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