Unexplained Wealth Orders – a solution to dirty money or a way to muddy the waters?

Following a £16 million spending spree at Harrods that would make even Roman Abramovich’s eyes water, Unexplained Wealth Orders (UWOs) were thrown into the limelight. As the UK is often branded a safe haven for dirty money, many welcomed the introduction of UWOs, but it remains to be seen whether they will achieve a spring clean of corruption and money laundering in the UK, or serve only to muddy the waters further.

UWOS

From 31 January 2018, a range of enforcement authorities have been empowered to compel a person to explain the origins of their funds if the assets owned are seemingly incompatible with their apparent level of income. The government wanted to arm enforcement agencies with the legislative power to recover suspected proceeds of crime and to fight money laundering, corruption and terrorist financing head on.

How it works

The National Crime Agency, Her Majesty’s Revenue and Customs, Financial Conduct Authority, Director of Serious Fraud Office, and the Director or Public Prosecutions are amongst those able to apply a UWO. In advance of applying to the court, four conditions must be satisfied:

1. There is reasonable cause to believe that the respondent holds the property.
2. There is reasonable cause to believe that the value of the property is greater than £50,000.
3. There must be ‘reasonable grounds’ for suspecting that the known source of the lawfully obtained income would have been insufficient for the purposes of obtaining the property.
4. The court must be satisfied that the respondent is a politically exposed person (PEP) or that there are reasonable grounds for suspecting that they, or a connected person, are, or have been, involved in serious crime.

Should a court find that the above test is met, the respondent will be served with an order requiring them to provide a statement explaining:

• The nature and extent of the respondent’s interest in the property
• An explanation of how the respondent obtained the property, including, in particular, how money to pay for it was obtained
• Any other information in connection with the property as may be so specified

Once a respondent has provided the statement, the relevant enforcement authority has sixty days to make a determination and to inform the court as to what enforcement or investigatory proceedings must be taken, or that there is no further action to be taken. Should no further action be taken, future proceedings may still be brought.

Should a respondent fail to provide a statement within the required time, then the property may be presumed to be a recoverable asset, and an offence may be deemed to have been committed. This will also be the case if the respondent has recklessly or knowingly made a false or misleading statement.

Civil remedy for a criminal act

While the new regime will certainly have the effect of cracking down on dirty money and white-collar crime, enforcement agencies, in order to utilise UWOs effectively, will need to be alive to the problems that UWOs pose.

One such inherent issue is the reversal of the burden of proof on the respondent to prove that the assets are not from ill-begotten means. This inversion of a long-standing legal principle clearly belies a core component of justice. Indeed, should a respondent be unable to evidence how the asset in question was obtained, it does not necessarily follow that the means of obtaining the asset was illicit or nefarious. As such, enforcement agencies must be careful to ensure that UWOs should only be applied for in instances where there is a genuine suspicion.

Further in this vein, the regime is not conviction based, meaning that assets will be recoverable on the basis of a mere conjecture and dependent on the increasingly elusive term of ‘reasonable suspicion’. The very term is borrowed from criminal law and it is this very entanglement that raises questions as to whether criminal conduct can be effectually addressed by civil recovery. What is certain is that the muddying of criminal and civil law in this regard, has resulted in an unusually low threshold, endowing enforcement agencies with more power than ever.

In terms of practical complications, the definition of a PEP to a serious crime is both wide and ambiguous, and will certainly need further clarification if the courts are to be certain as to who, justly, satisfies this criterion for a UWO. This suggests that enforcement agencies will face considerable debate as to whether this stage is met.

Further, as the majority of UWOs will be without notice decisions, there is a substantial risk that a significant number of challenges will follow, predicated either on the grounds of non-disclosure or simply that the narrative is incorrect. A natural consequence of this will be a waste of precious court time and funds. To counteract the effects of this, enforcement agencies must be mindful to present a clear and irrefutable case in the first application.

Comment

There have been only two recorded UWOs in 2018, secured by the National Crime Agency. This of course does not mean that they are not potentially very powerful legal tools and the dearth of orders can easily be attributed to the teething problems of a relatively new regime.

There will also be an initial, understandable, reticence to pursue UWOs as enforcement agencies will face pressure to ensure that the first few UWO applications are successful in order to lend credence to the power.

In terms of achieving its goals, the government’s intention was to arm enforcement agencies with the necessary powers to tackle white-collar crime. The government has clearly succeeded in providing enforcement agencies with a robust weapon, but the challenge they now face is to use the weapon proportionately.