By Samantha Sheen, AML Director Europe, ACAMS
20 October, 2016

“The best way to get started is to stop talking and begin doing” – Walt Disney

Introduction

Last week the UK Government passed the Criminal Finances Bill (“Bill”), introducing a number of significant changes to the Proceeds of Crime Act, 2002 (“POCA”). The amendments follow a period of consultation in response to the Government’s proposal paper issued earlier this year.

The amendments are intended to strengthen the UK’s response to money laundering and terrorist financing and address weaknesses identified in the October 2015 National Risk Assessment of Money Laundering and Terrorist Financing (“NRA”). Some of the changes will resonate with recommendations made by the Select Committee (see my earlier blog) about measures to strengthen and improve law enforcement’s efforts in criminal proceeds recovery and confiscation.

Here are some of the key amendments, with more still to come before the end of 2016.

Unexplained Wealth Orders (UWOs)

Chapter 1 of the Bill amends Part 8 of POCA by introducing UWOs (Section 362A). This provides law enforcement agencies with the power to take civil recovery action against property suspected of being bought with the proceeds of crime. It will also serve as a powerful intelligence gathering tool, potentially identifying links between jurisdictions and enhance the identification and recovery of assets.

Law enforcement agencies can apply to the court for a UWO, requiring that an individual explain their source of wealth where their assets appear disproportionate to their known income. An individual who receives a UWO must:

  1. Set out the nature and extent of their interest in the property in question, and
  2. Explain how they obtained the property (particularly how any costs incurred in obtaining it were met).

Records supporting answers given under an UWO can also be requested. If an individual refuses to comply with the UWO, the court can presume that the property is ‘recoverable property’ (this term is defined in POCA), under the Act’s existing civil recovery powers. This means they can be frozen and confiscated.

To obtain a UWO, law enforcement must show evidence of reasonable grounds to suspect that the person’s income is insufficient to have acquired the property. The property is also required to be valued at more than £100,000. Where more than one item of property is involved, a UWO can be based on the total value of the assets instead of separate UWOs being sought for each.

The value of the property can be based on an assumption that it was purchased for a market value price. This prevents attempts to challenge a UWO on the grounds that the property was purchased at a “discount” or at a time when its value was well below current market conditions.

UWOs will be available in two scenarios: Where law enforcement has reasonable grounds to suspect that a person has links to serious crime; or where the person involved is foreign politically exposed persons (PEPs), including their family members and close associates.

Agencies who can apply for a UWO include the Financial Conduct Authority, the Serious Fraud Office and HM Revenue and Customs. Interim asset freezing orders can be sought in conjunction with a UWO to ensure that property is not sold or otherwise divested before the UWO is complied with. Both orders can be requested without advanced notice to the individual(s) involved.

Suspicious Activity Reports (SARs) – Extending the “Moratorium”

Chapter 2 of the Bill amends Part 7 of POCA by introducing a new power to extend the SAR “moratorium” period. The current moratorium period is the 31 day period following the receipt of a SAR by the NCA.

The moratorium period is used by law enforcement to gather evidence to decide whether intervention is warranted. During the moratorium period, the filing financial institution may not process transactions related to the SAR until consent is received from the National Crime Agency (“NCA”), or until the moratorium expires, whichever is earlier.

Currently under POCA, the moratorium period cannot be extended. Concerns have previously been expressed that 31 days is not long enough for law enforcement to gather evidence, especially where it is being sought from another jurisdiction.

The amendments will allow the moratorium period to be extended for additional periods of up to 31 days, to a total of 186 days. To extend the period, an application must be made to the court and must satisfy certain criteria specified in new section 336A.

The UK Government had considered whether to do away with consent regime altogether, but subsequently determined that now is not the right time to do so.

Information Sharing within the AML Regulated Sector

Chapter 2 of the Bill introduces new provisions intended to facilitate the sharing of information amongst regulated entities. Regulated sectors participants in the Joint Money Laundering Intelligence Taskforce (JMLIT) have been calling for a new legal gateway to enable them to share information directly with one another.

New section 339ZB of POCA introduces a set of conditions that will need to be met in order for regulated firms to share information about financial crime matters with one another.

Essentially, the criteria requires that:

  1. One regulated entity (Requesting Party) can ask another regulated entity (Responding Party) to disclose information it believes the Responding Party has that will or may assist it in relation to a matter where it suspects that someone is engaged in money laundering. The term “regulated entity” refers those firms listed in Schedule 9 of POCA;
  2. A regulated entity has to be asked for the information. In other words, it can’t volunteer it to other regulated entities it thinks might have an interest in it;
  3. The information to be shared must have been obtained in the course of business; and,
  4. The Responding Party must be satisfied that disclosing the information will help the Requesting Party to determine whether a party is suspected of engaging in money laundering.

There are additional criteria which list the required contents of a request for information.

Regulated entities will also be able to submit joint SARs. This will provide law enforcement with a clearer picture of a money laundering scheme that crosses multiple firms, rather than leaving them to try and assemble a jigsaw of SARS submitted separately.

There is also protection from civil liability in relation to the disclosure of information, provided that all of the aforementioned conditions and criteria have been met.

Law Enforcement Power to oblige reporters to provide further information on a SAR

Chapter 2 of the Bill further amended POCA to give law enforcement the power to obtain further information on a SAR. Under new section 339ZH a further notice may be issued by an NCA authorised officer for further information about anything contained in the SAR initially disclosed by the regulated entity. The provisions cover both domestic investigations and requests for information made by enforcement authorities from other jurisdictions.

Swift Seizure and Forfeiture of Funds in Bank Accounts

The Bill amends Part 5 of POCA by providing law enforcement with new civil forfeiture powers. These powers enable them to swiftly seize and forfeit criminal funds held in bank accounts, without the need to secure a criminal conviction beforehand.

The current civil recovery powers in POCA have a £10,000 de minimus threshold. In practice, these powers are rarely used except in high value cases. This leaves a significant gap which means that funds in bank accounts with a value of below £10,000 can only be confiscated if a conviction is obtained.

Law enforcement will be able to apply for an account freezing order if they have reasonable grounds to suspect that the funds in an account are either “recoverable money” (see above) or intended for use in unlawful conduct. The de minimus threshold amount for these orders will be £1,000. An order can be sought from a Magistrates Courts and in certain instances, without notice to the affected party.

Where it’s later found that the frozen funds are not the proceeds of crime, the affected party can apply for compensation, subject to certain conditions. These include proving that an actual loss was suffered and that the circumstances were exceptional, to justify monetary compensation.

Seizure and Forfeiture of High Value Jewellery and other Movable Property

Chapter 3 of the Bill amends Part 5 of POCA by introducing provisions for the seizure of moveable property. Law enforcement, during the consultation process, noted there was evidence that criminal proceeds were being moved both domestically and internationally through the use of gift cards, precious metals, jewellery and gambling slips.

New section 303B lists the follow property to which the new provisions apply. These include: precious metals, precious stones, watches, fine art, postage stamps and face-value vouchers. These terms are further defined in the Bill. The new powers will have a threshold of £1,000 and orders can again be applied for via the Magistrates Court.

Further Future Changes on the Horizon

HM Treasury is in the process of completing its review of the AML supervisory regime, taking into account relevant evidence submitted in both the Call for Information on AML Supervisory Regime and the Cutting Red Tape Review – Anti-Money Laundering. Expect more changes to be on the way later this year.

Final Thoughts

With a bevy of changes upcoming, the UK’s anti-financial crime regime is set to have a significant face-lift. Regulated entities should start (if not having already done so) to identify those areas of their policies, procedures and controls that might be affected by these changes.

The sharing of information between regulated entities could prove to be an initiative that will need clear work flows, accountability lines and coherent procedures to ensure this takes place within the required conditions.

Firms may need to start thinking about how to convey these changes to the three lines of defence, in terms of what they mean and how they change POCA, the impact they will have on existing compliance arrangements and any additional controls that will be needed to address them.

For more information