Digital Transformation » Systems & Software » Crime doesn’t pay

Government figures suggest assets derived from organised crime represent something like 2% of GDP and ministers have been conjuring up pictures of crime bosses living lives of luxury on their ill-gotten gains. To tackle them, ministers have come up with the Proceeds of Crime bill, which has far-reaching powers to recover those assets.

Home Office minister Bob Ainsworth says: “It is not acceptable that people should enjoy the proceeds of criminal activity including big houses and fast cars when it is built on the misery of victims and activities which damage society.”

But Tory MP Douglas Hogg wonders what will happen to the honest building company owed money by one of these criminals whose assets have been frozen under the powers in the new legislation. The director of the new Assets Recovery Agency will be able to apply to the High Court for an “interim receiving order” freezing suspect assets. Once the order is in place, anyone owed money by the suspected party won’t be able to get it without the say-so of the court.

The problem for honest businesses is that such orders could be made against people as individuals or company directors who, to the average credit controller, look whiter than white because they have no criminal record.

A company could provide goods on credit even as the director of the ARA and his team are closing in.

The legislation will target people who have a “criminal lifestyle”. Tests for this will include whether the target has lots of friends with convictions and whether they can explain how they came by their money. The trouble for honest businesses is that they don’t normally ask who their customers’ friends are before advancing credit and a person (or company) with a lot of money comes across on credit checks simply as a person with a lot of money. The problem becomes even more severe if the criminals are, themselves, directors of seemingly honest businesses.

The government says there will be provisions for courts to make the necessary payments where goods have been supplied on credit in good faith. But there are enough ambiguities about the bill to raise questions about how all this will pan out in practice. And, in any event, it’s likely to involve an expensive trip to court and a cash-flow delay before a judge says the invoice can be paid.

Perhaps, indeed probably, such cases won’t be too frequent. The problem for FDs is that sooner or later some are bound to hit them, and that they come in the wake of a whole raft of measures which, while reasonably tightening up on money laundering and terrorist financing, have also placed new compliance burdens on FDs.

The Proceeds of Crime bill will require even more midnight oil. It is huge even by modern parliamentary standards – a hefty 430 clauses – and it introduces novel legal maxims, such as civil recovery and criminal lifestyles. Lawyers are bound to enjoy a fruitful few years picking the bones out of the drafting.

In one respect, the bill simplifies existing money laundering law by creating a single set of offences for the proceeds of drug dealing and other crimes. But FDs working in an area covered by the money laundering regulations will now be guilty of “failure to report” if the court thinks they had “reasonable grounds to know or suspect” somebody was engaged in money laundering. Those found guilty could face up to five years in prison.

The European Convention on Human Rights is already being cited as the banana skin on which cases brought under the legislation could slip. But a fraud partner at one of the Big Five who advised the Home Office on the draft legislation points to the Irish experience with similar laws – introduced in 1996 after the murder of Dublin journalist Veronica Guerlain by organised crime – which have yet to be beaten at Strasbourg.

One provision the criminals won’t like is the power of the director of the ARA to apply income, capital gains, corporation and/or inheritance tax to their funny money. Unlike the Inland Revenue, the ARA director won’t need to identify the source of income before sending in the tax assessment. Perhaps those brown envelopes could prove to be the most fearsome provision in the new law.

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