On 21 April 2016, the Government announced “the most significant changes to the UK’s anti-money laundering and terrorist finance regime in over a decade.” The Government’s “Action Plan for anti-money laundering and counter-terrorist finance” noted that the size of the UK’s financial and professional services sector, open economy, and the propensity of the London property market to attract overseas investors made it “unusually exposed to international money laundering risks”.
In 2013 the Financial Services Authority estimated that £23bn-£57bn was being laundered through the UK each year (although quite how such a sum is calculated remains a mystery). In the face of this vast ocean of dirty money pouring into the UK, the Action Plan sets itself some ambitious targets, boldly declaring that it aims to tackle “money laundering in all its forms, but it is particularly focused on money laundering as a critical enabler of serious and organised crime, grand corruption, and terrorism”.
The Home Office Plan outlines a number of “action” points, but for legal professionals the most significant are:
the proposed changes to the current “suspicious activity reports” (SARs) regime, which the plan aims to implement by October 2018.
the exploration of new legal powers, including unexplained wealth orders (UWOs), and a new “illicit enrichment” offence, which the plan aims to explore by October 2016.
Under the current regime, the Proceeds of Crime Act 2002 (POCA) requires persons in the regulated sector (which includes accountants and auditors, tax advisers, financial institutions, credit institutions, estate agents etc) to file a SAR with the National Crime Agency (NCA) where there are “reasonable grounds to know or suspect that another person is engaged in money laundering”. The Terrorism Act 2000 also imposes a duty of disclosure upon persons in the regulated sector and also upon any person who in the course of a trade, profession or business or in the course of their employment believes or suspects that someone has committed any of the principal terrorist financing offences in the Act.
SARs may be submitted for intelligence value only, or be what is termed a ‘consent’ SAR. Consent SARs are submitted in cases where the private sector is requesting consent by law enforcement agencies for a transaction to be passed because they suspect that otherwise they may be open to regulatory of money laundering sanctions. The UK’s present SAR regime gives investigators seven days to refuse consent to a suspicious financial transaction. If they refuse consent, law enforcement investigators have a 31-day moratorium period in which to obtain a court order to freeze the account by meeting a legal threshold of establishing that there is reasonable cause to suspect that the account contains the proceeds of crime. If a SAR is submitted and consent is gained, the reporter gains a statutory defence from a money laundering or terrorist financing prosecution.
There have long been concerns about the effectiveness of the SAR regime, and in particular that too many resources are devoted to dealing reactively with relatively low risk transactions. The Action Plan therefore proposes a change in approach, in particular:
A move away from a transaction-based approach to a “risk-focused approach”. Reporters will still need to provide reports where they have suspicion, but the Government intends to focus on areas where there are strong suspicions of criminal activity, through new information sharing legal gateways, and a permanent and strengthened Joint Money Laundering Intelligence Taskforce (JMLIT).
The Action Plan envisages that the consent regime will be replaced with an “intelligence-led approach”. The statutory money laundering defence provided by the current consent regime would be removed, although POCA would be amended to ensure that reporters who fulfill their legal and regulatory obligations would not be criminalised and reporters would be granted immunity for taking specified courses of action.
The Action Plan also suggests a number of new legal powers in order to improve asset recovery and confiscation. In particular, it suggests that the Government will explore the possibility of UWOs which, when served on an individual, require him or her to explain to the court the origin of his or her assets.
UWOs are intended to tackle the current problem faced by prosecutors, in that criminal asset recovery is typically based on a conviction either in the UK or in another country from which the suspicious funds originate. In reality, countries in which corruption is often rife have proved reluctant or impossible to collaborate with in order to secure a conviction for asset recovery purposes. UWOs do not require a criminal charge to be proved, unlike conviction-based forfeiture. Neither do they require proof that the property in question is the proceeds of crime. Instead, the burden of proof is reversed and placed upon the subject of the order to prove a legitimate source for their assets.
UWOs are a relatively recent development in asset recovery law but are already on the statute book in Australia and Ireland. Their evolution reflects widespread frustration that even non-conviction based forfeiture schemes (such as the civil recovery regime in Part V of POCA) have not proved effective in recovering the proceeds of organised crime, especially where the suspected criminal origin of the property lies abroad.
Introducing a UWO scheme in the UK would amount to a fundamental reversal of the existing civil recovery regime which requires the National Crime Agency to be able to prove a link to some form of criminal activity, albeit only to the civil standard. In his 2005 Judgment in Green v. Asset Recovery Agency, Sullivan J. held that a claim for civil recovery could not be sustained solely on the basis that a defendant had no identifiable lawful income to warrant his lifestyle. UWOs are designed to enable forfeiture of assets in precisely such circumstances and so the Home Office’s legislative intention represents a fundamental rethink on the legitimate scope of the domestic asset recovery regime.
Will it work? In particular, will it survive the inevitable legal challenges to the compatibility of UWOs with the presumption of innocence and the requirements of Article 1, Protocol 1 of the ECHR, the so called right to property?
In Ireland, UWOs have proved successful, largely due to a specialised “Criminal Asset Bureau”, which has access to financial, tax and other data on all citizens. In Australia however UWOs have been less effective, due to lack of resources, “pushback” from the courts and a number of unpopular cases that garnered unfavourable attention from the Australian press. The Law Council of Australia has opposed the use of UWOs, calling them “obnoxious” and against common law and human rights principles due to the reverse burden of proof, inadequate appeal processes, and the potential for arbitrary application.
The Italian Constitutional Court declared the anti-Mafia provisions of law 12 quinquies to be unconstitutional after only two years of use in the 1990s when it held that shifting the burden of proof violates the Italian constitution. However subsequent Strasbourg by Italian citizens complaining that Italy’s revised anti-Mafia restraint and confiscation scheme violated A1P1 principles all failed on the basis of the preventive nature of such proceedings which were held not to amount to a determination of guilt and thus not criminal proceedings protected by the presumption of innocence.
The Home Office Action Plan notes that information gained from UWOs could form the basis of a new power to enable the forfeiture of any assets for which a satisfactory explanation cannot be given to the court. The Government intends also to explore an illicit enrichment offense, making it a criminal offence to possess assets that cannot be accounted for by way of lawful income. But it must be open to doubt whether the creation of a criminal offence based on a failure to explain the lawful origin of property (without any need to prove even a prima facie case of criminality) could be confidently certified under s.19 of the Human Rights Act as compatible with the ECHR.
Although the Convention case law is contradictory on the question of respect for the presumption of innocence in the confiscation law field, it is tolerably clear that the key question is whether the proceedings in question fall to be categorised as criminal or civil in nature. Thus, in the Supreme Court decision in Gale v. SOCA, although Lord Mance observed that while the engagement of Article 6 (2) ECHR in confiscation proceedings was “a confusing area of Strasbourg law which would benefit from consideration by the Grand Chamber” he went on to state that “confiscation proceedings that proceed on the basis that property in the hands of a convicted criminal was derived from other criminal activity did not involve the defendant being ‘charged with a criminal offence’ in relation to the other offending, or engage article 6(2)”.
So much may be uncontroversial but to introduce a specific criminal offence of illicit enrichment based on an individual citizen’s failure to prove that his assets were lawfully obtained – and with no burden on the prosecutor to prove any form of predicate offending – will surely engage the presumption of innocence and be found wanting.
The Action Plan has indicated that consultation on the UWO proposal is to end in October 2016. Oligarchs, politically exposed persons, organised criminals and, of course, the legal community will no doubt be interested to find out whether the bold legislative intentions set out in the Action Plan will ultimately morph into hard legislative proposals.
Tim Owen QC and Anita Davies, barristers, Matrix Chambers