The Policing And Crime Act 2017

Aziz Rahman talks through the Act’s implications for those
in business in the UK.

The Policing and Crime Act 2017, which came into effect in
April, introduces a tougher range of penalties for those who breach financial
sanctions.

Failure to comply with it can lead to fines of up to £1
million from HM Treasury. The Treasury’s Office of Financial Sanctions
Implementation (OFSI) is also given power under the Act to offer deferred
prosecution agreements.

While it is a new piece of legislation and, therefore, will
require time for its effectiveness to be fully assessed, it ushers in a new era;
with significant monetary and criminal penalties for breaches of it.

United Kingdom

It affects any person in the UK, any UK citizen wherever
they are, all corporates operating in the UK and any corporates incorporated in
the UK that may be based abroad; including the actions of a foreign subsidiary
of a UK company. Guidance from the OFSI
states that a company is subject to its enforcement measures if it has a UK
connection. Such a connection can even include a non-UK company conducting an
international transaction via the UK or buying financial products in the UK for
use overseas.

Under Section 146 of the Act, HM Treasury has the power to
impose a monetary penalty on “a person” – this includes both a legal person and
a natural person – if it is satisfied, on the balance of probabilities, that
the person has breached a financial sanction and knew, or had reasonable cause
to suspect, that a breach was being committed.

Breaches of financial sanctions include failure to comply
with:

• * Asset freezes.
• * Restrictions on individuals in certain financial markets
  and services.
• * Directions to stop trading with a certain person or group
  or in a named country or business sector.
• Breaches
• When assessing the seriousness of the breach – and,
  therefore, the appropriate penalty – OFSI will look at the conduct in question,
  compliance standards in that sector, the behaviour of all relevant parties, the
  number of breaches, and whether those breaches have been reported to OFSI.

The OFSI guidance states that the “penalty threshold” will
be reached where:

• * On the balance of probabilities there has been a breach.
• * The person committing it knew or had reasonable cause to
  suspect a breach is being committed.
• *The breach involved funds being made available directly to
  a designated person via arrangements that were made to deliberately circumvent
  the law

Without the above factors being present, OFSI believe that a
monetary penalty is appropriate and proportionate. The maximum financial
penalty, where the breach does not relate to specific funds, is £1 million. Under
sub-sections (3) and (4) of Section 146, if it does relate to particular funds,
the maximum is £1 million or, if it is greater, 50% of the estimated value of
the funds involved in the breach.

The OFSI can decide not to impose a penalty if:

• * It is not in the public interest to impose one.
• * Imposing the penalty would have no effect – as the penalty
  would be too low to either deter wrongdoing or put right what has been done.
• * The wrongdoing was committed due to coercion or blackmail.

It is important to emphasise that the OFSI says that
reductions of up to 50% could be available if the wrongdoing is self-reported.

Penalties

The Act increases the maximum criminal penalty for failing
to comply with a prohibition under a freezing order from two to seven years for
conviction on indictment, and from three to 12 months on summary conviction: a
clear indicator of just how tough the Act is. Section 148(1) of the Act states
that where an offence is committed with the consent or connivance of a
corporate body, or through the neglect of its officer, both are guilty of the
offence and liable to be punished accordingly.

There is little doubt that the Act gives the OFSI more power
– criminal and civil – than has been available to punish these types of offence
in the past. This will surely mean that enforcement in the UK will become
busier. We may see the OFSI acting in a manner that the US’ Office of Foreign
Assets Control (OFAC) does: imposing large fines on those breaching sanctions.
Criminal prosecutions are now more likely, as are civil penalties and
out-of-court settlements.

This, in turn, means that businesses will have to make a
concerted, intelligent effort to exercise caution when it comes to who they
agree to do business with. This is not merely a question of who you conduct a
deal with, it also extends to who you may ask to conduct it on your behalf and
where you decide to conduct it. For example, would it be safer to have a
transaction conducted by the main UK company rather than risk it being carried
out by middleman or a subsidiary that operates at arms’ length in another
country?

Compliance

The Act is notable for its penalties and its robust approach
to tackling wrongdoing. But those in business should look less closely at the
exact penalties it carries and instead examine the way they work. What could
they be doing to make sure they run no risk of falling foul of the Act?

This legislation emphasises the need for companies of all
sizes to have strong compliance policies: policies that design out the
potential for wrongdoing by staff or trading partners, that ensure proper
checks are done on those that business may be done with and that allow for any
suspicions to be raised in confidence and acted on appropriately.

Legal advice is always available for those in business who
recognise that they need to devise and introduce such procedures but are unsure
how to proceed. Such advice is also available if and when a company needs
assistance if it recognises wrongdoing and wishes to self-report to reduce the
penalties that may be imposed under the Policing and Crime Act – or any other
relevant Act, for that matter.

This latest Act (and many other relating to business crime)
will not be lenient to any company that failed to act when it came to either
preventing or reporting wrongdoing.