The Home Affairs Select Committee has stated that the combination of “poor supervision and enforcement” in the London property investment market is creating a safe haven for laundering the proceeds of crime. As a result, the Committee is calling for much stronger supervision of agents, buyers and sellers. It also suggests that the key tool for detecting suspicious financial activity across the financial services sector and connected industries, such as real estate, is overloaded to the point of being “completely ineffective”.
The Committee is now calling for the creation of a specialist ‘Confiscation Court’ to combat the “current lack of interest and expertise” in confiscation orders among prosecutors and judges. It’s the Committee’s considered opinion that the Government should set up a dedicated, specialist court to hear complex cases featuring cross-border financial transactions, the use of corporate vehicles or very high value proceeds.
In 2013, the National Audit Office (NAO) concluded that, at 26 pence in every £100, the amount of proceeds of crime actually confiscated is “paltry”. As at September 2015, the total debt outstanding from confiscation orders was calculated at £1.61 billion, although this figure is problematic. Nearly a third of it represents interest and penalties for non-payment. In addition, due to the sheer complexities of the cases involved, confiscation orders may be made for assets that never actually existed.
Given the highly organised nature of many of the criminals subject to large confiscation orders, it’s highly likely that the majority of the assets that do exist are beyond the reach of the authorities. There are very few incentives for criminals to either engage with the courts or to pay back the money, with many instead choosing to extend their prison sentences to avoid payments.
Main points of action
The Home Affairs Committee is calling for:
*assets to be frozen simultaneously, with the criminal becoming aware of the investigation for the first time often at the point of arrest (waiting for a conviction is far too late)
*the Asset Recovery Incentivisation Scheme (ARIS) to be overhauled
*a new formula for the allocation of recovered assets which ensures that at least 10% are returned or donated to the communities which have suffered at the hands of criminals
*collection rates to be set in the context of ‘collectable’ and ‘uncollectable’ debts – not in any way to “wipe the slate clean”, but rather to allow the authorities to concentrate on debts which can be collected
*the National Crime Agency (NCA) to be made the lead agency for the recovery of criminal assets, co-ordinating and overseeing the various efforts and agencies operating at local levels (once the NCA is established as the lead agency and is accountable as such, it’s only fair that it be given the necessary resources and tools to influence performance)
*ARIS to be placed under the control of the NCA to be used as a tool to resource and incentivise the effective collection of criminal assets
*Government to confiscate the passport of any criminal subject to a confiscation order until such time that it’s paid
*the non-payment of a confiscation order to be made a separate criminal offence (to enforce this, no criminal should be allowed to leave prison without satisfying their confiscation order)
*an immediate and radical overhaul of the systems used to track seized assets
*the various databases holding information on seized assets to be merged into a single ‘asset recovery database’ accessible to all the agencies concerned
Failure of legislation
Keith Vaz MP, chairman of the Home Affairs Select Committee, said: “At least one hundred billion pounds is being laundered through the UK every year. That’s the equivalent of the GDP of the Ukraine. The Proceeds of Crime legislation has failed to achieve its purpose. London is a centre for money laundering. Its continued standing as a global financial centre is dependent on proactively and effectively tackling this issue. Investment in London properties is a major route for money launderers which actively tarnishes the image of the capital. Supervision of the property market is totally inadequate at present, while poor enforcement has laid out something of a welcome mat for launderers and organised criminals.”
Vaz continued: “The ELMER system, which is the main method of reporting suspicious transactions, is not fit for purpose. Designed to identify money laundering or terrorist financing, it’s desperately overloaded to the point where it’s now completely ineffective. Capable of managing 20,000 reports a year, it’s currently burdened with no less than 381,882. This has rendered the whole system a futile and impotent weapon in the global fight against criminal financing, with no indication from the Home Office as to when a new state-of-the-art system will be purchased.”
The Home Affairs Select Committee’s chairman went on to state: “The overall enforcement rate for confiscation orders is 45%, but this varies enormously with the size of the confiscation order: 96% of orders up to £1,000, but only 22% of orders above £1 million. Non-payment of a confiscation order should be a criminal offence to ensure that offenders don’t just see out a prison sentence in order to keep their ill-gotten gains. These orders should be set by dedicated ‘confiscation courts’.”
In conclusion, Vaz commented: “There are too many agencies involved in this process. The route from intelligence gathering to conviction should be seamless. The National Crime Agency ought to be given full responsibility to investigate and enforce in this area as it was originally established to do.”
Views outlined by the NPCC
Following on from the Home Affairs Select Committee’s inquiry on enforcement of the Proceeds of Crime Act, the National Police Chiefs’ Council (NPCC) agrees that the system needs improvement.
Chief Constable Mike Barton, the NPCC’s Lead for Crime, said: “The report states that the enforcement of the Proceeds of Crime Act must remain at a local level. 96% of all local orders under £1,000 were collected, acting as a useful tactic for disrupting criminals and fighting crime. The problem is with confiscation orders totalling over one million pounds, where only 22% are collected.”
Barton continued: “The system does need improvement, particularly so in terms of enhancing the speed at which courts process orders. National co-ordination in higher cost cases would be extremely valuable, but oversight of all local confiscations is unlikely to make a positive difference. Improvements could also be achieved by bolstering the regional asset confiscation enforcement teams that have demonstrably improved their use of the Proceeds of Crime Act to collect more money from criminals at the regional level.”