The Criminal Finances Act, which seeks to amend and update the Proceeds of Crime Act 2002, is regarded as being the most substantial update of the UK’s anti-money-laundering regime and the most substantive expansion of corporate liability since the Bribery Act 2010.
The Act introduces unexplained wealth orders (UWOs) that may be issued by The High Court, on application from a law-enforcement agency, to investigate any suspicious property above the value of £50,000, such as a yacht, car or item of jewellery, to ascertain how that property was acquired if it is believed that the owner would not be able to obtain it through legitimate means.
The Act also makes it a criminal offence if businesses fail to prevent the facilitation, through negligence or otherwise, of tax evasion, money laundering, corruption and the financing of terrorist activities. This means British businesses, now more than ever, are required to go beyond the minimum lines of questioning relating to wealth to ensure they are not found guilty of failing to prevent a proliferation of the criminal activities listed above.
John Leonida, Partner, Clyde & Co
The superyacht industry in the UK encapsulates not just the builders who are here but also the superyacht brokers, charter brokers, lawyers, designers and other assorted advisers. All of us will be subject to the Criminal Finances Act 2017 when it becomes law in September.
This new legislation puts pressure on all of us involved in the superyacht supply chain to be diligent and inquisitive into, firstly, the source of funds of a potential yacht owner and, secondly, not to turn a blind eye to a yacht-owning or operational structure that could be said to be tax-evasive.
The legislation looks to place the responsibility on each member of the industry to act as a gatekeeper to prevent either unexplained wealth being used to acquire superyachts or to prevent tax evasion taking place. The criminal liability will fall on businesses in the UK for not preventing ill-gotten gains from being used to buy superyachts, or any asset worth more than £50,000.
To my mind, that could also include commissioning a superyacht design, commissioning and creating a connected series of items for the interior fit-out of a yacht. The impact will be that we shall be forced to more closely question – and put to proof the veracity and honesty of – a potential client’s wealth.
How we do that is not clear. Perhaps this is because the legislation was rushed through before the dissolution of Parliament. But if we are to stand accused of assisting in converting ill-gotten gains into superyachts or anything associated with them, we are going to have to show a paper trail of mature and diligent questioning and evidence in our defence should anything untoward later arise.
Just as the early anti-money-laundering legislation upset clients who were asked to prove who they were, I imagine that the questionable potential client and the easily irritated potential client may avoid the UK. Equally, we shall not be able to ignore a Byzantine ownership structure or operating structure that may precipitate or hide a tax-evasive activity. If we fail to prevent the facilitation of UK tax evasion we would be subject to criminal sanctions. In a sense, much like the Bribery Act, we become responsible for what happens on our watch.
Adam Ramlugon, Managing Partner, and James Neocleous, Paralegal, Bargate Murray
The Criminal Finances Act 2017 has been enacted as part of efforts to ensure that the EU’s 4th Anti-Money Laundering Directive is enshrined into English law ahead of the deadline by which all EU member states must ensure that their domestic law complies with the directive.
Accordingly, we anticipate that other prominent EU member states connected with the superyachting industry (France and Italy to name two) will be enacting equivalent or similar legislation if they have not already done so.
As an overarching point, any legislation that is targeted at clamping down on money laundering and corruption is to be welcomed. There is, in our view, one key element of the Act that will give the UK’s anti-corruption laws additional teeth and which could have a notable effect on the superyacht industry.
In brief, the English courts have jurisdiction to make a UWO against property owned by a person who is deemed a ‘politically exposed person’ (PEP) or in respect of whom there are reasonable grounds for suspecting that the person is involved or connected to serious crime.
In a superyacht context, this could mean that a UWO is made against a particular yacht that would require the owner to, among other things, explain to the court the manner in which they obtained the property or, in other words, where the money came from that was used to purchase it. A failure to answer a UWO would give rise to a presumption that the property is recoverable by the relevant authorities.
In our view, individuals who have come into their wealth by legitimate means have nothing to hide and, therefore, very little to fear with regard to UWOs, but their introduction could represent a significant weapon against those who have not.
This article was originally published by The Superyacht Report.