ABC and AML: Combating corruption - the UK introduces unexplained wealth orders

The new retrospective provision will apply to individuals but also to other entities including trusts. Failure to comply with such an order will expose the property to seizure and it is a criminal offence to provide false information to a UWO. The new law is retrospective and may be utilised by the Director of Public Prosecutions, her Majesty’s Revenue and Customs Office, the Serious Fraud Office (SFO), the Financial Conduct Authority (FCA) and the National Crime Agency.

It is estimated that £100 billion is laundered through the UK each year. In March last year Transparency International’s research identified London properties worth a total of £4.2 billion bought by individuals with suspicious wealth. Anti-Corruption activists have been pushing for this law ever since an illicit enrichment task force was convened by Transparency International in early 2014. Land registry figures show that more than 30,000 tax haven companies hold UK real estate worth more than £170 billion.

A new global focus point: tackling fraud and corruption

Two years ago we sent out an alert warning global corporations that the risk inherent in global business was about to increase as fighting corruption has become a global focus point. We have also previously reported on the UK’s leading role in fighting global corruption in that it has set a global standard providing for strict liability, while allowing a defence if a company could demonstrate that it had instituted adequate procedures “to prevent bribery”. This new s7 of the UK Bribery Act has indeed brought about a paradigm shift in the fight against corruption: the focus in the global compliance world has moved from a wait-and-defend attitude to one where a pro-active framework is required within corporations. This new approach places the UK on par with the US with its Filip Factors approach where a company defending itself against the US Department of Justice in terms of the Foreign Corrupt Practices Act needs to produce and prove the “existence and effectiveness of the corporation’s pre-existing compliance programme”.

Following on the success of s7 of the UK Bribery Act, two new “failure-to-prevent offences” became law on 30 September 2017: firstly the failure-to-prevent the facilitation of UK tax evasion, and secondly the failure-to-prevent the facilitation of foreign tax evasion. Both these provisions mirror s7 of the UK Bribery Act and send out a clear message that anyone doing business in and with the UK must have the highest possible compliance standards.

Following on the UK’s lead, the Australian government has recently proposed a new set of legislation under the Crimes Legislation Amendment Bill of 2017 which will, if it becomes law, introduce a new offence of “failure to prevent bribery of foreign officials”, modelled after the UK Bribery Act.

The UK has now firmly established a very powerful position in the global fight against corruption but the US has not walked away from this fight at all. Quite the contrary, one need look no further than the national strategy of the US, published three months ago which re-affirms the fight against corruption: “the United States will continue to target corrupt foreign officials and work with countries to improve their ability to fight corruption so US companies can compete fairly in transparent business climates”.

The UK has also set the pace by publishing the world’s first open data register of real estate owners and controllers of companies, known as “beneficial owners”. In this respect the UK is aligned with the European Union’s fourth Money Laundering Directive requiring member states to ensure that corporate and other legal entities incorporated within their territories obtain and hold adequate, accurate and current information on their beneficial ownership, including the details of the beneficial interest held. Such information should be held on a central register accessible to competent authorities.

The way forward

Going forward, AML/TF and ABC will be premised, more and more, on international co-operation. The need for organisations to know and identify clients and manage associated risks will probably result in governments opening up information sources to the private sector. Financial institutions will have to seriously consider developing artificial intelligence and machine learning and increasingly leverage emerging technology to enhance efficiency and cost effectiveness.

Learning from others’ hard lessons

Boards of directors will have to adopt a “tone at the top” approach towards their compliance programmes. There is a serious lesson to be learnt from the reputational damage suffered by certain global companies in South Africa and Brazil.

Reputation is extremely important: it is good to be in the news, but only for the right reasons. Once damaged, reputations can be very difficult to repair, particularly where integrity is called into question. Growth needs to be balanced by ethical conduct. By proactively dealing with corruption by introducing appropriate risk management programmes, a company ensures that the whole corporation becomes focussed on the subject. The complex web of international regulations have also ensured that compliance as a function of governance and risk is coming into its own. Financial institutions need to prepare for global regulation and law enforcement especially with ultimate beneficial ownership rising to the surface.