New laws currently under consideration in the UK could eliminate the country’s role in global corruption as a hotbed of ill-gotten cash and assets, experts have told PF International.
The proposed Criminal Finance Bill, an effort to toughen up Britain’s laws on money laundering, terrorist financing and tax evasion, could be the most significant anti-corruption legislation in the nation for three decades, said Rachel Davies, senior advocacy manager at Transparency International UK.
She highlighted one particular aspect of the bill as having huge potential to deter corrupt individuals around the world from vieiwing the UK as a safe haven.
Unexplained Wealth Orders (UWOs) are already used by countries like Australia and Ireland, but are currently unavailable to UK law enforcement. The new rules will grant authorities the power to oblige individuals to explain the origin of suspicious assets or funds.
Davies explained that this is a “hugely significant” development, particularly in the area of asset recovery, where the UK’s current regime is riddled with flaws.
The extent of the country’s shortcomings in this area are evident in the figures: in 2014 the OECD found the UK freezes around $225.5m in corrupt funds annually. However, the country’s National Crime Agency estimates the amount of dirty money laundered through Britain tops £100bn ($124bn) every year.
The fact that the UK’s current regime requires an individual to have a conviction in their origin country before action can be taken is a major contributor to this mismatch, Davies explained. UWOs have no such limitation.
They are however limited in other ways, some of which legislators may be able to fix before the bill becomes law. UWOs can’t be used against public officials in the UK or within the European Economic Area – a loophole that’s likely to stay. Neither do they provide protection for law enforcement agencies, which could be sued for damages if the person they issued the order against is acquitted.
Discussing UWOs during a meeting of the All Party Parliamentary Group on Responsible Tax in London earlier this week, experts voiced concerns that the latter could dramatically reduce law enforcement’s willingness to use the orders. A possible fix would be to limit the amount of damages that can be claimed.
Nevertheless, Davies says the introduction of UWOs would send a “clear signal” to corrupt individuals that the UK is now hostile. However, it would be important to win some high profile cases early on to ensure an effective deterrent, she adds.
Other areas of the bill will also significantly strengthen the UK’s ability to counter money laundering, terrorist financing and tax evasion. It will increase the time limit for law enforcement to investigate suspicious transactions by six times, strengthen their powers to seize assets other than cash, and bring their capabilities to tackle terrorist financing in line with those of money laundering.
The bill will also attempt to encourage companies in the regulated sector – banks, lawyers and accountants – to share information to help detect and prevent money laundering and terrorist financing.
It will open up a legal channel for firms to share sensitive information with one another, and allow them to submit joint suspicious activity reports to law enforcement. The government said this would help firms protect themselves, and provide enforcement agencies with a more detailed overall picture of illicit financial flows.
On tax evasion, the bill will add legislation that campaigners have been calling for for some time. Two new criminal charges will be created in order to prosecute companies that fail to prevent their employees from facilitating tax evasion by their clients. These will be applicable to any firm carrying out business or facilitating domestic tax evasion in the UK.
For those corporate middle men that aren’t deterred by the threat of fines, especially within larger firms, the prospect of earning a criminal conviction in the UK – which could affect business in other major markets too – is more sobering.
A major caveat, however, is that the law can’t be used in instances of tax avoidance, in which the spirit of the law has been broken, rather than the letter. This category features some of the most high profile cases of tax injustice.
MPs on the UK’s International Development Select Committee also recently pointed out that the country’s leadership on anti-corruption continues to be undermined by a failure to ensure that the same levels of transparency and accountability are applied to Britain’s Overseas Territories.
Experts at this week’s APPG also noted that even the strongest aspects of the bill, UWOs for example, will disappoint unless law enforcement agencies are provided with sufficient resources to use them.
By Emma Rumney. This article was first published in Public Finance International