The fast-track of the Economic Crime (Transparency and Enforcement) Act 2022 (“ECA”) through Parliament has resulted in some significant changes to the UK’s financial crime fighting tools.
In addition to establishing an overseas entities register, and amending sanctions legislation, it also expands the scope of Unexplained Wealth Orders (“UWOs”).
What are Unexplained Wealth Orders?
UWOs were introduced by the Criminal Finances Act 2017 and are an investigative tool for UK enforcement authorities. They can be used to compel the person (individuals and corporates) subject to the UWO to provide certain information to enforcement authorities but they do not provide the power to seize or recover the property. Instead, they are intended to be used alongside the civil recovery powers granted under the Proceeds of Crime Act 2002 (“POCA”). In addition to individuals and companies who hold the property, UWOs can now be made against officers of legal entities thought to have control of the asset. This new provision to allow UWOs to be made against person who don’t actually hold the property is designed to prevent people hiding behind complex corporate structures.
Who can apply for an UWO?
- National Crime Agency (“NCA”)
- Her Majesty’s Revenue and Customs (“HMRC”)
- Financial Conduct Authority (“FCA”)
- Serious Fraud Office (“SFO”)
- Director of Public Prosecutions (“DPP”).
When can UWOs be used?
Prior to the ECA, the court could make a UWO if it was satisfied that there are reasonable grounds for believing that:
- the respondent (the person who the order is being sought against) holds the property in question and the value of the property is greater than £50,000,
- the known sources of the respondent’s lawfully obtained income would have been insufficient to obtain the property specified in the UWO, which can include not just real estate but assets such as art, boats, jewellery, and intangible assets such as securities (“the income requirement”), and
- the respondent is a politically exposed person (“PEP”) or is, or has been, involved in serious crime.
A PEP is someone who is, or has been, entrusted with a prominent public function by an international organisation or State (other than the UK or another EEA State), a family member of such a person, a close associate of such a person or anyone otherwise connected with such a person. ‘Serious Crime’ includes fraud, bribery, money laundering and sanctions offences.
The ECA introduces an alternative to the income requirement which now allows a UWO to be made where there are reasonable grounds for believing that the property was obtained through unlawful conduct. This means that a court can make a UWO even where the source of wealth is not unexplained.
What are the effects of a UWO?
A UWO can compel the provision of information such as:
- the nature and extent of the respondent’s interest in the property
- how the respondent obtained the property
- how the funds required to obtain the property were obtained, and
- any other information in relation to the property specified in the order.
When making a UWO, the court can also make an interim freezing order in respect of the property which prohibits the respondent, and anyone else with an interest in the property, from dealing with the property.
Where the order is not complied with in the specified period, without a reasonable excuse, the property is presumed to be recoverable property under Part 5 POCA. This means that the court will order forfeiture of the property unless it can be shown that it wasn’t obtained through unlawful conduct.
If the order is complied with, or purported to be complied with, the enforcement agency will need to review the information provided and decide whether any criminal or recovery proceedings will be commenced. The ECA significant extends the time period in which the enforcement agency has to make such a decision from 60 days to 186 days.
It is a criminal offence to knowingly or recklessly make a false or misleading statement when responding to an UWO.
A provision in the ECA which will have a considerable impact on the use of UWOs is limiting the ability of costs to be recovered when an application for a UWO is unsuccessful. The NCA has previously incurred a significant costs order following an unsuccessful application, however costs will only be able to be recovered now where the enforcement agency has acted unreasonably, dishonestly or improperly.
What can be done?
There are a number of things which can be done to limit the risk posed by UWOs. If UWOs are of concern, it could be beneficial to compile any evidence necessary to challenge one, should one be made. This could involve instructing a forensic accountant to conduct an audit trial for the property so that the source of funds can be traced.
If you are subject to a UWO then the first step would be to assess whether the UWO was lawfully made, i.e. did reasonable grounds exist for making an order. If it wasn’t, then an application to the court to revoke the UWO could be made. If the UWO was lawfully made then a careful analysis of the case needs to be undertaken to assess whether the order should be complied with. This will depend on myriad of factors, including how the property is held, how the property was purchased and whether compliance would expose the respondent to other criminal/civil risks.
What does the Economic Crime (Transparency and Enforcement) Act mean for UWOs?
To date, UWOs have been used by enforcement agencies sparingly with the NCA only obtaining 9 UWOs in 4 cases. No other enforcement agencies have applied for UWOs. There can be no doubt that the intention of these changes is to significantly expand the use of UWOs. Without the fear of adverse costs orders being made against them, and with the widened scope, it is expected that there will be an exponential increase in their use by enforcement agencies.
We have extensive experience in providing advice in relation to UWOs and can assist in all stages of proceedings, whether in early intervention, challenging a UWO or in engaging with enforcement agencies. Please get in touch if you need any further advice or assistance.