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Chambers 2018

Unexplained Wealth Orders

Are you aware of the recent legislation regarding Unexplained Wealth Orders (UWOs) which were introduced by the Criminal Finances Act 2017 and came into force on the 31st of January 2018?

UWOs can be obtained by the National Crime Agency, the Serious Fraud Office, the Crown Prosecution Service, HM Revenue and Customs or the Financial Conduct Authority.

To whom do UWOs apply?

Category 1

UWOs can be applied to politicians or officials from outside the European Economic Area (EEA), or those associated with them i.e. Politically Exposed Persons (PEPs). A UWO made in relation to a non-EEA PEP would not require suspicion of serious criminality.

A PEP is defined as:

  1. an individual who is, or has been, entrusted with prominent public functions by an international organisation or by a State other than the United Kingdom or another EEA State, 
  2. a family member of such a person within paragraph (a), 
  3. a close associate of such a person within that paragraph, or 
  4. or otherwise connected with such a person within that paragraph. 

Category 2

The other category of target is a person suspected of serious crime (anywhere in the world) or connected to such a person. This casts the net very wide. The test for involvement in ‘serious crime’ is whether the suspected criminality is listed in Schedule 1 of the Serious Crime Act 2007. There are various offences listed including drug trafficking, people trafficking, firearms offences, bribery, money laundering and other offences.

What does the Applicant have to show?

The applicant has to show:

(i) a reasonable belief that the target holds property to a value greater than £50,000.  

Importantly, it is the value of the property, and not the respondent's interest, which must exceed £50,000.  Where an Order is intended to cover more than one item of property, those items can be aggregated to achieve the threshold amount of £50,000.

And;

(ii) that the target is within category 1 or category 2 as above.  

How do UWOs apply?

A UWO is a civil power and an investigation tool.

Essentially a UWO requires the respondent to explain the nature and extent of their interest in particular property, and to explain how the property was obtained in circumstances where there are reasonable grounds to suspect that the respondent’s known lawfully obtained income would be insufficient to allow the respondent to obtain the property.

The test for involvement with serious crime is by reference to Part 1 of the Serious Crime Act 2007.

It is important to note that, as an investigation power, a UWO is not (by itself) a power to recover assets. It is an additional power to a number of powers already available used to investigate and recover the proceeds of crime and should therefore not be viewed in isolation.

Failure to respond to a UWO

A failure to provide a response to a UWO may give rise to a presumption that the property is recoverable in any subsequent civil recovery action. Civil recovery is a procedure to recover the proceeds of crime (see for example Part 5 of Proceeds of Crime Act ‘POCA’). Civil recovery powers are also available to the enforcement authorities already referred to.  

Accordingly, if an individual fails to comply with a UWO without reasonable excuse, the identified property can be considered for civil recovery under POCA.

Can criminal proceedings be brought?

The response to a UWO is not prima facie admissible in criminal proceedings– that is because the information would have been obtained by compulsion and infringes the right to silence applicable in criminal proceedings and protected by Article 6 of the European Convention on Human Rights.

Furthermore, a UWO assumes criminal activity and makes it the responsibility of the subject to prove that is not the case. As UWO’s are a civil law device rather than a criminal law one, when it comes to applying to the court, the authorities only have to show that a crime was committed on the balance of probabilities – the civil law standard of proof - rather than beyond reasonable doubt, the criminal standard. 

However, and importantly, what is not to be forgotten is that there is nothing to prevent the use of the information gathered during the UWO procedures to launch a futher investigation or a review of the conduct of connected individuals, firms and corporates. The derivative value of any information is potentially enormous.   

Furthermore if a defendant gives evidence or puts forward a defence in criminal proceedings that is inconsistent with a response to the UWO it may be admissible to demonstrate this. 

The Regulated Sector

The information required under a UWO is to explain the nature of the property, extent of the interest and how it was obtained. 

Practically all transactions and financial statements will be highlighted, including any evidence of professional advice in support of such transactions. This is likely to lead to closer scrutiny of the conduct of financial institutions and professional advisors, and whether they discharged their Customer Due Diligence and Risk Assessment requirements, which in turn may lead to an inquiry as to whether a particular firm acted responsibility in relation to the client and followed Anti-Money Laundering systems.

UWOs present a new seam of information for enforcement authorities. We believe the advent of UWOs may well mark a new pressure point for the regulated sector, including the extent to which information provided in answer to a UWO can be used.

Enforcement of UWOs

The effects of an investigation can be immediate and significant.  

We cannot express the urgency of acting promptly.

For those on the wrong end of an UWO, it is vital to act expediently. The target must also be able to consider what is required some months down the line as well as being capable, if possible, to mount an immediate challenge to the UWO and any freezing order that comes with it.

On the 28th of February 2018 The National Crime Agency announced that it had been granted the power to enforce an UWO worth £22m (US$ 30 million) and freeze the assets of the ultimate owner who was a PEP. His name was not released. The orders relate to two properties, one in London and one in the south-east of England. The Financial Times reported that the PEP was a politician from central Asia. As the properties are subject to interim freezing orders this prevents them being sold or transferred. Their owner is believed to be from a country belonging to the Commonwealth of Independent States (CIS); which consists of ten former Soviet republics as well as Georgia and Azerbaijan.

 “Unexplained wealth orders have the potential to significantly reduce the appeal of the UK as a destination for illicit income,” said Donald Toon, the NCA’s head of economic crime. “They enable the UK to more effectively target the problem of money laundering through prime real estate in London and elsewhere.”

The new measures were introduced due to the mounting evidence that British properties are being used as vehicles to launder illicit foreign money. The law was coined the “McMafia law” after the BBC’s true-story drama that tells stories around money laundering and international organised crime.

Last year Transparency International UK identified London properties worth a total of £4.2 billion ($ 5.8 billion) that were bought by individuals with suspicious wealth.  “This landmark moment is a positive statement of intent from law enforcement and sends a clear message to those seeking to launder corrupt wealth through the UK that their assets will no longer be safe here.” said Rachel Davies Teka, Head of Advocacy at Transparency International UK.

The fact that the NCA has only taken a month to issue its first UWO indicates that it has been doing its research well in advance of being able to use the new tool at its disposal.  Land Registry records suggest that 40,000 properties in the capital are now owned by ‘secretive’ offshore companies. Transparency International says it has identified UK property worth a total of £4.4 billion that should be subject to UWOs.

WHAT JANES SOLICITORS CAN DO FOR YOU

If an UWO is made the regime requires a swift, careful and considered response.  Immediate legal advice is essential.

The strength of an UWO is not to be underestimated – as an investigative tool it is immense. It provides for enforcement authorities to copy documents and retain such documents and information “for the purposes of legal proceedings” – there is nothing to prevent the information or document being passed to a police force to develop criminal investigations into persons other than the respondent, including any identified corporate entities. Such information sharing would not engage the privilege against self-incrimination or prevent use in other legal proceedings in the UK and elsewhere which is in keeping with the broad emphasis of enhancing cooperation between law enforcement authorities and assisting investigations.

Those who are targeted need immediate and well informed advice before providing documentation or information which can be used against them in non-criminal but serious proceedings.  Furthermore, comprehensive advice and a clear strategy are needed where any information obtained may also be used as a mechanism to target others.

As applications are made without notice and in the absence of the respondent, it may leave the procedure open to attack.  Accordingly decisions may be subject to challenge, either on the ground of material non-disclosure or other error.  There may be scope in law to argue for UWOs to be challenged in the same way that search warrants, production orders and the like have been challenged. There are, however, specific provisions dealing with challenges to any freezing order made alongside a UWO.

The introduction of UWOs shifts the burden of proof in respect of the legitimacy of the assets from the investigating authority to the asset owner. This raises concerns as to the evidence upon which UWOs are sought. As a result, we would scrutinize whether the court and enforcement agencies have complied with the Human Rights Act. In particular, Article 6, which protects a person's right to a fair trial and Article 8 which protects the right to privacy.

It is clear the evidence to obtain an UWO is not the same as the level of evidence required in a criminal trial but it is not currently clear what must be proven to show reasonable grounds.

If you have concerns you may be a target, Janes Solicitors will advise you as to the various avenues available to you.  If you are already caught up in a UWO, we will provide clear and effective advice to help you and advise you regarding a response.

Effects of Misleading Statements or Non Compliance with an UWO

As stated above, it is important to get the response, if there is to be one, correct from the outset.  If not the effects are likely to be catastrophic. 

The codes of practice relating to the investigation powers under POCA are relevant to UWOs. The legal provisions are in sections 1 to 6 of the Criminal Finances Act 2017 which introduced new sections 362A – 362R and 396A – 396U of POCA.  A person commits an offence if, in purported compliance with a requirement under a UWO, they make a statement that the person knows to be false or misleading in a material way, or recklessly makes a statement that is false or misleading in a material way. A person guilty of an offence is liable to conviction on indictment to imprisonment not exceeding two years and/or a fine; or on summary conviction, to imprisonment not exceeding twelve months and/or a fine. In addition to the specific criminal offence of making a false or misleading statement, a law enforcement agency may alternatively elect to bring contempt of court proceedings if an individual fails to comply with UWO.

Janes Solicitors are grateful to Annie Johnston of Counsel for her input and assistance in respect of this article.

 

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