Catching Mr Big – a new approach from the UK authorities
12 Apr 2017

High profile organised crime leaders often take on a twisted celebrity—from Al Capone to Whitey Bulger to the Kray twins—and are known to all and sundry as the criminals they are. Yet for years they walk free, usually because victims refuse to give evidence against them for fear of reprisals. The history of catching celebrity criminals is one of periodic innovation by law enforcement and legislators. The UK Criminal Finances Bill (CFB), due to come into law later this year, contains a few attempts at such innovation. At the same time though, it underlines shortcomings in the prosecutorial approach and does little to paper over inherent technical limitations.

The most famous innovative prosecution was that of Al Capone, the mobster who ran Chicago as a private empire for seven years. Capone was caught out largely because, in the process of trying to regularise his tax affairs in response to the new the federal income tax, his incompetent lawyer Lawrence Mattingly wrote to prosecutors that Capone was indeed able to pay some federal taxes if they would be ‘reasonable’ about it. Mattingly thus tacitly admitted that Capone was indeed “defrauding Uncle Sam of $215,000 in income taxes, as charged”, as a wire journalist wrote at the time. Capone was sentenced to eleven years in federal prison. His lawyer was not prosecuted as an accessory, the authorities perhaps thinking that being the man responsible for the incarceration of the most powerful man in Chicago was punishment enough.

Eighty five years later, there is still strong incentive for firms and consultancies to unofficially work on behalf of shady characters, or at least to ask few questions. The new offence of failure to prevent tax evasion is, however, intended to change this. Perhaps the first of its kind, the offence makes bodies corporate liable to heavy fines if their members’ facilitate of tax evasion. This is may be designed to complement a more aggressive prosecutorial approach to tax evasion: since the financial crisis there have been far more convictions for evasion, giving this new offence a much greater range of application (as a tax evasion offence needs to be proved in order for a body to be liable for its failure to prevent it). However, the government has so far stopped short of introducing a full-spectrum offence of failure to prevent economic crime. As such the likes of embezzlement, insider trading and swathes of other criminal activity will not fall under a positive duty to prevent—though it is to be hoped that the tax evasion liability will incentivise vigilance in general.

A more direct approach is to go after the ill-gotten gains themselves. The reputed don of the Cosa Nostra Sicilian mafia is notorious for his high fashion and taste for sports cars, and can be seen flashing his wealth fairly openly. With the introduction of unexplained wealth orders (UWOs) in the CFB, on the model taken forth in Ireland, Australia and Colombia, such behaviour in the UK will become more risky. Authorities will be able to demand a suspect explain the legitimate source of unusual wealth or face having it forfeited—in effect, reversing the burden of proof.

In Ireland, despite significant concerns over civil liberties, the equivalent orders have been highly effective: Booz Allen Hamilton, in a report for the US Department of Justice, concluded that the order “has been effective in combating organized crime and to some degree acting as a deterrent to future engagement in criminal activities”. However, the report also noted that the Australian example was less persuasive, and that after over a decade in operation in Ireland, criminals were beginning to find ways around the system.

UWOs might also have expedited a prosecution a little closer to home, that of Terry Adams, alleged kingpin of the Clerkenwell crime syndicate connected to the notorious Hatton Garden heist, and suspected architect of a major gold robbery in 1983. Adams adopted the lifestyle of a gentleman art connoisseur, buying antiques and paintings with his illicit cash. Besides the UWO, which might have provided a rapid way for investigators to disrupt Adams’s organisation, the CFB also expands the existing powers of seizure and forfeiture over cash reasonably believed to be the proceeds of crime. Many other assets often used for the purposes of laundering—precious stones, bullion, watches, artworks, even gambling chips—can now be taken away by authorities under the Proceeds of Crime Act 2002, making it much harder to keep property away from the long arm of the law.

Troublingly, though, the CFB threatens to aggravate certain problems in the British financial crime regime. In a recent interview with KYC360, John Thompson of the British Bankers’ Association noted that the suspicious activities report (SAR) system has resulted in huge sums of money (around £5 billion) being spent annually on compliance, but with a primary focus on more marginal, low-value activity. Rather than streamline the process the CFB gives the National Crime Agency powers to obtain further information from firms and extend the ‘moratorium period’ on potentially suspicious transactions, potentially increasing the regulatory burden on firms or, in an ironic twist, disincentivising compliance altogether. At a time when there have been just five money laundering convictions since major reforms in 2007, it is worth considering whether powers of this nature are really likely to lead to greater action against criminals.

While many of the new powers in the CFB seem proportionate, and some are long overdue, it is unclear if the balance is being struck properly for the future. The answer will only become clear after a period of implementation, but the days of celebrity criminals caught out by unfamiliar tax codes are long over. It only now remains to be seen who adjusts to the new rules faster: firms or criminals.

Richard Nicholl (@rtrnicholl) is Legal Editor for a leading provider of corporate legal intelligence. He also works as a freelance political commentator and investigative journalist.

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