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Michael Roach, 12 May 2016
Last month the government unveiled its Action Plan for anti-money laundering and counter-terrorist finance. Describing the proposals as the most significant change to the UK’s anti-money laundering and counter-terrorist finance regime in over a decade, the government aims to send a clear message that the UK will not tolerate money laundering or the funding of terrorism through its institutions A number of the proposals appear to offend against accepted principles of justice.
The Action Plan comes as the UK’s commitment to combatting serious, global financial crime is high on the political agenda, following the release of the Panama papers and its hosting of the International Anti-Corruption Summit this week. However, a number of the proposals appear to offend against accepted principles of justice and therefore warrant careful examination.
The plan proposes a number of measures ranging from fundamental reforms to the Suspicious Activity Reports system to the creation of new regulatory powers and criminal offences. Arguably the three most contentious proposals the creation of unexplained wealth orders (UWOs); a new criminal illicit enrichment offence; and new powers to enable the forfeiture of money held in bank accounts raise serious concerns regarding basic legal principles and guarantees, such as the reversal of the burden of proof.
UWOs are a form of non-conviction based asset confiscation. When served on a person suspected of having wealth or assets that represent the proceeds of unlawful activity, they require the recipient to explain the origin of their assets.
The seizure of assets by the state is an extreme measure that should not be used unless absolutely necessary and the threshold must be correspondingly high. Yet the scope of UWOs – including the proposed threshold test and what constitutes a satisfactory explanation – remains unclear.
A number of the proposed measures are difficult to reconcile with fundamental principles of English law.
In contrast to the section 2 powers available to the Serious Fraud Office, under which it can compel the provision of documents or information, UWOs appear to be designed for use on suspects and do not seem to offer equivalent protections regarding the use to which any compelled information can be put.
Moreover, it is unclear what type of criminal activity would be captured by UWOs. Transparency International has discussed their use as an anti-corruption tool, but UWOs could theoretically be used against those suspected to have unexplained wealth derived from all types of criminal activity. Unless appropriate safeguards are put in place, there is a clear danger that UWOs will facilitate fishing expeditions into people’s private financial affairs.
The criminal offence of illicit enrichment is the government’s response to the UN Convention Against Corruption (UNCAC)’s requirement that states consider the introduction of a national offence. Illicit enrichment is defined in the UNCAC as a significant increase in the assets of a public official that he or she cannot reasonably explain in relation to his or her lawful income and some countries have already criminalised such conduct.
While the Action Plan alludes to the offence being capable of commission only by public officials, it does not make this explicit and so it may be that a wider application is being considered.
The offence would make it easier for prosecutors to recover potentially ill-gotten gains by removing the need to establish that any crime had occurred or that identified assets were gained through criminal activity. Prosecutors would simply be required to show that the defendant had assets that exceeded those possible based on the person’s legitimate source(s) of income, thereby overcoming existing prosecutorial hurdles.
The proposal effectively criminalises the inability to provide an explanation as to a sudden increase in personal income or wealth. This is an unwarranted extension of the criminal law, as well as an unjustified intrusion into the private property rights of individuals.
In reversing the burden of proof, both UWOs and the illicit enrichment offence as currently drafted run contrary to the presumption of innocence, the privilege against self-incrimination and legitimate expectations with regards to fairness and due process. Certain suspects could find themselves in a situation where they risk incriminating themselves by providing an explanation for their asset increase, or alternatively face forfeiture and/or a criminal conviction if they remain silent.
New powers to enable the forfeiture of money held in bank accounts would plug a gap in The Proceeds of Crime Act 2002 (POCA) which requires criminal cash held in bank accounts to be recovered via civil recovery powers a complex and resource-demanding process.
The government has therefore proposed new powers to enable the forfeiture of money held in bank accounts in cases where there is no criminal conviction against the account holder – because, for example, the account was opened under a false identity – and there is a suspicion that the funds are the proceeds of crime.
It also wants to explore whether, following an initial hearing at a Magistrates’ Court, this new power could be used administratively. Such administrative forfeitures would be authorised by a senior law enforcement officer where the value held is below a certain limit, such as £100,000, and the case is uncontested.
While the changes would enable law enforcement agencies to obtain the forfeiture of money held in bank accounts more quickly and effectively, the extent of intrusion is questionable because the pre-emptive forfeiture of assets would take place before the suspect has had an opportunity to explain potentially legitimate sources of wealth. Furthermore, given the draconian nature of these proposed powers, it is concerning that on the current proposals they will only be subject to judicial scrutiny by the Magistrates’ Court.
It may be that the tough-talking Action Plan is little more than a political reaction to recent events, at a time when the government wants to demonstrate its leadership in addressing global corruption and other serious crimes. Taken at face value, however, a number of the proposed measures are difficult to reconcile with fundamental principles of English law. The removal of the presumption of responsibility from the senior managers’ regime provides a recent example of the resistance with which attempts to reverse the burden of proof are often met. It will therefore be interesting to see whether these proposals are eventually adopted and, if they are, whether they are adopted as currently envisioned and to what extent they will face court challenges.
Michael Roach is a lawyer for WilmerHale’s UK Investigations & Criminal Litigation team
Compliance Consutlant can assist you with Financial Crime, Fraud and other crime prevention strategies. Call us on 0207 097 1434 or email email@example.com
Kenya: Chase Bank Resumes RTGs, Cheques Clearance, Trade Finance and Forex Operations – allAfrica.com
Chase Bank Limited (In Receivership) has successfully resumed operations of key banking services such as Real Time Gross Settlements (RTGS), Electronic Funds Transfers (EFT), Agency Banking, Trade Finance, Foreign Exchange transactions and cheque clearance facility.
This effectively gives customers access to all transactions, barely a fortnight after the Bank reopened. According to release issued May 13, 2016, a number of operations within the Bank have since normalized, particularly with gradual increase in deposits and account opening transactions occurring across the Chase Bank (IR) network.
The restoration of these services, with the support of KCB Bank Limited, who is the Receiver Manager appointed by Kenya Deposit Insurance Corporation (KDIC), marks yet another important milestone for Chase Bank (IR) as it embarks on a phased implementation plan to normalize its operations.
Paul Russo the Receiver Manager affirmed that Chase Bank (IR) remained committed to getting back to full operations in the near future, offering customers and stakeholders a major reprieve.
“Over the last two weeks, we have reached crucial milestones towards getting Chase back to full flight. We have seen massive support from our customers who have stood with us and we are keen at remaining firmly focused on our customer service objectives and we remain committed to the core values of enabling our customers, both individuals and businesses, to grow and prosper so that we live up to our promise as the'Relationship Bank” said Mr. Russo.
A vote of confidence by Chase Bank's (IR) customers saw the bank successfully resume operations on the 27th April 2016, after the CBK placed the bank under Receivership. The Kenya Deposit Insurance Corporation (KDIC), in turn appointed KCB Bank Kenya Limited as the receiver manager.
“The return of Chase Bank (IR) back to normal operation is a confidence story for Kenya's banking sector. We will continually engage all stakeholders to ensure we rebuild Chase together,” said Joshua Oigara, KCB Group CEO.
A number of operations within the Bank have since normalized, particularly with gradual increase in deposits and account opening transactions occurring across the Chase Bank (IR) network.
The activation of Chase Bank's (IR) agency network and trade finance services, such as bid bonds and cash backed guarantees, has played a significant role in providing clients with channels to carry out various transactions, said Mr Russo.
Chase Bank's (IR) robust agency network of 1,073 CBK approved agents is hugely popular with the bank's SME clients and is part of an efficient and effective array of alternative banking services.
KDIC Acting Chief Executive Officer, Mohamud A Mohamud while thanking depositors and other stakeholders said:”In conjunction with KCB, we are committed to supporting Chase Bank (IR) for the benefit of all stakeholders, including depositors, creditors and members of the public, and ensure it resumes normal operations.”
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Posted by Aaron Stephens, Kate Ison, Rebecca Wardle on 11/04/2016
Summary: Following the release of the “Panama Papers” and the pressure on the UK government to take steps to tackle tax evasion, David Cameron has announced plans to push through the introduction of this new offence. Although it is not yet clear when the new offence will come into effect, corporates and financial institutions should now take steps to ensure that they have robust policies and procedures in place to prevent the facilitation of tax evasion.
We have previously commented about the UK Government’s proposals in relation to a new criminal offence for corporates who fail to prevent the facilitation of tax evasion and the initial consultation “Tackling Offshore Tax Evasion: a new corporate criminal offence of failure to prevent the facilitation of tax evasion” which was first published in July 2015.
The new offence
Corporations will be criminally liable where a person representing the corporation during the course of business criminally facilitates the evasion of tax by others. The offence will apply to the evasion of all UK taxes and all equivalent overseas rules about the offence of taxes, and those corporations found guilty of this offence will be subject to a fine.
The draft legislation published last year is based on the corporate offence contained in section 7 of the Bribery Act 2010. This provides that a commercial organisation is guilty of an offence if it fails to prevent a person associated with it from engaging in bribery intending to benefit the commercial organisation (subject to an “adequate procedures” defence). In order to be found guilty under section 7 of the Bribery Act, it is not necessary to prove that the organisation itself had any criminal knowledge or intent.
There is no requirement under the proposed tax offence that the representative must have been acting for the benefit of the organisation. The effect of this is to potentially lower the threshold for liability and broaden the scope of the new offence: corporations and other organisations will be liable where the representative is providing services for or on their behalf (even if not directly for their benefit).
A “representative” includes natural and legal persons acting on behalf of a corporation – for example an employee of a bank dealing directly with a customer, a subsidiary of a corporation or a third party organisation providing services to a customer as part of a package provided by a bank.
The offence is subject to the defence that the corporation had put in place reasonable procedures to prevent its representatives from criminally facilitating tax evasion. As with the Bribery Act defence of “adequate procedures”, the key issue is what will constitute “reasonable procedures” for these purposes. The draft legislation requires guidance on the meaning of “reasonable procedures” to be published, and this was to be released in early 2016. As yet, no such draft guidance has been released, however it is expected that this should follow shortly given the acceleration of the introduction of the new offence.
Although the Government stated in its response to the original consultation that it was “mindful of the need not to overburden corporations”, the confirmation that the legislation will be introduced this year means that there will be a very limited period for companies to ensure that they have these “reasonable procedures” in place. Whilst it has been indicated that whether the procedures are reasonable will depend on the specific context, without further guidance it will be difficult for companies to fully satisfy themselves that they are not at risk.
The Government appears to envisage that the new legislation will not require corporations to carry out additional checks on their clients. However, it is clear from the responses to the consultation last year that many organisations do not already have sufficient controls in place to monitor whether staff have deliberately facilitated tax fraud, and to prevent staff from doing so. Concerns were raised in relation to the burden that this new offence would place on corporates, particularly financial institutions, and the work that will be required in order to ensure that procedures and policies are up to scratch. The Government’s December 2015 response indicated that a formal policy will be necessary. Accordingly, organisations will need to ensure that they have appropriate policies, procedures and guidance in place before the enactment of the legislation this year. This could impose a significant and time-sensitive burden on corporations.
Status of the proposed legislation
In December 2015, the Government confirmed that it intended to proceed with this measure by publishing draft legislation which sets out the detail of the new offence, together with the summary of responses to its initial consultation. It was intended that the Government would consult on the draft legislation, and although the consultation was expected to open in early 2016 there have, until this week, been no further announcements in relation to the proposals.
It was announced today that the legislation will now be introduced this year. It is unclear though when exactly the new offence will come into force and how much time there will be for corporates and financial institutions to prepare for it. It is possible that even though the relevant legislation will be introduced this year, the new offence may not itself come into force until 2017: the Government has adopted this approach in relation to the introduction of three new criminal offences seeking to tackle tax evasion and avoidance which are provided for in Finance Bill 2016. However, we await further details on the timing of the proposed new offence for corporates. Whether there will be an opportunity for taxpayers to be consulted on any draft guidance now appears unlikely given the expedited timeframe.
New cross government taskforce
The government has also launched a new “taskforce” to investigate and respond to the practices identified in the “Panama Papers”. The combined involvement and expertise of HMRC, the National Crime Agency, the Serious Fraud Office and the Financial Conduct Authority indicates that there will be a strong emphasis on investigating corporates and the internal policies, practices and controls that they have in place in relation to all aspects of financial compliance, not solely taxation.
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