Anyone might think that London is awash with ‘dodgy’ money. The popularity of McMafia combined with recent stories about the number of properties owned by foreign companies supports the popular impression that the capital is full of corrupt foreign businessmen hiding the proceeds of illegal activity, and settling down to live the high life without fear of legal challenge.
But is this true? The UK government has not been particularly vocal about the measures it has put in place over the last few years to tackle ill-gotten gains being enjoyed in the UK, but there are many of them. These range from the Government’s decision in the late 1990s to invest in the ‘Connect’ super computer, allowing it to farm financial data and then digitally interrogate that data, through to the more recent legislative changes such as the Common Reporting Standard (CRS), providing access to previously out of reach offshore financial information. This means that the government knows a lot more about all of us than you might think.
Connect draws data from sources ranging from bank records to Facebook posts, to build a picture of wealth and lifestyle, that can be compared to declarations of income. The CRS ensures that overseas jurisdictions report to HMRC about funds held by UK residents, which brings foreign wealth into the picture as well. Together, these resources are beginning to provide unprecedented levels of information that can be used to identify differences between declared and actual income, and track down hidden wealth.
Having put these resources in place, the Government’s next step is to use them. A ‘requirement to correct’ undisclosed foreign income or gains is already in place, and failure to come clean to HMRC by 30 September 2018 can lead to penalties of up to 300 per cent of any unpaid tax, plus being publicly identified as a tax evader.
The unexplained wealth order (UWO) is the latest tool in the Government’s armoury against money laundering. Extensive powers have been given to various government agencies to compel people to explain the nature and extent of their interest in specific property (and to explain how the property was obtained) where there are reasonable grounds to suspect that the person’s known lawfully obtained income would be insufficient to allow him/her to acquire the property.
The UWO is tightly targeted; it is not designed to catch the window cleaner who gets paid in cash. Firstly, only the High Court can issue a UWO. It can only do so if there are reasonable grounds to suspect that the individual is involved in serious crime, and there must be a reasonable suspicion that the known income would be insufficient to enable acquisition of the property, which must be valued at least £50,000.
The UWO has obvious uses when identifying proceeds of criminality being laundered through the UK. However, it will also be available to use more widely wherever a person is ‘reasonably suspected’ of a serious crime, including tax evasion. This potentially creates an incentive for HMRC to treat tax non-compliance as tax evasion, to use UWOs to target anyone with no declared UK income/gains but extensive UK assets – a description that could cover many UK resident non-domiciled individuals in particular. For most people, proving the source of their wealth will not be a problem and it is to be hoped that HMRC will not give in to the temptation to use their new powers indiscriminately, although this will need to be watched closely.
What is clear though is that for anyone whose affairs are not in order, time is running out to come clean. The net is closing fast on undisclosed income.
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