UK Financial Crime Regime

Changes to the UK Financial Crime Regime

The Criminal Finances Act 2017 (CFA) came into force on 30 September 2017. It introduces further changes to the UK financial crime regime that may necessitate a review of businesses’ existing compliance programmes and financial crime controls. Proper and comprehensive risk assessments will be key.

One of the main measures is the introduction of criminal corporate offences, where a company (or partnership) fails to prevent the facilitation of tax evasion by “associated persons” (including employees and global contractors). Currently, where an employee of a company facilitates the evasion of tax by a customer, both the employee and customer will be committing an offence, but not necessarily the company.

The company or partnership will, however, have a defence if it can show that it had “reasonable procedures” in place to prevent the facilitation of tax evasion. The Government is to issue final guidance in this regard. Companies need to consider their current processes and procedures in light of these changes, as well as the guidance, to ensure compliance and avoidance of strict liability under the proposed new offences. Contravention of the CFA will be punishable by unlimited fines.

The CFA will also make it possible for the suspicious activity reports (SARs) moratorium period under the Proceeds of Crime Act to be extended by further periods of 31 days, up to a maximum of 186 days. This may prove challenging to firms managing customer relationships during such extension periods without falling foul of the tipping off provisions.

Other changes proposed by the CFA include:

• Unexplained Wealth Orders will enable law enforcement agencies to obtain court orders to require individuals who are suspected of being linked to serious crime and whose assets are disproportionate to their known income, to explain the source of their wealth. Failure to do so could result in such assets being treated as “recoverable property” under the Proceeds of Crime Act.
• Enforcement agencies’ existing rights to obtain Disclosure Orders in fraud and corruption investigations will be extended to AML investigations and will be afforded to a wider range of agencies.
• Regulated firms will be able to share information about specific suspicious activities and lodge joint SARs.
• Law enforcement agencies will be given enhanced powers to seize and forfeit property and assets in the UK and obtain freezing orders over bank accounts where there is a reasonable suspicion they represent or hold proceeds of crime.

Through these changes the Government is trying to send a clear message “we will not stand for money laundering or the funding of terrorism through the UK”. At what cost and burden this will come to businesses in practical terms, remains to be seen.