Posted on 13 November 2019

Developments in Economic Crime Legislation

On November 5, Alter Domus’ Janice Drum, Head of Compliance EMEA, spoke at the 15th Annual Compliance & Economic Crime Symposium. During her panel, “Unexplained Wealth Orders – Developments in Economic Crime Legislation,” Janice and her fellow panelists described and discussed the ongoing prevalence of economic crime around the world and the role that effective regulations, compliance systems, and strong leadership can play in eradicating it.

Economic crime: an enduring threat

Economic crime is a broad concept, covering a wide range of offenses. These include financial crimes committed by banks, tax evasion, illicit capital havens, money laundering, crimes committed by public officials such as bribery, embezzlement, traffic of influences, and so on.

In response to high-profile cases and rising public concern, regulators around the world have begun demanding that companies increase their own efforts to deter wrongdoing. Today, nearly all multinational companies invest heavily in compliance and espouse zero tolerance policies regarding illegal behavior by employees.

In practice, increased regulation and controls alone do not guarantee that crimes are detected early or averted. There is significant data that indicates that white-collar crime is not only still rampant but is actually rising. In a 2018 PwC survey, 49% of 7,228 organizations reported that they had experienced economic crime and fraud in the prior year.

It could be said that the root cause of the problem is not necessarily that regulations and compliance systems are ineffective, but that weak leadership and flawed corporate culture are driving forces. While compliance systems are important, leadership plays a key role in shaping their organizations’ attitudes toward preventing crime and responding when wrongdoing is detected.

What’s being done to manage the increase in economic crime?

With regulations and compliance systems falling short, some governments have begun taking new steps to combat economic crime, most notably through the United Kingdom’s recent use of unexplained wealth orders.

Unexplained wealth orders, or “UWOs”, are a type of court order issued by a British court to compel a target to reveal the sources of their unexplained wealth. UWOs came into force in January 2018 and several authorities are authorized to apply to the court for them including HMRC, the National Crime Agency (NCA), the Serious Fraud Office (SFO) and the Financial Conduct Authority (FCA).

As a tool, UWOs give investigators more power to review suspected money laundering and ask deeper questions of individuals and their advisors in order to prove the legitimacy of the income used to acquire assets in the UK. They allow investigators to ask anyone with assets of more than £50,000 to explain how they are able to afford them if it appears their income is insufficient. While they do not require a criminal conviction, the enforcement authorities may apply for one based only on a suspicion.

UWOs were introduced as a means to make it easier for assets suspected of representing criminal property to be seized. These orders can be issued against individuals as well as structures that hold property such as companies and trusts. Moreover, they can be applied to politicians or officials from outside the European Economic Area (EEA), or those associated with them, such as politically exposed persons, or “PEPs”.

Since their introduction in 2018, the UK has deployed three UWOs: the first two against PEPs and the third targeting what is suspected to be organized crime. The NCA’s Head of Asset Denial hailed these a successes, stating “These orders are a powerful tool in being able to investigate illicit finance generated within, or flowing into the UK and discourage it happening in the first place.”

What other steps are being taken to combat economic crime?

In Jersey, the Forfeiture of Assets (Civil Proceedings) (Jersey) Law 2018 was developed in response to MONEYVAL’s recommendations. The initial recommendation was that Jersey should consider the introduction of a non-conviction based confiscation regime. Although Jersey already had existing measures that allow for the forfeiture of assets in cases of criminal proceedings, this new law covers a far wider remit of cases as it does not require that criminal proceedings have taken place.

The new law also grants investigatory powers to the Attorney General where a civil forfeiture investigation is being conducted in Jersey or elsewhere in relation to property in Jersey. This includes powers for the production of a wide range of information and powers of search and seizure. It allows the Attorney General to serve a notice on the holder of any account held at a bank in Jersey, and the bank itself, if it meets specific parameters. Jersey’s asset forfeiture laws can be used as the basis for freezing cash belonging to overseas individuals accused of crimes against humanity, similar to the Magnitsky Act in the US.

While efforts such as the UK’s UWOs and Jersey’s Forfeiture of Assets Law of 2018 are shining examples of steps being taken to fight economic crime, the effectiveness of these tactics will be better understood over time. Although these efforts are paramount, companies share a responsibility in mitigating these crimes. By ensuring strong leadership and positive corporate culture, companies can help to create environments where economic crime is less likely to occur. All of these factors, when combined, represent our best chance of reducing these types of financial wrongdoing.

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