Financial Crime Time - Your update from RPC: 2024 Q3

The Economic Crime and Corporate Transparency Act 2023 (ECCTA) received royal assent last October. It contains numerous provisions empowering prosecuting authorities and tightening up the rules around the use of corporate entities. 

One particular aspect of the ECCTA which is not yet in force is the new corporate offence of 'failure to prevent fraud'. This is conceptually similar to the 'failure to prevent bribery' and 'failure to prevent tax evasion' under s.7 of the Bribery Act 2010 and Part 3 of the Criminal Finances Act 2017, respectively. Under this new criminal offence, 'large organisations' will be held criminally liable if they do not prevent their employees or agents from committing fraudulent acts which benefit the company. To qualify as a large organisation, companies must meet at least two of the following criteria: 

• turnover of more than £36 million;
• balance sheet of more than £18 million; or
• more than 250 employees.

In-scope organisations will need to take steps to ensure that they have reasonable preventative procedures in place, or run the risk of an unlimited fine. The government will issue guidance as to what is meant by "reasonable preventative procedures", with the offence coming into force six months after the release of the guidance. This guidance is expected to be released in October or November 2024 so businesses will not have long to put their "reasonable preventative procedures" in place.

HMRC has released figures on its investigations into offences relating to the failure to prevent the facilitation of tax evasion. These offences apply where corporations fail to put in place reasonable procedures to prevent associated persons from criminally facilitating tax evasion. They came into effect on 30 September 2017.

HMRC has 39 cases, of which 11 are live investigations and 28 are opportunities under review. The potential cases include 11 business sectors, with HMRC specifically mentioning software providers, labour provision, accountancy, legal services and transport. 

These numbers are an increase on those we reported on back in 2022, however, it is still surprising that no prosecutions have been brought, seven years after the offences were introduced in the Criminal Finances Act 2017.  

The National Crime Agency (NCA) has announced that it has secured the first UK forfeiture of sanctioned funds under the Proceeds of Crime Act 2002.

The NCA's Combatting Kleptocracy Cell conducted a long-running investigation into money which it believed was held for the benefit of Petr Aven (former head of Russia's largest commercial bank). 

The funds had been frozen since 2022, when Mr Aven was sanctioned by the UK for supporting the Russian government. Attempts were then made to relocate those funds by Mr Aven's estate manager, Stephen Gater, which the NCA believed to be in breach of those sanctions. 

The NCA and Mr Gater reached an agreement for the forfeiture of £783,827.34, which was ratified by the Westminster Magistrates' Court on 29 July 2024.

The Serious Fraud Office (SFO) has charged five former Glencore employees with conspiring to make corrupt payments to government officials to secure oil contracts for Glencore's oil operations in West Africa.

Two of the employees were also charged in relation to the falsification of invoices to Glencore's London office which were marked as service fees to a Nigerian oil consultancy.

The defendants appeared before the Westminster Magistrates' Court on 10 September 2024 and were granted unconditional bail and the case was transferred to Southwark Crown Court.

The Financial Conduct Authority (FCA) has announced that it has taken enforcement action for the first time under the Electronic Money Regulations 2011, fining CB Payments Limited (CBPL) over £3.5 million for compliance failures. 

CBPL acts as a gateway for customers to the Coinbase Group's well-known cryptoasset trading platform. The FCA had concerns about the effectiveness of CPBL's compliance. This led to CBPL agreeing a voluntary requirement which prevented it from taking on new high-risk customers until the FCA's concerns had been addressed. 

In breach of this agreement, CBPL failed to improve its customer onboarding procedures. The FCA judged it to have onboarded and/or provided e-money services to 13,416 high-risk customers, whose deposits were used in cryptoasset transactions worth $226 million. The FCA therefore used its enforcement powers to impose a substantial fine on CPBL. Cryptoassets pose obvious money laundering risks and are likely to remain on the FCA's radar for the foreseeable future.

The NCA has achieved its first civil recovery under an Unexplained Wealth Order (UWO). The High Court has granted a civil recovery order against two properties owned by Zamira Hajiyeva. The properties, Mile Ride Golf Club in Ascot and a Knightsbridge townhouse with an estimated value of £14 million, were the subject of the first UWO granted in 2018 under the Criminal Finances Act 2017. 

This power allows the NCA to confiscate suspected proceeds of crime on a civil basis, where there are reasonable grounds to suspect that the owner of the property concerned (of a value in excess of £50,000) has insufficient income to have enabled them to acquire the property, or there are reasonable grounds for suspecting that the means by which the property was obtained were unlawful. The owner must also be either a politically exposed person or be implicated in serious crime.

In this case, Mrs Hajiyeva's husband is currently imprisoned in Azerbaijan for offences relating to abuse of office and fraud committed while Chairman of the Board of the International Bank of Azerbaijan. The NCA concluded that Mr and Mrs Hajiyeva had no legitimate source of funds to finance the purchase of the properties and so applied for the UWO, freezing orders over both properties and finally a claim for civil recovery. The High Court's Order provides for 70% of the value of both properties to be forfeit, with no findings made as to Mrs Hajiyeva's knowledge of any criminal activity.

This success is likely to embolden the NCA and encourage greater use of UWOs and civil recovery proceedings. 

HMRC has released its Annual Report for the period 1 April 2023 to 31 March 2024.

The report analyses HMRC's performance against its five strategic objectives:

1. collecting the right tax and paying out the right financial support;
2. making it easy to get tax right and hard to bend or break the rules;
3. maintaining taxpayers' consent through fair treatment and protecting society from harm;
4. making HMRC a great place to work; and
5. supporting wider government economic aims through a resilient, agile tax administration system. 

One of the striking features of the report is that the total tax revenue collected was £843.4 billion.  This represents a 3.6% increase from the previous year. HMRC's estimate of the so-called 'tax gap' (the difference between the amount of tax that HMRC considers should be paid and which is actually collected) has increased to £39.8 billion, from £38.1 billion. The report indicates that HMRC will focus their resources on tackling tax avoidance and evasion in 2025. In particular, HMRC are hopeful that modernising and digitalising the tax system will directly reduce tax lost due to fraud and reduce their administrative burden to allow them to reallocate resources to tackling tax avoidance and evasion.