The Home Office and HM Treasury’s National Risk Assessment of money laundering and terrorist financing 2020 highlighted that UK property is particularly attractive to criminals both in the UK and abroad who seek to hide large amounts of illegally obtained funds, disguise their identity, and launder money. Unexplained Wealth Orders (UWOs) were specifically designed to tackle such activity, and yet, UWOs have rarely been used since their inception.
The Economic Crime (Transparency and Enforcement) Act makes changes that have been designed to strengthen the UWO regime, allowing enforcement agencies to investigate suspicious property and recover the proceeds of crime. In this article, we look at the key changes to UWOs, how they will impact the enforcement regime, and the options available if you find yourself to be the subject of a UWO.
What is an Unexplained Wealth Order and how do they work?
NCA Director for Economic Crime, Donald Toon, said:
“Unexplained wealth orders have the potential to significantly reduce the appeal of the UK as a destination for illicit income. They enable the UK to more effectively target the problem of money laundering through prime real estate in London and elsewhere.’’
UWO’s were introduced by the Criminal Finances Act 2017 and are designed to assist enforcement agencies and the courts in tackling economic crime. A UWO can be obtained by the Serious Fraud Office, the NCA, the Crown Prosecution Service, HMRC or the Financial Conduct Authority.
One of the key controversies is that UWO applications are made to the High Court without notice. Once an Order has been made, the target must explain how particular assets were acquired. Usually, a UWO will be accompanied with a freezing order to prevent the assets being transferred or sold.
If the target is unwilling or unable to provide a satisfactory explanation as to how they acquired the property, it will be presumed that the assets are “recoverable property” for purposes of the Proceeds of Crime Act (POCA) or civil recovery.
What changes have been introduced to strengthen Unexplained Wealth Orders?
At present, UWOs have only been used nine times, with the estimated recovery value of £143.2 million. A recent research briefing outlined that UWOs “are yet to have the desired impact”.
According to Land Registry records, there are around 40,000 properties in London owned by unidentified offshore companies. Furthermore, Transparency International has stated that it has identified property in the UK that should be subject to UWOs worth a total of £4.4 billion.
The Economic Crime (Transparency and Enforcement) Act introduces changes to strengthen the UWO regime in three ways:
- If the target of a UWO is a company (a legal person), the UWO application may name a “responsible officer”. This can be a board member, Trustee, manager or director. Crucially, this person may be located overseas.
- If an interim freezing order has been applied for at the same time as the UWO, the enforcement agency will be given additional time to investigate the target’s affairs before the freezing order is discharged. Additional time will be granted on application to the court, but may be from 60 days up to 186 days.
- The financial consequences of pursuing a UWO and failing have also been reduced. So long as the enforcement agency pursuing a UWO can demonstrate they have acted reasonably, they will be protected from paying the legal costs.
Will these changes result in an increase in Unexplained Wealth Orders?
The government has explained that it is difficult to know what the likely increase in recovery of property using UWOs will be as a result of the changes, but that even a single successful UWO can have a high impact. The government website states that the average value of assets subject to each UWO investigation is between £5 million - £20 million, with an average recovery of £10 million.
The changes introduced by the Act are designed to strengthen the UK’s ability to fight economic crime by broadening and clarifying the scope of UWO powers and increasing the confidence of agencies pursuing UWOs. The legislative changes allow UWOs to be sought where property is held in Trust, or in another complex ownership structure. Additionally, the increase in the time available to enforcement agencies to investigate and review material received in response to a UWO will make for more comprehensive and substantial cases. Shielding enforcement agencies from the full cost of pursuing a UWO may also encourage more cases, without fear of the consequences of an adverse ruling.
What happens if I receive an Unexplained Wealth Order?
If you receive a UWO and fail to comply with the Order without reasonable excuse, the property identified in the Order will be considered for civil recovery under POCA.
With a predicted increase in UWOs as a result of the changes, there will likely be an increase in civil recovery proceedings. Civil recovery proceedings are a specialist and challenging litigation process. The difficulty for those subject to such proceedings is that the civil standard of proof applies. This means that it will be determined ‘on the balance of probabilities’ whether the property was acquired illegitimately.
Challenging and responding to a UWO
Even though the use of UWOs has so far been limited, enforcement agencies do not always get it right when pursuing a UWO. As applications are made without notice, anyone who is to be the subject of a UWO has no opportunity to make objections or even representations about why the agency should not make the Order. UWOs are particularly controversial as the enforcement agency does not have to prove that the target’s assets come from the proceeds of crime; instead, the burden is on the target to explain how they were acquired.
If you have been served with a UWO, there are several avenues for defence.
Has the agency met all of the statutory tests and requirements?
Our specialist team of lawyers can carry out a detailed assessment of whether the enforcement agency has met all of the statutory requirements on the evidence they have acquired and presented.
Enforcement agencies have a duty of full and frank disclosure when making presentations at without notice hearings, which means that they must disclose any point of defence that they are aware of. The standard is any point the defence would have put forward if they had been present. This is a significant obligation, and one which often trips up enforcement agencies at such hearings.
The court process for granting a UWO is largely subjective, and ‘reasonable grounds’ to suspect property was acquired by illegitimate means heavily relies on information about the target’s income being readily available. The standard set out is “reasonably ascertainable from available information at the time of making the application or order”. This could mean that the information relied upon by the enforcement agency is weak or incomplete, providing scope for challenge.
UWOs also compel the target to disclose extensive details about their life and their income. As a result, there is significant potential to argue that a UWO may breach the right to privacy in certain cases. For example, in the case of Hajiyeva, Mrs Hajiyeva was under the protection of an anonymity order, which was later discharged allowing details of her spending to become public - drawing great attention from the media.
Strengthened UWO powers mean that there is even more scope for enforcement agencies to seek such orders, but also to do so incorrectly. If you find yourself to be the target of a UWO, it is essential to seek specialist legal advice right away. Our team fully understands the technicalities of the law, how the recently introduced measures will impact the regime and most importantly, how to challenge UWOs. We will fight to challenge all of the evidence and facts that the enforcement agency has sought to rely upon and, where relevant, can contest that the order violates your right to privacy. Our priority is protecting your assets and your professional and personal life.
Contact Lewis Nedas Law - Unexplained Wealth Order (UWO) Specialists
If you have been served with an Unexplained Wealth Order, or you are concerned about changes to the economic crime regime in the UK, we can provide expert advice, assistance and representation. We are a City law firm with an excellent reputation for getting the results our clients need. We are ranked in Legal 500 and Chambers for our fraud defence service.
Our specialist lawyers routinely assist clients with financial crime investigations brought by the FCA, the police and the NCA. We can also provide proactive advice before any investigation takes place if you have concerns. To discuss your circumstances, please call us today on 020 7387 2032 or complete our online enquiry form.
