The Criminal Finances Act 2017

Jonathan S Fisher, Anita Clifford

• Publisher: Informa Law from Routledge
• Year: 2018
• ISBN:
  9781351053945
• Edition: 1
• Topic: Law
• Subtopic: Law Theory & Practice
• Index: Law

The Criminal Finances Act 2017 introduced the most radical change to tackling money laundering and corruption, recovering the proceeds of crime and counter terrorist financing, since the Proceeds of Crime Act was passed in 2002. This book will provide an excellent commentary on the changes introduced by the Act, with practical insights and an explanation of the Act's provisions.

Topics included are:

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• money laundering;

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• unexplained wealth orders;

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• terrorist property;

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• tax evasion; and

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• reasonable prevention procedures.

Authored by Jonathan Fisher QC and Anita Clifford, barristers specializing in proceeds of crime and financial crime cases, this book will be of great interest and importance to all legal professionals working in the financial sector.

Chapter 1

Extending the SAR moratorium period

Introduction

1.1 The most significant change to the anti-money laundering regime made by the Criminal Finances Act 2017 relates to an extension of the moratorium period. Sections 327(1), 328(1) and 329(1) of the Proceeds of Crime Act 2002 establish the principal money laundering criminal offences that are committed where a person handles criminal property or becomes concerned in facilitating another person’s handling of criminal property. The handling of the property or becoming concerned in facilitating another person’s handling of the criminal property, is known as ‘the prohibited act’. If a prohibited act is committed a person becomes liable to a maximum period of 14 years’ imprisonment. However, in respect of each of the three principal offences, there is a statutory exemption in sections 327(2)(a), 328(2)(a) and 329(2)(a) where a person ‘makes an authorised disclosure under section 338 and (if the disclosure is made before he does the [prohibited] act mentioned in subsection (1)) he has the appropriate consent’.

1.2 The concept of ‘appropriate consent’ is defined in section 335 of the Proceeds of Crime Act 2002. Broadly speaking, appropriate consent connotes the obtaining of consent from the National Crime Agency¹ after an authorised disclosure has been made to it (section 335(1)), or the obtaining of deemed consent in accordance with the statutory provisions (section 335(2)). To be precise, a person must be treated as having received appropriate consent to proceed with the commission of a prohibited act if (a) he makes an authorised disclosure² to the National Crime Agency, and before the end of the notice period he does not receive notice from the National Crime Agency that consent to the doing of the act is refused. Section 335(5) defines the notice period as a period of seven working days starting with the first working day after the person makes the disclosure. If, however, the person making the authorised disclosure receives a notice from the National Crime Agency before the end of the notice period or he receives notice from a constable or customs officer that consent to the doing of the prohibited act is refused then, pursuant to section 335(4), he must wait until the expiry of what is known as ‘the moratorium period’ before he can proceed with the prohibited act. Under section 335(6), the moratorium period is the period of 31 days starting with the day on which the person receives notice that consent to the doing of the act is refused. The purpose of the moratorium period is to allow investigators time to gather evidence to determine whether further action, such as restraint of the funds, should take place. The operation of these provisions became known as ‘the consent regime’.

1.3 The Government perceived there were serious problems with the operation of the consent regime. The key difficulty was that the moratorium period was not renewable, often does not allow sufficient time to develop the evidence, particularly where it must be sought from overseas through mutual legal assistance.

1.4 There were two solutions to the problem. Either the consent regime had to be abolished, or provision made for the extension of the moratorium period in appropriate cases.³ In the face of opposition from the regulated sector, the Government decided to pursue the second option, and this formed the genesis of the changes made to the moratorium regime by the Criminal Finances Act 2017. Section 10 of the Criminal Finances Act 2017 amends Part 7 of the Proceeds of Crime Act 2002 by inserting new sections 336A, 336B, 336C and 336D into the Act, the effect of which is to allow a court to grant an extension of the moratorium period for a period of up to 31 days on each application, but with a long-stop limit that the moratorium period must not be extended for a period of more than 186 days from the end of the initial 31-day moratorium period.

1.5 Rules of Court have been made to govern the procedure for an application to extend the moratorium period. These are to be found in rules 47.62 to 47.65 of the Criminal Procedure (Amendment No. 3) Rules 2017 (SI 2017 No. 755) (the Rules). In addition, the Government has published a circular giving guidance to law enforcement agencies on the application of the new provisions. This is entitled Home Office Circular, Criminal Finances Act 2017, Power to Extend Moratorium Period, sections 336A to 336C, 008/2018. The Proceeds of Crime Act 2002 (Investigations in different parts of the United Kingdom) (Amendment) Order 2017 facilitates mutual recognition of orders extending the moratorium period across the different nations in the UK.

1.6 The Government expressed confidence in its impact assessment that the legislative change would deliver important benefits to law enforcement authorities in the UK. The impact assessment noted that an extended moratorium period will make better use of intelligence flowing from the reporting sector to law enforcement.⁴ In referenced cases studies, the Government claimed that amounts of monies that are not restrained due to the early expiry of the moratorium period was ‘in the millions’:

It is estimated from a 5-month sample of cases that failed to reach the restraint order stage due the length of the moratorium period. Over the 5-month period, £102.7 million was potentially available to use by the subjects of those requests including corrupt [Politically Exposed Persons], drug traffickers, fraudsters, and human traffickers. This is based on a sample of cases, implying the total amount that could be restrained over a 12-month period may be higher, although the actual amount recovered will depend on successful [Law Enforcement Authority] action.⁵

1.7 The impact assessment posited that there will be 173 estimated extensions of the moratorium period each year, although it recognised that ‘[T]here is a risk that the estimated 173 estimated extensions per annum may be larger in reality’.⁶

1.8 Pursuant to regulation 2(a) of the Criminal Finances Act 2017 (Commencement No. 2 and Transitional Provisions) Regulations 2017, the moratorium extension provisions came into effect on 31 October 2017.

Criteria for making the order

1.9 Under section 336A(1), a court may, on an application, grant an extension of the moratorium period if four criteria have been satisfied. First, the court must be satisfied that an investigation is being carried out in relation to an authorised disclosure but has not been completed. Second, it must be satisfied that the investigation is being conducted diligently and expeditiously. Third, further time is needed for conducting the investigation. Fourth, it is reasonable in all the circumstances for the moratorium period to be extended.

1.10 If these four criteria are established, a court is not bound to grant an extension of the moratorium period. The court’s power in section 336A(1) is discretionary and not mandatory. This posits the possibility that there may be other factors featuring in a case which may cause a court to reject an application. Perhaps the most obvious example is where the applicant has satisfied the criteria but failed to make full and proper disclosure of a material fact of which the court ought to have been made aware. It will be interesting to see whether a court will draw a parallel with the position in restraint orders issued under section 40 of the Proceeds of Crime Act 2002 and freezing orders in civil proceedings more generally where material non-disclosure will justify the setting aside of a court order. The reasoning in support of this approach is compelling.⁷

1.11 Also, in relation to the four criteria, a court is most likely to focus on the twin issues of diligence and expeditiousness. If an applicant can establish that notwithstanding its swift and competent work, further time to investigate the content of an authorised disclosure is required, a court is likely to view the application for an extension of the moratorium period with some sympathy.

1.12 One question that may arise is whether a lack of police resources is a matter to be taken into account considering diligence, expeditiousness and reasonableness. A significant number of cases have been decided in the context of custody time limits, which may be extended only where the prosecution can show that it has acted ‘with all due diligence and expedition’.⁸ The courts have indicated a reluctance to give great weight to the lack of police resource or insufficient court time to hear a matter when considering whether to extend custody time limits, stressing that the legislation requires ‘expedition’ as well as due diligence to be shown.⁹ It remains to be seen whether the courts may be prepared to adopt a less stringent view where liberty of the individual is not involved. Common sense suggests that, as the length of the moratorium period increases, a court will become increasingly reluctant to accept that the applicant authority has acted with diligence and expeditiousness, or that a further extension is reasonable in all the circumstances.

1.13 Remembering that the application to the court is of a civil and not a criminal nature, an applicant will need to satisfy a court on a balance of probabilities that the criteria have been established. It is the civil standard of proof and not the criminal standard that will apply. A court is likely to apply the same rules which apply in an application of a criminal restraint order.

Which court?

1.14 The court to which an application to extend the moratorium period is made is, in relation to England, Wales and Northern Ireland, the Crown Court and, in relation to Scotland, the Sheriff (section 336D(2)). In England and Wales, an appeal lies on a point of law to the High Court by way of case stated (section 336B(11), and section 28 of the Senior Courts Act 1981). In Northern Ireland, an appeal on a point of law can be made to the Court of Appeal in Northern Ireland (sections 336B(8), 336B(1)(a)), and in Scotland on a point of law to the Sheriff Appeal Court (sections 336B(8), 336B(1)(b)).

Who can apply?

1.15 An application under this section may be made only by a senior officer (section 336A(2)). Pursuant to section 336D(7), in an application to the Crown Court, ‘senior officer’ means the Director General of the National Crime Agency, any other National Crime Agency officer authorised by the Director General (whether generally or specifically) for this purpose, a police officer of at least the rank of inspector, an officer of Revenue & Customs who is not below such grade as is designated by the Commissioners for Her Majesty’s Revenue & Customs as equivalent to that rank, a member of staff of the Financial Conduct Authority who is not below such grade as is designated by the Treasury for the purposes of this Part, the Director of the Serious Fraud Office (or a member of staff of that Office authorised for the purposes of section 336A by virtue of section 2C(2)), or an accredited financial investigator who falls within a description specified in an order made for the purposes of section 336A by the Secretary of State under section 453. An immigration officer who is not below such grade as is designated by the Secretary of State as equivalent to that rank may also apply for an extension of the moratorium period, but in this case additional criteria will need to be satisfied. The court will need to be satisfied that the officer has reasonable grounds for suspecting that conduct constituting the prohibited relates to entitlement of a non-UK national to enter or travel across the UK, or relates to a nationality enactment (section 336A(9) and (10)). By section 336D(8), in the case of an application to the sheriff, ‘senior officer’ means a procurator fiscal.

Timing of application

1.16 An application must be made before the moratorium period in section 335(6) would otherwise end (section 336A(3)).

1.17 In addition, there are complex additional provisions to cover the situation where the moratorium period might lapse before the court has determined an application to extend, or where there is an appeal against a refusal by the Crown Court or Sheriff to make an extension order.

1.18 The general rule is that the moratorium period is extended from the time when it would otherwise end until the court determines the application or it is otherwise disposed of (section 336C(2), (4)). This is the position where an application is made to the court for the extension (or further extension) of the moratorium period under section 336A, and the period would (apart from that subsection) end before the court determines the application or it is otherwise disposed of (section 336C(3)). The moratorium period is extended from the time when it would otherwise end until the proceedings are finally determined or otherwise disposed of. But the maximum period by which the moratorium period is extended by virtue of subsection (2) or (4) is restricted to 31 days beginning with the day after the day on which the period would otherwise have ended (section 336C(5)). Where a Crown Court or Sheriff has refused to make an extension order and the initial moratorium period is due to expire, the period is extended for a period of five working days beginning with day on which the court refuses to grant the application (section 336C(6)–(8)). The restriction on the overall extension of a moratorium period mentioned in...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• Contents
• Detailed Table of Contents
• Table of cases
• Table of legislation
• Introduction
• Chapter 1 Extending the SAR moratorium period
• Chapter 2 Money laundering and further information orders
• Chapter 3 Money laundering and information sharing
• Chapter 4 Unexplained wealth orders
• Chapter 5 Challenging and responding to an unexplained wealth order
• Chapter 6 Search, seizure, forfeiture and ‘gross human rights abuse’
• Chapter 7 Terrorist financing and terrorist property
• Chapter 8 Corporate facilitation of tax evasion offences
• Chapter 9 Prosecution and the reasonable prevention procedures defence
• Conclusion
• Appendix Criminal Finances Act 2017
• Index