The Serious Crime Act (“the Act”) received Royal Assent on 3rd March 2015. The Act brought about changes to a number of areas including computer misuse, prison security and child cruelty. There are three main areas that will be of interest to those practising within the areas of fraud or financial crime. This paper is intended to provide a useful summary of these three areas. Given the extent of the amendments to confiscation, particular attention has been devoted to highlighting and explaining those provisions.
The three changes
- Improving the State’s ability to recover criminal assets by amending the Proceeds of Crime Act 2002 (“POCA”).
- Creating protection from civil liability for those who report suspicions of money laundering in good faith.
- Creating a new offence aimed at those who participate in the activities of an organised crime group.
- Changes to confiscation – effective from 1st June 2015
With recent reports showing that only 26 pence is recovered for every £100 ordered under confiscation proceedings, it is little surprise that this area was tabled for review. The new variations to confiscation provide deterrents and methods by which the courts can restrict the ‘wiggle room’ on the part of defendants trying to avoid paying confiscation. These methods include; increasing the term of default sentences; decreasing the amount of time available to repay; mandating the consideration of travel restrictions; taking money directly from bank accounts and more efficient consideration of third party interests.
Increase in term for default sentences
Section 10 deals with the increase in term of default sentences when a defendant is unable to pay an amount ordered under confiscation proceedings. The number of sentencing ranges has been decreased from twelve to four with a maximum of fourteen years for a failure to pay an order of more than £1 million. This represents a significant change as previously the maximum was ten years for an order of this amount. This section also removes the automatic release trigger at the half way point for prisoners in custody with orders of a value higher than £10 million. This marked increase in the consequences for failure to pay higher value orders is a clear attempt to lower the appeal of going to prison instead of paying for confiscation.
Decrease in time available to repay confiscation
In relation to the changes in time available to repay, section 5 of the Act stipulates that where a defendant cannot pay immediately he or she can be given up to three months to repay; in exceptional circumstances this can be extended up to six months. These deadlines under the previous regime were six and twelve months respectively. The new requirements also state that an extension to six months may only be given where the defendant has made all reasonable efforts to repay within the initial three month specified period.
Mandatory consideration of travel restriction
Section 7 provides that the court must consider whether any restriction or prohibition on the defendant’s travel outside the United Kingdom ought to be imposed for the purpose of ensuring that the order is effective. This provision will therefore force the judge to consider whether the defendant could readily dispose of assets overseas; meaning those who could will be likely to face commensurate travel restrictions for the duration of time taken to repay any order.
Taking money directly from the defendant’s account
When defendants do not volunteer their confiscation repayments directly, section 14 gives magistrates the ability to order that money be paid directly from a bank or building society to the designated officer of the court. This provision can also be amended by the Secretary of State to cover money from an institution other than a bank or building society or to include a product other than an account.
Third party interests
The Act also contains amendments intended to speed up enforcement by dealing with third party claims at an earlier stage. Sections 1 to 4 create a requirement for prosecutors to set out any known details of third party claims at the start of confiscation proceedings. Section 1 specifically allows those who have an interest in property held by the defendant, and liable to inclusion in calculations for confiscation purposes, to make representations to the court. The court can also order the provision of information by third parties and its ultimate decision on the allocation of beneficial interest in property will be binding subject to appeal. This appears to be an attempt at eliminating the delays caused by considering third party interests at the enforcement stage.
Discharge of an order by a defendant’s estate
Section 8 allows a defendant’s estate to make an application to discharge the order. Such an application should succeed in the event of the defendant’s death where the order has not been fully satisfied and either it is not possible to recover anything from the estate or it would not be reasonable to attempt to recover from the estate. The Home Office envisages that such discharges might apply where, for example, there are no assets remaining in the defendant’s estate.
Victim surcharge order
Section 15 adds victim surcharge orders to the list of relevant orders that can be paid for using monies recovered under a confiscation order. When a defendant does not have sufficient means to satisfy both a confiscation order and a relevant order, the amount recovered under the confiscation order may be used to satisfy the relevant order.
Will these changes be effective?
Most of these changes are aimed at speeding up the confiscation process and encouraging the repayment of orders more promptly. It remains to be seen, however, whether decreasing the time available for defendant’s to dissolve assets and increasing the amount of time spent in prison for those who fail to pay higher value orders will actually achieve these aims.
- Protection from civil liability for reporting suspicions of money laundering – effective from 1st June 2015
Certain professionals are obliged to make Suspicious Activity Reports (often referred to as SARs) to the National Crime Agency (“the NCA”) where they have reasonable grounds to know or suspect that their client is engaged in money laundering. It is a criminal offence not to report in these circumstances.
Practical difficulties can arise with the client management aspect of reporting since there is also an obligation not to ‘tip-off’ an individual under suspicion. When this individual is a prized client of an international financial services firm, being prohibited from revealing the report can damage the working relationship since the transaction cannot be completed until approval is given by the NCA. The client is therefore effectively ‘in the dark’ as to the reasons for any delay.
In certain cases a fundamental breakdown occurs between the regulated firm and the client which can lead to litigation. The Act has therefore introduced welcome protection for those who report suspicions of money laundering in good faith. Section 37 states, “where an authorised disclosure is made in good faith, no civil liability arises in respect of the disclosure on the part of the person by or on whose behalf it was made”.
The contrary view in relation to the newly afforded protection is that it has the potential to be abused. As long as an individual can assert that a report was in good faith, their potential exposure to civil liability will be reduced according to the strength of that assertion. It is not unforeseeable that a competitor would look to report a transaction maliciously in order to prevent a commercial advantage where they can create the appearance of bona fide intentions. There is scant material available to show how the NCA will deal with such a situation, or indeed to suggest that they properly considered this as a possible unintended consequence of this newly afforded protection.
iii. Offence of participating in activities of an organised crime group – effective from 3rd May 2015
Section 45 has introduced this new offence which is targeted at professionals and others who may be participating in the criminality of an organised crime group. The criminal activities participated in must be serious enough to amount to an offence carrying a sentence of seven years’ imprisonment. This provision allows the authorities to target both those individuals who participate actively in certain activities and also those who contribute to the overall criminality through the provision of services, information and similar means of support.
This development is a clear attempt at making it easier for prosecutors to target and capture the activities of those on the fringes of groups who were perhaps more likely to evade charge and/or conviction before. One imagines this would include professionals who assist these groups (such as accountants and in some cases corrupt lawyers too) and also the leaders of the organisations who typically attempt to distance themselves from the criminality. An interesting point to note and monitor for the future is whether this provision will be any more effective than a simple conspiracy charge was in the past. Lawyers working on cases involving these issues will no doubt look to developments in cases such as the recent August 2015 arrests of individuals connected with the Adams brothers of the notorious Clerkenwell crime family. One of the arrested suspects was a chartered accountant.
With the above aims in mind some consider that the threshold is too low in that the accused need only partake in an activity that he or she knows or reasonably suspects is a criminal one. In addition, it is not necessary for the accused to actually know any members of the crime group. Indeed this new offence has even attracted criticism from some professional organisations including the Institute of Chartered Accountants of England & Wales. One of their main criticisms is that the Act will cause professionals to fear giving advice to higher risk clients. It will certainly be interesting to watch and see whether such concerns are well placed.
These changes are consistently focused on dealing with the disposal of criminal assets. The POCA amendments to confiscation proceedings are concerned with returning the proceeds of criminal assets to the State, the new offence in relation to organised crime groups can be interpreted as an attempt at preventing professionals from assisting criminal groups in retaining assets, and finally, the protection from civil liability for those who report in good faith is clearly an attempt to alleviate fears for those who wish to report suspicious activity surrounding potentially criminal assets. While the success of these amendments is largely unknown, the State orientation surrounding these sections of the Act is clear: a notable focus on pursuing criminal assets. The next challenge for practitioners will centre on navigating these provisions, particularly in relation to organised crime.
Will is starting pupillage at 3 Temple Gardens in October 2015
House of Commons Committee of Public Accounts, Confiscation Orders, Forty-ninth Report of Session 2013-14
The Serious Crime Act 2015: http://www.legislation.gov.uk/ukpga/2015/9/contents/enacted
Home Office Fact Sheet, Serious Crime Bill Overview, March 2015: https://www.gov.uk/government/collections/serious-crime-bill
Shah and another v HSBC Private Bank (UK) Ltd  EWHC 1283 (QB)