What is an Unexplained Wealth Order?
Unexplained Wealth Orders (“UWO”) were introduced by the Criminal Finances Act 2017 as an investigative tool for UK enforcement authorities to combat the flow of dirty money into the UK. UWOs can be used to compel an individual, trust or company to provide information about legal ownership and the source of funds used to obtain assets. The purpose is to enable UK enforcement authorities to examine the financial activities of those whose assets are believed to far exceed what could be acquired by their legitimate income.
Although UWOs do not provide the power to seize or recover property, these are intended to be used alongside the civil recovery powers granted under the Proceeds of Crime Act 2002 to effect recovery of the identified assets.
Key features of a UWO are that the burden of proof is on the Respondent (the person the order is being sought against) rather than the enforcement agency and there is no need for a criminal conviction or civil judgment – a UWO can be sought without any civil or criminal proceedings having even commenced.
As of January 2022, UWOs had very limited success with only one case resulting in the recovery of assets. The UK enforcement agencies have suffered heavy blows in the UK courts, most significantly in National Crime Agency v Baker, where the UK High Court discharged three UWOs in respect of properties ultimately owned by the family of Rakhat Aliyev, a deceased Kazakh official.
Change of approach
To address the difficulties faced by the UK enforcement agencies, the legislation was very recently amended by the Economic Crime (Transparency and Enforcement) Act 2022 with the intention of significantly expanding and increasing the use of UWOs.
In its policy paper, the UK government stated:
"The Act is designed to reform and strengthen the UK’s UWO regime to enable law enforcement to investigate the origin of property and recover the proceeds of crime.
The measures in the Act aim to strengthen the UK’s fight against serious economic crime; to clarify the scope of UWO powers; and to increase and reinforce operational confidence in using UWO powers. The key reforms will enable UWOs to be sought against property held in trust and other complex ownership structures such as opaque foundations.”
The fear of incurring substantial legal costs in the event of failure appears to have been a significant factor which led to the curtailment of the use of UWOs following the NCA’s expensive defeat in the Aliyev case. With the amendment to the cost rules, law enforcement agencies are likely to be emboldened to pursue UWOs that might otherwise have been considered at higher risk of a successful challenge by a respondent.
When can UWOs be used?
Previously, a UWO could only be made against two categories of persons – a politically exposed person or an individual where there were reasonable grounds to suspect they may be involved in serious crime.
The court also had to be satisfied that there were “reasonable grounds for suspecting that the known sources of the respondent’s lawfully obtained income would have been insufficient for the purposes of enabling the respondent to obtain the property.”
The Act has amended the UWO regime in a number of important respects:
- A UWO can now be obtained against a third category of persons, namely a “responsible officer” of an entity that owns the property identified in the order, to cover situations where a respondent to a UWO is a trust or corporate structure rather than an individual. A “responsible officer” would include a director, manager or partner, whether situated in the UK or overseas, even where they personally do not own or control the property.
- The court may grant a UWO where there are “reasonable grounds for suspecting that the property has been obtained through unlawful conduct” whether the unlawful conduct took place in the UK or overseas. This means that a court can make a UWO even where the source of wealth for a particular asset can be explained.
- When applying for a UWO, an enforcement agency may apply for an interim freezing order, which would prohibit the person receiving the UWO from selling property identified in the order.
The Act extends the period available to the relevant enforcement agency to decide whether further investigatory or enforcement action is required. Previously, enforcement agencies had up to 60 days to make this determination, subject to permission from the court, an enforcement agency will now have up to 186 days.
As already mentioned above, if an enforcement agency is unsuccessful in an application for a UWO, it will not be required to pay the legal costs incurred by the respondent unless the agency acts unreasonably, dishonestly or improperly in the conduct of the investigation.
What are the impacts 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. If the order is complied with, or purported to be complied with, the enforcement agency will review the information provided and decide whether any criminal or recovery proceedings will be commenced.
Where, without a reasonable excuse, the order is not complied with in the specified period, 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 the property was not obtained through unlawful conduct.
It is also a criminal offence to knowingly or recklessly make a false or misleading statement when responding to a UWO.
How can we help?
There are a number of steps that can be taken to limit the risk posed by UWOs.
If you are concerned that at some point in the future you may be at risk of a UWO, act now to prepare all available evidence necessary to challenge the UWO, should one be made. You should conduct the relevant asset tracing exercise and legal analysis now, before there is the time pressure imposed by the making of the order and the risk that historic documents or relevant evidence will no longer being available.
If you are already the subject to a UWO, the first step is to seek immediate legal advice on whether there is any challenge to the lawfulness of the order, i.e. whether reasonable grounds exist to make such an order. If the UWO was lawfully made, we will provide strategic, legal advice on engagement with the law enforcement agency and an assessment of whether, and how, to comply with the order. 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, in the UK or elsewhere.
We have extensive experience in providing advice in relation to UWOs and can assist at all stages of proceedings, whether in early intervention, challenging a UWO or in engaging with law enforcement agencies.
If you would like any further information or advice regarding UWOs, please do reach out to us.
Natalie Sherborn was also published in eprivateclient on 27 April 2023 on this subject – article titled 'Do recent legislative changes signal a new dawn for Unexplained Wealth Orders?'. Click here to read this piece.