Unexplained Wealth Orders explained

It is no secret that dealing with corruption is a difficult task for enforcement agencies and that prosecutors in the UK have often found it difficult to trace money from the source to those involved in fraud. This has been recently highlighted in the media in recent press articles and fictionalised television series such as McMafia. Statistics back up the suspicion that significant unexplained wealth may be held in the UK; in March 2017 Transparency International identified London properties worth £4.2billion bought by individuals with suspicious wealth. The Unexplained Wealth Order (UWO) is a tool designed to help enforcement agencies tackle this longstanding issue.

How do Unexplained Wealth Orders work?

Where a person obtains property disproportionate to their wealth a UWO can be used to compel that person to disclose information about their interest in that property and how they came to possess it.  

A UWO can be sought from the High Court if:

• A person is reasonably suspected to hold the property in question and
• A person is:
  • a non – EEA Politically Exposed Person (“PEP”) or
  • there are reasonable grounds to suspect that the person is involved in serious crime or
  • a person is connected with a person in one of these two above groups.
  • The property in question is valued at more than £50,000.
  • There are reasonable grounds for suspecting that the respondent’s income would be insufficient to obtain such property.

If these conditions are met a UWO can be ordered, compelling the respondent to disclose the following information within a time period specified by the court:

• The nature and extent of their interest in the particular property.
• How they obtained the property.
• Where the property is held by the trustees of a settlement, setting out such details of the settlement as may be required.
• Setting out such other information in connection with the property as may be required.

While a response is awaited, authorities may apply for a freezing order over the property to prevent the respondent from dealing with or disposing of it.  If the respondent doesn’t provide the information in the time specified, or fails to provide adequate information, a presumption will be raised that the asset is recoverable under a civil recovery order (section 5 of the Proceeds of Crime Act 2002 (POCA) and contempt of court proceedings can be instituted. Making a statement in response that either knowingly or recklessly misleads will be punishable by up to two years’ imprisonment, a fine, or both.

These orders do not require a criminal conviction and enforcement agencies can apply for them based on suspicion. Once the order is made the burden shifts to the respondent to explain their possession of the property.  After the information is provided enforcement agencies have 60 days to make a decision on enforcement or investigatory proceedings and must inform the High Court as soon as possible if no action is to be taken.  The information obtained can be used in ‘any legal proceedings’ with the limitations that it cannot be used to start criminal proceedings against the respondent and it cannot be used to procure information protected by legal privilege. The information can be kept for an indefinite period of time and can be shared with other agencies.

Who can apply for a Unexplained Wealth Order?

Who Does an Unexplained Wealth Order Target?

UWOs target what is known as a politically exposed person (PEP) and those reasonably suspected of being involved in serious crime who hold property disproportionate to their income. Serious crime extends to offences defined in Part 1 of the Serious Crime Act 2007 and includes fraud, money laundering and bribery among other offences.  PEPs include individuals who are, or have been, entrusted with prominent public functions by a state (other than the United Kingdom or another EEA State). These orders can also be made against companies and trusts and target anyone ‘connected’ with the above groups. This includes family members, business associates and friends. Notably for PEPs there is no requirement that there be reasonable grounds for suspicion of criminality.

Only enforcement agencies as defined in the provision can apply to the High Court for this order. These agencies are listed as follows:

• National Crime Agency
• Her Majesty’s Revenue and Customs
• Financial Conduct Authority
• Serious Fraud Office
• Crown Prosecution Service

Agencies not include in this list can refer their cases to the enforcement agencies who will then decide whether an application is made.

What impact will this have?

There are a number of areas of uncertainty at this point.   For instance, it remains to be seen what criteria an enforcement authority will apply when reviewing applications from agencies that refer cases to them. It is unclear what will be deemed reasonable grounds for suspecting that a person is involved in serious crime and how this will be demonstrated. It is further unclear what information an enforcement authority will actually require and how far back the respondent will have to go in explaining how the funds were acquired to obtain the property. Guidance in these areas will greatly assist and will highly influence how these orders operate in practice.

However, if, as expected, the orders encourage information sharing between agencies the net cast by the UWO could be very wide indeed.  Agencies will be able to build up information on those they suspect and their assets could be frozen and recovered without proof of criminality and through a process that shifts the burden of proof onto the respondent. Though this will undoubtedly lead to legal challenge it is worth noting that the reverse burden of proof has been sustained in various areas of law.  The wide reach of the order may be further bolstered by the fact that the information can be kept indefinitely and shared widely. This means agencies can hold on to information and start proceedings at any time which will allow enforcement agencies to adapt their investigations as they receive further information. Proceedings may be started against individuals without the UWO being made against them at all. In this way, the UWO allows for investigation by proxy, where a person’s interests in property can be evaluated through orders made against their associates.  While wider investigatory powers are welcomed the width of application without the need for a criminal conviction should be a cause for caution.

It appears that agencies are alive to the need for caution and as such have been selectively applying for the orders. Indeed when the orders were introduced, SFO director David Green stated that he would wait for the right case for the first UWO and the Home Office predicted that in its infancy, there would only be 20 UWO cases annually (See Impact Assessment on Criminal Finances Bill – Unexplained Wealth Orders by the Home Office (12 November 2016). 

Going forward, however, the climate may change as the orders are used more frequently. It will be prudent to prepare to respond to these orders, as and when required.  The orders will require scrutiny by the courts and a well-tailored defence could prevent an order being made at all. For instance those who are PEPs may be able to rely on diplomatic immunity to combat the orders if their status allows or if they show they have obtained the property through an official state act. Determining the nature and extent of one’s diplomatic immunity will therefore be crucial.

Preparation of the disclosure will be key and attention should also be paid to what is disclosed about associates.  In Australia it has been sufficient for respondents to point to gambling and or horse racing winnings, gifts or inheritances received from abroad as lawful sources of wealth (Natasha Reurts, “Unexplained Wealth Laws: The Overseas Experience”, Unexplained Wealth Orders: Thoughts on scope and effect in the UK, Briefing Papers, January 2017). Explaining unexpected wealth through gambling, if applicable, may be a route available to respondents in the UK. 

In short, the scope and penetration of these orders will depend on political will, judicial appetite and information sharing between agencies. In the Republic of Ireland these factors existed in good measure and the results have been impressive; in Australia they have been more moderate. Time will tell what the impact will be in the UK, and whether a long-term trend of less property being held in the UK will be set in motion. As the orders are implemented careful preparation of responses and legal arguments against their imposition will be key.

If an order is made against you or someone associated with you, obtaining expert legal advice will be crucial. Quentin Hunt is specialist in fraud and financial crime and can be contacted for a no obligation conversation about any ongoing case or investigation.