Category: Asset recovery

Asset recovery

The new Criminal Finances Bill setting out new anti-money laundering powers has had its first reading

On 13 October 2016 the Criminal Finances Bill (the “Bill”) had its first reading in the House of Commons. In addition to introducing Unexplained Wealth Orders (described in our blog below), the Bill sets out a number of new anti-money laundering powers. The Bill will:

  1. enable the seizure and forfeiture of the proceeds of crime that are stored in the UK, extending the current provisions to include value stored in bank accounts and high-value property, such as precious metals and jewels;
  2. enable the sharing of information between regulated companies, helping to ensure that they provide the best possible intelligence for law enforcement agencies to investigate;
  3. create new powers to assist investigations, including a power to extend the moratorium period in which Suspicious Activity Reports (SARs) can be investigated (originally 31 days) with extensions of 31 days (with a cap of six extensions equating to 186 additional days) and giving the National Crime Agency new powers to request information from regulated companies; and
  4. permit disclosure orders for money laundering investigations, requiring someone suspected of possessing information relevant to an investigation to provide information (bringing disclosure powers in money laundering investigations in line with corruption and fraud investigations).

The introduction of the Bill progresses the legal changes outlined in the UK Government’s Action Plan for Anti-Money Laundering and Counter-Terrorist Finance that was published in April this year and its Response to the Consultation on the Legislative Proposals, published on 13 October 2016. The Bill shows that, despite the change of prime minister and much of the cabinet, the Government remains determined to tackle financial crime.

Asset recovery

New crime bill to introduce Unexplained Wealth Orders

The Government is due to publish a new proceeds of crime bill tomorrow, which will introduce Unexplained Wealth Orders (UWOs), as reported in The Times (paywall).

UWOs would allow the police to apply for an order to require individuals to explain their source of wealth where it exceeds their lawful income. They will be an useful antidote to foreign public officials on low salaries and no other obvious source of legal income who hold valuable UK property, as reported  following the release of the Panama Papers.

Our James Maton was a member of the Transparency International panel that developed a detailed proposal for UWOs (see summary here). We will publish our analysis of the Government’s proposal once it is published.

Asset recovery

Backwards Tracing takes a step forward

The Privy Council recently extended the availability of ‘tracing’ in a novel way to increase the options available to states seeking to recover stolen property.

Before this decision a state could only trace property that had been altered, say by sale or transfer, into the proceeds of that alteration if those proceeds did not exist prior to the move. The process of tracing required the state to show what had happened to the property and to identify its proceeds and their recipient. This formed the basis of a claim against the recipient of the proceeds on the basis that those proceeds represented the original property. There was no tracing claim where the proceeds were already in the hands of the recipient.

The Privy Council’s extension of this principle means that where there is a ‘coordinated scheme’, property can be traced into proceeds that were in the hands of the defendant before the property was altered.

This is an extremely useful tool for states that are subject to sophisticated corruption or frauds designed to thwart recovery. We consider the claim in more detail here.

Asset recovery

What states should know about breach of fiduciary duty

This week’s tip-sheet covers claims for breach of fiduciary duty which can be brought against public officials who have been involved in conduct contrary to their duty to act in the state’s best interests. We detail potential defendants and explain the principles that need to be established at court (and those that do not). We also look at the alternative methods of calculating damages. The tip-sheet is available here.

Asset recovery

Introducing illicit enrichment in the UK: a proposal by Transparency International UK

Too often, for a variety of reasons, law enforcement agencies are unable to take meaningful action against assets suspected to be corrupt. That might be, for example, because the state that has suffered corruption is unable or unwilling to provide supporting information to UK law enforcement in time for action to be taken, or because the evidence required to apply to restrain funds cannot realistically be put together in the time available. International corruption is complex and difficult to investigate and establish.

The United Nations Convention against Corruption was the first global anti-corruption instrument. Amongst other steps, it requires states to enact a range of criminal offences and asset recovery mechanisms as part of measures to address corruption or, in some cases, the convention recommends that consideration is given to doing so.

UNCAC recommends signatory states consider introducing an offence of “illicit enrichment”, which would be committed by public officials who cannot provide a reasonable explanation for large increases in their wealth by comparison to their lawful income.

That offence has not been introduced into English law because of concerns that its reversal of the burden of proof, and lack of a need to demonstrate a link between assets and criminal activity, was inconsistent with due process.

Transparency International UK has today proposed adding “Unexplained Wealth Orders” (UWO) to the civil recovery tools available to UK law enforcement agencies to support recovery of the proceeds of corruption.

The proposal is made in a discussion report called “Empowering the UK to recover corrupt assets, Unexplained Wealth Orders and other new approaches to illicit enrichment and asset recovery”.

The report follows a review of the appropriateness of UK legislation to deter grand corruption and recover stolen assets by a taskforce convened by Transparency International. It comprised academics, civil society and lawyers, assisted by observers from UK Government and law enforcement (our James Maton was a member of the taskforce).

The proposal aims to make better use of Suspicious Activity Reports (SARs), an important tool relied on by UK law enforcement to identify corrupt assets. Anyone assisting with a transaction that they know or suspect may amount to money laundering is obliged to file a SAR, but they are usually filed by banks or other regulated entities.

The taskforce made five key findings:

The level of assets recovered by the UK is very small compared to the likely amounts of corrupt wealth being laundered.

  1. Only a small minority of SARs relating to grand corruption are acted on by law enforcement agencies.
  2. The maximum “moratorium period” of 31 days for law enforcement to take action following a SAR is generally inadequate to investigate and achieve asset restraint for grand corruption cases.
  3. Civil recovery (non-conviction based asset forfeiture) powers are under-used in cases of grand corruption.
  4. The current framework for asset recovery is overly reliant on a conviction in the country that has suffered the underlying corruption.

Suspects served with an UWO would be required to explain legitimate and legal sources of wealth for identified UK assets. A failure to comply, or inadequate compliance, could permit funds to be frozen for a much longer period pending further investigation into their source and consideration of whether a civil recovery case should be brought to recover the asset as the proceeds of crime.

UWOs would most often be served following receipt of a SAR filed by a bank, or another entity in the regulated sector. It is also proposed that the 31 day moratorium period in which law enforcement has to restrain an asset, or consent to its transfer, would be suspended pending a response to the UWO.

A Judge would make the UWO on the application of law enforcement, and would also decide whether it was appropriate to restrain an asset pending further investigations in light of the information and supporting documents provided by the suspect.

TI’s analysis is that the power to serve a UWO would have significant impact where there was existing “moderate” evidence that the asset had been acquired using the proceeds of corruption, and meaningful impact where the evidence was stronger.

Our view is that the introduction of UWOs could have a significant impact on the recovery of the proceeds of corruption. As the discussion paper recognises, further work needs to be done to assess precisely how the UWO scheme would work in a manner compliant with civil liberties, privacy and human rights considerations.

However, the proposal is a proportionate and fair response to assist in addressing the enormous scale and impact of corruption, particularly given judicial involvement and the opportunity for suspects to explain the source of their wealth.

After all, honest public officials should – really – have no difficulty demonstrating the source of a particular asset or bank balance. And the information required to comply with a UWO should not be substantially more onerous than that required by the regulated sector when commencing and reviewing a business relationship with a public official.

Key questions are the test law enforcement would need to meet to persuade a Judge to issue a UWO, the test for assessing whether the information and supporting documents provided in response are adequate, and the consequences of failing to respond to a UWO.

Our view is also that there is a case to be made that a failure to comply with a UWO, or a failure adequately to comply, should give rise to a presumption that the asset is corrupt.

This is a proposal that should be considered in detail, as Transparency International UK suggest, by the Law Commission or an appropriate Parliamentary Committee.

Asset recovery

What states should know about unlawful means conspiracy

The latest entry in our tip-sheet series deals with unlawful means conspiracy. This claim is useful where multiple parties have been involved in a scheme to corruptly defraud a state. We set out the circumstances when it may arrive and explain what you need to establish when bringing the claim. We also touch on how recoveries are calculated. Our tip-sheet is available here.

While the tip-sheet is designed for states, the claim can also be used by companies seeking to sue competitors who corruptly beat them in a tender by paying bribes. Our post on suing bribing competitors can be found here.