By Samantha Sheen, AML Director Europe, ACAMS
7 September, 2016

Introduction

In January 2016 the UK’s Home Affairs Select Committee (“Committee”) announced an inquiry into the use of the powers under POCA to confiscate assets obtained through the proceeds of crime. After six months of investigation, the Committee published its findings this July. The Committee’s overall findings were that:

"The Proceeds of Crime legislation has failed to achieve its purpose. London is a centre for money laundering, and its standing as a global financial centre is dependent on proactively and effectively tackling money laundering.”

In addition to considering the reasons why the existing confiscation regime has proven ineffective, the Committee also considered the overall anti-money laundering regulatory regime and in particular, the existing supervision of the real property market. The following summary highlights some of the Committee’s key recommendations.

The Current Picture

The confiscation system under POCA works as follows. Following a criminal conviction steps are taken to recover any criminal assets identified. This generally involves the enforcement of a confiscation order (“Order”). Her Majesty’s Courts & Tribunal Service (“HMCTS”) is ultimately responsible for the enforcement of Orders. Other UK bodies involved in the enforcement of Orders can also include, but are not limited to, the Crown Prosecution Service and the Serious Fraud Office (“SFO”).

Statistics from 2014-15 show that 640,000 individuals were convicted of a crime in the UK. Over the same period, 5,924 Orders were made. That’s less than 1% of convictions. And of the approximately one thousand (1000) Orders used to freeze assets, 45% of those were enforced. Enforcement of Orders appeared to have a higher rate of success where the amount of the assets involved was £1000 or less (a rate of 96% ) as compared to those involving assets valued over £1 million (a rate of 22%).

One Lead Agency for POCA – the National Crime Agency (“NCA”)

In March 2016, the UK’s National Audit Office reported that there were at least 15 main bodies involved in administering Orders. This makes asset recovery efforts complicated and confusing. A clear line of overall responsibility, strategy and accountability is needed. The Committee has therefore recommended that the NCA be made the lead agency responsible for the recovery of criminal proceeds.

Prioritise the Restraint and Seizure of Criminal Proceeds

Steps taken to recover criminal assets is happening too late in the enforcement process. One of the reasons for this is that investigators are unclear whether they can or should restrain criminal assets at an earlier point during an investigation. There is also uncertainty about the process that should be followed it is suspected there may be assets acquired through criminal activity. The Committee has concluded that assets should be frozen at the beginning of an investigation to ensure that they are available for confiscation immediately upon conviction. It also recommends that new police officers receive training on how to do this and that detective officers receive advanced financial investigation training to address uncertainties about the processes to be followed.

Sharing Information

“[It is] …ludicrous that the Police National Computer can tell a police officer that a suspect owns a dog but not that they are evading payment of a criminal confiscation order”.

The Committee has recommended that Orders should be put onto the Police National Computer by merging or connecting it with the Joint Asset Recovery Database. Additional recommendations were made for the merging of other existing systems maintained by enforcement agencies to allow for a more joined-up and transparent approach to information access and sharing.  

Tracing Confiscated Assets

There is currently no process in place to trace the movement of confiscated assets, from the moment of their confiscation through to their use in court and eventual storage. The Committee commented that if Amazon and the Royal Mail could offer “track and trace” service on the goods they delivered, surely a similar system could be developed to track confiscated assets. The Committee has recommended that the UK Government implement these types of measures by no later than the Spring of 2017.

Specialist Investigators

Highly trained investigators are needed to locate and seize assets derived from criminal activity. This, however, has proven to be a challenge because skilled staff are being “poached” by the private sector, who offer levels of remuneration that can’t be matched by the public sector. The Committee has recommended that the problem be examined as a matter of priority and an action plan devised to implement proposed solutions.

Collecting Outstanding Confiscation Orders

There are a number of factors which made the collection of confiscated assets challenging. One of these is the limited deterrent effect that Orders seem to have on criminals. Rather than surrender the assets involved, some criminals prefer to instead extend their prison sentences. The Committee has concluded that criminals should not be allowed to leave prison before paying an Order in full. The Committee has recommended that failing to pay an Order be made a separate criminal offence and that those subject to an Order should have their passport confiscated.

Reach Out to the Private Sector

Enforcing Orders can be time-consuming and end up diverting already limited enforcement resources that could be placed to better use. Overall support was given by both the Committee and the City of London Police to working collaboratively with the private sector, to assist in the enforcement of Orders and collection of Orders in arrears.

Broader Recommendations

Suspicious Activity Reports (SARs) and ELMER

Information about criminal assets can often be identified through SARs submitted by financial institutions. Over the last few years, the UK Government has expressed concerns about ELMER, the system used to log SARs onto the UKFIU database. The Committee heard evidence that ELMER was currently processing over 380 000 SARs, but was designed to only process about 20,000 reports. A previous undertaking was given by the UK Government to redesign and replace ELMER, and incorporate functionalities such as the ability to automatically cross-check SARs against other law enforcement databases. The Committee has recommended that work on this be sped up and enhancements implemented by 31 December 2016. To make sure the system is fit for purpose, stakeholders who actually use the system are to be consulted during the development process.

Money Laundering – Time to Roll Up Some Sleeves

It is estimated that at least £100 billion is laundered through the UK every year. That’s larger than the GDP of more than 130 countries. Evidence was presented as to why money laundering was so extensive in the UK. This included close relationships between UK “gatekeepers” (e.g. law firms and accountants) with firms in UK Overseas Territories and Crown Dependencies, allowing for the formation of complex and less transparent structures to conceal the proceeds of crime. Another reason given was the complexity of UK’s AML enforcement and supervisory framework.

The UK’s HM Treasury previously committed to implementing improvements in its April 2016 ‘Action Plan for Anti-Money Laundering and Counter-Terrorist Finance’ and in May 2016, at the Serious and Organised Crime Exchange, where it undertook to have galvanised “international commitments to support new public private partnerships to combat economic crime, establish an International Anti-Corruption Coordination Centre, hosted by the NCA, and introduce new powers to bring those gaining from corruption to justice and reclaim their ill-gotten gains” (Then Secretary of State Theresa May).

The Committee has required that the UK Government provide it with an update by January 2017 as to what has been done to turn these undertakings into actionable measures.

Real Property and Money Laundering

In 2014-2015, £180 million worth of UK real property was investigated for being the proceeds of crime. The Committee was astonished to here that only 335 out of 1.2 million property transactions in that same period were deemed to be suspicious. The Committee commented that:

“Investment in London properties is a major route which tarnishes the image of the capital. Supervision of the property market is totally inadequate, and poor enforcement has laid out a welcome mat for launderers and organised criminals.”

The Committee expects to see measures introduced by the UK Government that provide for enhanced supervision of both property buyers and sellers and that letting agents be required to undertake customer due diligence on new customers and subject to SAR requirements.

Conclusion

The Committee’s recommendations could serve as a watershed moment for asset confiscation and the co-ordination of enforcement efforts. Recommendations relating to the real property would see a significant change for the sector, and one which is long overdue. The broader recommendations are also a clear indication that significant changes could be afoot for the UK’s anti-money laundering regulatory framework and supervisory activities. I’ll be watching with interest to see how these recommendations are received by the UK Government and the actions they take in response to them in the months that follow.

For more information about the Committee’s report see:
http://www.publications.parliament.uk/pa/cm201617/cmselect/cmhaff/25/25.pdf