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:
- 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;
- enable the sharing of information between regulated companies, helping to ensure that they provide the best possible intelligence for law enforcement agencies to investigate;
- 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
- 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.
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.
This tip-sheet gives a summary of proprietary claims. This type of claim arises where a state’s property has been stolen, or wrongfully transferred away, such as property sold below market value as a result of bribery. It is a claim for a specific asset or sum of money, which can be contrasted with a compensatory claim for damages. So, for example, a victim state can claim the return of a stolen asset, including any increase in its value, in priority to other creditors. We explain how and when this type of claim can be used and the advantages a proprietary claim has over a claim for compensation in our tip-sheet here.
We have just published our second tip-sheet on the substantive claims available to victims of bribery and corruption, which sets out the key details for a claim in knowing receipt. This claim allows a victim to sue anyone who received the benefit of assets taken in breach of trust, in circumstances where it would be unconscionable for the recipient to keep them. We explain who can be sued, when the claim applies, what needs to be proved, when the claim will fail, and what can be recovered in our tip-sheet here.
Companies are habitually used as part of a corruption scheme. Such companies often have only a single director, or a small number of directors, and are beneficially owned by the wrong-doers.
Insolvency powers can be effective tools to obtain compensation for victims of fraud or corruption, in the right circumstances.
A state could, for example, apply to Court for a liquidator to be appointed over a company used for corruption.
Amongst other things, a liquidator is entitled to bring claims against the company’s former directors for their wrongdoing in involving the company in a corruption scheme. Claims can also be made against third parties dishonestly assisting with or participating in that wrongdoing. The intention is to repatriate recoveries to the victim state (subject, of course, to the rights of any other creditors).
A liquidator’s claim against directors could be based on breaches of the obligations (“fiduciary duties”) they owe to act in the best interests of the company. Involving the company in criminal conduct, or other wrongdoing, is plainly a breach of those duties. There are various others claims that might be available, including the powers of an insolvency court to require those knowingly participating in fraud to contribute to the debts of the company.
The effectiveness and availability of the insolvency powers has been confirmed and emphasised by the much anticipated decision of the UK Supreme Court in Jetivia SA & Anor v Bilta (UK) Ltd (In Liquidation) & Others.
The Court decided:
- Directors could not defeat a claim by liquidators on the basis that the wrongdoing of the directors should be attributed to the company, even where all directors and shareholders had knowingly participated in the wrong-doing. It therefore rejected the directors’ argument that the company was itself a “wrongdoer” and unable to sue its former directors because of the English law principle that a claimant cannot rely on its own illegal actions to make a claim.
- The English Courts have power to require fraudulent foreign defendants to contribute to the debts of an insolvent company.
However, the Court also emphasised that victims remain entitled to make a claim against a company that has been used to receive or launder the proceeds of corruption or fraud. In those circumstances, the acts of the directors are attributable to the company they have caused to be involved in wrongdoing.
Click on the following for: our longer explanation of the case; the full judgment; and a summary of the case published by the Supreme Court.
If you’re a company officer or director and need a quick reminder on your responsibilities under the UK’s Proceeds of Crime Act and the anti-money laundering regime, take a look at our one page tipsheet. We cover the following areas:
- an overview of the Act
- the definition of “proceeds of crime”
- confisction and forfeiture of the proceeds of crime
- money laundering and related offences
- reporting requirements
- the regulatory regime
Victim states seeking to recover the proceeds of corruption, or compensation for corrupt acts, may have a choice of mechanisms to do so: criminal, civil and non-conviction forfeiture. Each mechanism has advantages and disadvantages, and the “right” route for a particular case depends on the circumstances. Flexibility is key, and any substantial programme is likely to deploy all of the available mechanisms. Indeed, many successful individual cases have used two or more mechanisms to maximise recoveries.
Cooley’s briefing, “Recovering the proceeds of corruption: how states can recover stolen assets” outlines and discusses the recovery options, and the factors that a state should consider when choosing between them. It is available here.