Proposed new UK legislation to make possible seizure and forfeiture of proceeds of crime and widen the net of such power raises questions for high net worth persons, including those deemed to be Politically Exposed Persons.

(The author of this item is Chris Hamblin, editor of sister news service Compliance Matters, and Offshore Red.)

The UK's Proceeds of Crime Act 2002 already allows the authorities to seize people's property without anyone being convicted of a crime but a new Bill aims to extend this power further, with "unexplained wealth orders" in the offing.

The Criminal Finances Bill was introduced in the House of Commons on 13 October. It proposes to facilitate the seizure and forfeiture of the proceeds of crime that are stored in assets in the UK, extending the law to include value stored in bank accounts and highly valuable property such as precious metals and jewels.

The bill contains the long-awaited details of a criminal offence for corporations that fail to stop their staff from facilitating tax evasion. It also seeks to require people suspected of possessing information relevant to an investigation to provide the state with information.

Unexplained wealth orders
Clause 362A suggests that the High Court should be able to make an “unexplained wealth order” in response to any application from one of the other organs of the state. This will have to specify or describe the property in question and the person whom the enforcement authority thinks holds the property, who might not reside in the UK.

Such an order ought to require that person to make a statement that sets out the nature and extent of his interest in the property and explains how he obtained (dwelling especially on any costs he incurred in doing so).

By clause 362A(4), the order ought to specify the form and manner in which the statement is to be given, the person to whom it is to be given, and the place at which it is to be given or, if it is to be given in writing, the address to which it is to be sent. 

The phrase "the place at which it is to be given" points to the prospect of dawn raids with orders being handed over on the doorstep in the same way as subpoenas are sometimes served in the US. The Bill reinforces this impression by saying that the order might also require the targeted person to provide information or to produce documents. He must then comply "within whatever period the court may specify," which theoretically might be instantly. Various "enforcement agencies" are to be allowed to apply to the courts for orders. 

How does this affect HNWs?
The value of the property in question has to be greater than £100,000 ($121,442) and the court must satisfy itself that the targeted person is actually in possession of it. There must be reasonable grounds for suspecting that the known sources of his lawfully obtained income were too minor to allow him to obtain the property - an apparent “let-out clause” for money launderers who are already high-net-worth individuals in their own right. This applies to property obtained at any time in the past and not merely after the Bill becomes law. It is to be assumed that the person obtained the property at its market price - something that does not always happen in innocent transactions.

PEPs in the crosshairs
The court in question must generally pronounce itself satisfied that there are reasonable grounds for suspecting the property holder's involvement in a crime. This is not always true, however; the Bill also proposes to allow the court to sign an order if it believes that the target is a “politically exposed person”. The Bill defines a PEP as an individual who is, or has been, entrusted with prominent public functions by an international organisation or by a state other than the UK or another state in the European Economic Area, or a family member or close associate of such a person. 

The Bill points to the European Union's fourth money-laundering directive for further details. In Article 3(9) of that directive, PEPs can be heads of state, heads of government, ministers and deputy ministers; members of parliaments; members of the governing bodies of political parties; members of supreme courts; people on the boards of central banks; ambassadors, chargés d'affaires and high-ranking military officers; people on the boards of nationalised industries; and people on the boards of international organisations. Once the Bill is passed, the High Court will be able to force all office-holding PEPs in the UK to co-operate with unexplained wealth orders if they are not known to dabble in business and their official salaries are too small to explain their wealth. This is a weapon to use against visiting PEPs such as General Sani Abacha, the former military dictator of Nigeria who owned billions but whose presidential salary was $25,000 per annum.

Other safeguards for the HNW
Will this new system protect HNW suspects from the emotionally draining and potentially damaging prospect of the government spending indefinite amounts of time after it has obtained an unexplained wealth order before telling them whether it will take further action? Clause 362D offers some relief, stating that when the HNW hands over the property/information, thereby complying with an unexplained wealth order, the enforcement authority must determine what enforcement or investigatory proceedings, if any, it considers ought to be taken in relation to the property within 60 days of the date of his compliance. In other words, assuming that it tells him of its decision, he will know within two months whether he can get on with his life or not. 

This is only the case, however, if an interim freezing order is in effect; otherwise, the Bill proposes to allow the powers that be to keep the HNW wondering about his fate forever. It also suggests that people who lie about the information demanded of them in an unexplained wealth order should face up to two years in prison.

Sitting on a transaction
At present, the MLRO at a bank must ask the NCA for consent to go ahead with a prospective transaction that he finds suspicious. When he does so, he has to block that transaction for anything up to seven working days, during which time the NCA will make up its mind about whether to let him continue. Usually it takes little time to do so, but sometimes it refuses consent during that period. In that case, another wait of 31 actual (not working) days begins. At the end of that, the transaction can go through. During that time, the bank must lie to or 'stonewall' the customer when he asks it to explain the delay; not to do so would be a “tipping off” offence which carries a maximum penalty of five years' imprisonment for the MLRO or other tipster.

The new Bill proposes to compound this disastrous situation by extending the wait. Even with the magnificent advantage that comes from being able to tell banks to delay transactions, the British authorities are not obtaining good results. The reason is that money-laundering is not a high enough priority for them and they are consequently failing to deploy AML investigators in sufficient number or with sufficient resources. Another reason is that foreign countries are often late in responding to requests for "mutual legal assistance."

The UK government claims there are other reasons why investigators do not have enough time to decide on the veracity of STRs, but this claim is deeply spurious. Its answer to the problem is to use the Bill to allow for further extensions of 31 days, each one following on from its predecessor, until a period of 186 days has passed since the end of the first 31-day period. In other words, it wants to see people having their accounts frozen for 60 per cent of a year without being told why. By proposing this, according to at least some commentators, the government is sending out a very clear message to all HNW individuals from overseas: do not do business in the UK.