HM Revenue and Customs of vaguely the same rank or higher;
• anyone at the Financial Conduct Authority of vaguely the same rank or higher, as determined by HM Treasury;
• the director of the Serious Fraud Office or a designated subordinate; and even
• accredited financial investigators.

Failure to prevent economic crimes

In May, the prime minister of the day said that the Government planned to consult interested parties about a corporate offence of "failure to prevent economic crime." Commentators thought that he wanted to apply this to a vast array of offences such as fraud, theft, false accounting, forgery, destroying company documents, money laundering, handling the proceeds of crime, insider dealing, market manipulation and other offences to be found in the Financial Services and Markets Act 2000. They also expected his proposals to resemble the Bribery Act 2010 by making companies criminally liable for the conduct of their "third-party service providers" or introducers anywhere in the world and to echo section 7 of that Act, which exempts firms from liability for bribing others if they can prove that they had adequate procedures in place that were designed to prevent their people from undertaking such conduct. This has not found its way into the Bill, although the new but long-awaited corporate offence of failure to prevent facilitation of tax evasion offences in clauses 37 (offences in the UK) and 38 (offences overseas) certainly has.

Failure to prevent tax evasion

The new offence-to-be has been described as "the biggest change to corporate criminal law in history." Clause 37(1) states that a firm is guilty of an offence if a person commits a UK tax evasion facilitation offence when acting in the capacity of a person associated with it. It is, as with s7 Bribery Act, a defence for the firm to prove that, when the British tax evasion facilitation offence was committed, it had reasonable 'prevention procedures' in place, except for cases where it was not reasonable in all the circumstances to expect its to have such procedures in place. 'Prevention procedures' are procedures designed to prevent persons acting in the capacity of a person associated with the firm from committing British tax evasion facilitation offences.

Clause 38 does the same for any foreign tax offence, which it describes as conduct which amounts to an offence under the law of a foreign country, which relates to a breach of a duty relating to a tax imposed under the law of that country or to the commission by another person of a foreign tax evasion offence under that law, and which any British court would regard as amounting to being knowingly concerned in, or in taking steps with a view to, the fraudulent evasion of that tax. It also does the same for any “foreign tax evasion facilitation offence.”