Risk managers should keep their antenna up for the forthcoming Criminal Finances Bill, which could well pose some compliance challenges.
The bill received Royal Assent on 27 April, so we know it will come into force in the coming months and a number of pundits have said September is most likely.
The overall aim is to tackle money laundering, tax evasion and corruption, in addition to allowing better recovery of ill-gotten gains.
These are the bill’s main points:
- Introduction of a new criminal offense for firms that fail to prevent their employees from aiding tax evasion.
- Creation of ‘unexplained wealth orders’ meaning those suspected of serious crimes need to reveal sources of wealth.
- Allows seizure and forfeiture of crime proceeds and terrorist money stored in bank accounts.
- Extension of civil recovery powers under the Proceeds of Crime Act to ease recovery of gains made through human rights abuses abroad.
- New protocols for sharing information between regulated companies and longer time limits for agencies to probe suspicious transactions.
- Extension of disclosure orders for money laundering and terrorist finance investigations.
So, what are the key issues for risk managers? Certainly, one of the biggest concerns must relate to the offense for assisting tax evasion, since it means firms are potentially at risk of unlimited fines and criminal convictions.
A business could also face the revocation of its license, disqualification of directors and being banned from public procurement processes. So, if a firm is providing advice, now is the time to look at whether procedures need tightening up.
The law also impacts on those conducting global business, namely if an offense is committed by a UK firm or it is a business that conducts part of its business in the UK.
Overall, the Criminal Finances Bill could well be the right prompt for a fresh look at AML procedures and to see what the cultural approach is to tax evasion – it could be that greater priority is needed.
Evading tax is already a crime but the law now also turns the spotlight on those holding the client relationship, i.e. those who provide advice on breaking the law.
Firms will be able to defend themselves by showing they had ‘reasonable prevention procedures’ but staff conduct should now be under more scrutiny. It has also been suggested that there could be more whistle blowing if employees develop suspicions about a colleague.
For any business that specializes in advising wealthy individuals and could perhaps have expertise in areas like trusts and offshore investment, a full risk assessment may be a sensible way forward, as this will help show where exposures lie.
Detailed training should be implemented too, so that all affected employees from frontline staff to board members understand the law and their responsibilities.
Notably, the law also refers to both employees and ‘associates’ working on a firm’s behalf, so those working on an outsourced basis and in partnership arrangements should also be subject to vetting and training.
Then there is the information-sharing element, through changes to the suspicious activity reports’ regime (SARs). If an organization strongly suspects money laundering, they should then notify the National Crime Agency. Once given the go-ahead, they can collaborate with other regulated organizations and provide details in a so-called ‘super SAR’. Sufficient evidence could then lead to funds being frozen and prosecution. Again, this is a different approach and firms need to be ready for both supplying information and requesting it.
While it is businesses that provide tax advice that are at highest risk, those offering financial guidance more generally to wealthy clients need to ensure they are fully prepared to meet the demands of this fast-approaching new legislation.
Useful further reading: “New Financial Crime Risk and Reporting Considerations for 2017”