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House of Commons debates the Criminal Finances Bill

Written by Duncan Hames on Monday, 20 February 2017

Transparency in company beneficial ownership is needed to stop the money laundering that enables corrupt individuals from around the world to store their illicit wealth here with impunity.

When the House of Commons meets on Tuesday 21st February to debate the Criminal Finances Bill – a piece of government legislation designed to tackle corruption and financial crime – we have the chance to close loopholes in law which allow corrupt individuals enjoy the proceeds of their crimes here.

The Bill as it stands is in our opinion pretty good, and we welcome the cross party support for it demonstrated in the Commons. Where TI-UK has expressed concern has been about relevant issues that are not addressed in the Bill.

What’s in the Bill?

A key focus of TI-UK’s work around the Bill has been Unexplained Wealth Orders (UWOs) – a legal tool that will provide stronger powers for UK law enforcement to investigate suspicious wealth, strengthening cases to seize and repatriate the proceeds of grand corruption.

At present, little can be done to act on highly suspicious wealth unless there is a legal conviction in the country of origin. In cases where the origin country is in crisis or the individual holds power within a corrupt government, this can take decades to obtain or is unlikely to be achieved at all, producing a mere trickle of results against a torrent of corrupt illicit funds.

So how would Unexplained Wealth Orders work make things better?

If passed into law, a UK enforcement authority[1], will be able to apply to a high court judge to give notice of an Unexplained Wealth Order. She will only grant the order if she is satisfied that the respondent to whom it is assigned is likely to be the owner of suspicious wealth beyond his means, and if all of the following tests are met:

1) There are reasonable grounds to suspect that the respondent is or has been involved in serious crime, or if they are a Politically Exposed Person[2] (PEP) outside of the European Economic Area

2) The respondent’s known income is insufficient to have acquired the asset

3) The value of the asset is greater than £100,000

The Unexplained Wealth Order requires the respondent to explain how he lawfully acquired his assets. If he fails to respond or gives an inadequate response then this extra information can be used in a separate civil recovery process (an existing measure under the Proceeds of Crime Act) where law enforcement has gathered sufficient evidence.

The Bill also introduces several new measures to tackle the laundering of corrupt wealth – including extending the period in which law enforcement can gather evidence, and improving the sharing of information between different bodies within the regulated sector.

What’s missing?

Transparency International is concerned that it will remain far too easy for corrupt individuals to hide their ownership of wealth that should be the subject of an application for an Unexplained Wealth Order.

Corrupt individuals are able to use complex webs of opaque corporate structures to launder their money through the UK. These legal entities, like companies or trusts, can be used to conceal the real owner of funds being moved around the world. Layers of secrecy facilitated by offshore company structures prevent effective investigations by police and checks by those working in sectors such as property. This means that property in the UK can be acquired anonymously and anti-money laundering checks can be bypassed with relative ease.

There is a very clear correlation between corruption cases and the use of these secretive corporate vehicles. In the UK, over 75 per cent of corruption cases involving property investigated by the Metropolitan Police’s Proceeds of Corruption Unit (POCU) involved anonymous companies registered in jurisdictions where beneficial ownership isn’t transparent. Of these, 78 per cent of the companies involved were registered in either the UK’s Overseas Territories or Crown Dependencies.

Currently, only a few of these places require the names of companies’ beneficial owners to be collected on a central register. Central registries or ‘similarly effective systems’ – which these jurisdictions have committed to introduce – are certainly a step in the right direction, but public registries are necessary for genuine accountability.

That’s not just our view, but until recently has been the view of the Government, describing them as the ‘gold standard’ in beneficial ownership transparency:

“I am firmly of the view that making company beneficial ownership information open to the public is by far the best approach. It will give businesses and individuals a clearer picture of who ultimately owns and controls the companies they are dealing with and make it easier for banks, lawyers and others to conduct due diligence on their customers. It will shed light on those who have provided false information, helping to tackle crime where it occurs and deterring people from providing this false information in the first place. And it will help reduce the cost of investigations for tax and law enforcement authorities here and overseas, particularly in developing countries, by making information more easily available to them at the very start of an investigation.”[3]

“We’ve talked about the need for every country to ultimately reach what I call the gold standard of a having a public register of beneficial ownership. And I am clear that I include all the Overseas Territories and Crown Dependencies in that.”

Prime Minister David Cameron MP’s closing remarks at the London Anti-Corruption Summit 12th May 2016

New Clause 6 has been tabled by Dame Margaret Hodge MP to require the Government ‘to take steps to provide that the Overseas Territories establish publicly accessible registers of the true owners of companies.’

Transparency International UK asks MPs to vote in support of New Clause 6.

 

Footnotes:

[1] Enforcement authorities listed in the Bill are: The NCA, HMRC, the FCA, the Director of the SFO, and the Directors of Public Prosecutions (for both the England & Wales, and the Northern Ireland jurisdictions)

[2] In the Bill, a PEP is defined as ‘a) an individual who is, or has been, entrusted with prominent public functions by an international body or by a State other than the UK or other EEA State, b) a family member of a person within paragraph (a), or (c) known to be a close associate of a person within that paragraph.

[3] Prime Minister’s letter to the Overseas Territories on beneficial ownership 25th April 2014. https://www.gov.uk/government/publications/prime-ministers-letter-on-beneficial-ownership/prime-ministers-letter-to-the-overseas-territories-on-beneficial-ownership

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Read 220 times Last modified on Tuesday, 21 February 2017 15:54

Duncan Hames

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