UK-WIDE: An Introduction to Financial Crime: High Net Worth Individuals

A Safe Place To Do Business?

HNW individuals have traditionally had a high degree of faith in the ability of the UK’s justice system to uphold due process and to secure fair outcomes. But how far is this faith being tested in an increasingly uncertain world?

One of the principal reasons why businesses, investors and families continue to locate themselves and their assets in the UK is its robust regulatory environment. Laws on bribery, fraud, market abuse, money laundering, sanctions and tax evasion, and the regulation of the financial and professional sectors, have a reputation for strictness and propriety.

Enforcement agencies and regulators abound in the UK, including:

• the Financial Conduct Authority (FCA);
• His Majesty’s Revenue and Customs (HMRC);
• the National Crime Agency (NCA);
• the Office for Financial Sanctions Implementation (OFSI); and
• the Serious Fraud Office (SFO).

The proliferation of agencies is something of a mixed blessing, with risks that cases and issues might fall through the cracks.

Increasingly, too, the UK’s place in the world, freed from the EU and taking its own, independent lead on international issues and regulation, brings both benefits and risks.

Individual Rights Under Threat

Where UK state agencies’ work conflicts with individuals’ fundamental rights, the agencies are far from immune to error. Arrests, asset and bank account freezes, dawn raids, interviews under caution, leaks, press releases, property seizures and sanctions designations can be the cause of significant financial and reputational cost to individuals, as well as their businesses and families.

Allegations and suspicions can be based on ignorance or prejudice, particularly where complex financial affairs and structures, often involving offshore jurisdictions, are not properly understood. And the consequences can be far-reaching, with regulated firms often looking to divest themselves of potentially problematic client relationships, as they become increasingly risk averse.

The risk of injustice is often increased in cases with an international dimension. Processes of mutual legal assistance (MLA) are complex and will not always screen out allegations that are flawed or politically motivated. At worst, individuals may find themselves subject to an extradition request, an Interpol Red Notice or a sanctions designation, all of which can severely restrict their ability to travel internationally. Even lower-level MLA processes, such as those designed to obtain documentary records, can make significant inroads into an individual’s private financial affairs and reputation.

Risks to Assets

Both domestic and international cases are increasingly pursued in the UK by way of asset freezing and forfeiture, including under the Proceeds of Crime Act 2002 (POCA). Public and private prosecutions can be accompanied by draconian measures of confiscation and restraint, while civil courts continue to be a useful tool for those keen to trace claims into funds and property in the UK.

Significantly, law enforcement agencies are increasingly able to use civil powers in POCA to investigate, freeze and obtain forfeiture of assets that are said to represent the proceeds of unlawful conduct (potentially in tandem with civil complainants), while UK government ministers can freeze assets under an increasing variety of financial sanctions regimes. Banks and others have increasing obligations under POCA, money-laundering regulations (MLRs) and sanctions laws, while companies and trustees face increasing transparency requirements.

Threats on the Rise

The risks to individuals from these processes have been exacerbated by years of austerity in the UK’s public finances. The SFO has been driven to reach deferred prosecution agreements (DPAs) with a string of high-profile corporates, particularly under the Bribery Act, generating significant sums for the UK treasury, but implicating individuals who have not been charged or convicted (and, in some cases, have even been acquitted because of the weakness of the case against them).

The UK’s Russia sanctions have had a particularly wide-ranging effect, which has not been limited to citizens of Russia. New rules have targeted (among other things) trusts and various professional services for persons “connected with Russia”, impacted the availability of legal services, and frozen the assets of ‘designated persons’ and companies controlled (even indirectly) by them. A drive towards ever greater corporate transparency includes new registers of trustees and entities that own interests in land, while UK companies’ register of beneficial owners (in contrast to those in the EU) remains (generally) public.

Significant changes to the civil recovery scheme of POCA were put in place a few years ago. The most eye-catching innovation was the Unexplained Wealth Order (UWO), by which the High Court can order a holder of property to explain their interest in it and how it was acquired. Less trumpeted, but more widely used, are Account Freezing and Forfeiture Orders (AFFOs), which have proved devastating to holders of funds and crypto-assets that can be frozen on the basis of “reasonable suspicion”.

What Can Be Done?

Against this backdrop, the good news is that UK courts remain a viable forum for challenge wherever individual rights are threatened. The powers of enforcement agencies (and decisions by the courts, such as to grant search warrants) are susceptible to challenge in the High Court by way of judicial review. Extradition requests, sanctions designations and POCA applications – including UWOs and AFFOs – can be resisted, and adverse findings can often be appealed to the higher courts. While the principal route of challenge to Interpol notices remains internal (via the Commissioner for Control of its Files or CCF), much can be achieved by the targeting of individual bureaus, and the use of data protection laws. Despite Brexit, the European Convention on Human Rights (ECHR) remains enforceable, via the Human Rights Act 1998 (HRA) or by application to its court in Strasbourg.

A Mixed Picture

Given all the above, the prospects for HNW individuals (or associated parties, such as family offices and trustees) seeking to enforce, from the UK, their rights in a financial crime case are complicated. A combination of austerity, Brexit, DPAs and the war in Ukraine have undoubtedly made the UK a less predictable, and in many ways riskier, place to do business, to live and to hold assets. The upshot of recent changes is that it is increasingly easy to make allegations of financial crime outside a traditional criminal investigative process, and increasingly hard to disprove them.

Despite the complexity, the existence of due process and judicially independent procedures, while far from perfect, can provide real hope for redress. The UK’s courts continue to provide an invaluable degree of scrutiny to the errors and excesses of the executive, protecting individual rights, with the HRA and the ECHR as a backstop. It is, perhaps, for this reason that HNW individuals’ efforts to tackle financial crime disputes, where multiple jurisdictions are involved, are so often co-ordinated from the UK. While there are myriad laws and risks to engage and contend with here, it is also often the best jurisdiction in which to find solutions.