Blog

9 April 2018

Unexplained Wealth Orders Explained

Categories: Blog, Financial Crime,

Peter Bowles Oct 2018 web

Categories: Blog, Financial Crime,

Categories: Blog, Financial Crime,

cb-web__0006_david-corker_6541_final-jpg

Categories: Blog, Financial Crime,

Categories: Blog, Financial Crime,

Categories: Blog, Financial Crime,

Categories: Blog, Financial Crime,

Categories: Blog, Financial Crime,

cb-web__0004_claire-cross_6496_final-jpg

Categories: Blog, Financial Crime,

Categories: Blog, Financial Crime,

Categories: Blog, Financial Crime,

By Sangeeta Bedi

Categories: Blog, Financial Crime,

Categories: Blog, Financial Crime,

Categories: Blog, Financial Crime,

Categories: Blog, Financial Crime,

Categories: Blog, Financial Crime,

Categories: Blog, Financial Crime,

Categories: Blog, Financial Crime,

Categories: Blog, Financial Crime,

Categories: Blog, Financial Crime,

Categories: Blog, Financial Crime,

Categories: Blog, Financial Crime,

Categories: Blog, Financial Crime,

Categories: Blog, Financial Crime,

Categories: Blog, Financial Crime,

cb-web__0002_ben-henriques_6601_final-jpg

Categories: Blog, Financial Crime,

Unexplained Wealth Orders (UWOs) represent a significant shift in the UK’s attitude to forfeiture and raise important questions about when the state can deprive an individual of property and what evidence is required to do so.

The grant of the first two UWOs was announced on 28 February 2018. Details of the case are scarce, but what is clear is that the respondent is a politically exposed person from Central Asia and the orders relate to property worth £22m. It seems that the respondent was typical of those the regime is intended to target – a non-European politician holding significant assets in London.

The law surrounding UWOs is relatively intricate and represents a new interface between the criminal law and civil enforcement. Whilst it is essentially an order to provide information and documents, UWOs can have serious consequences – whether or not they are complied with.

Obtaining a UWO

Section 1 of the Criminal Finances Act 2017 (‘CFA’) inserts sections 362A-362I into Chapter 2 of Part 8 of the Proceeds of Crime Act 2002 (‘POCA’). Under those provisions, the High Court may (but is not obliged to) grant a UWO if the following conditions are met:

  1. The respondent “holds” the property (broadly “holds” means exercising, being able to exercise or being entitled to acquire direct or indirect control over the property)
  2. The property is worth over £50,000
  3. There are 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.
  4. Any one of the following:
  • The respondent is a politically exposed person
  • There are reasonable grounds to suspect that the respondent is, or has been, involved in serious crime (whether in a part of the United Kingdom or elsewhere)
  • A person connected with the respondent is, or has been, involved in serious crime.

 

A “politically exposed person” (‘PEP’) is “an individual who is, or has been, entrusted with prominent public functions by an international organisation or by a State”, someone “known to be a close associate” such a person, someone “otherwise connected” with such a person or a member of such a person’s family.

It will be noted that there is no requirement to prove either that the property in question was generated by the crime alleged or for any criminal proceedings to have been instituted against the respondent. Moreover, the burden is on the respondent to justify their wealth and they need not be present for an order to be made. An “interim freezing order” can be obtained at the same time as a UWO to prevent the relevant property being dealt with in any way.

The threshold for obtaining an order is far lower than that required for the trial of an issue in either criminal or civil proceedings. If the respondent is not a PEP (or is a PEP from within the EEA), only “reasonable grounds to suspect” that they don’t have enough lawful income to have obtained the property and that they have been involved in serious crime are required. In relation to PEPs from outside the EEA, the second of these requirements is dropped altogether.

Whilst there have been several cases of PEPs from outside the EEA allegedly hoarding dirty money in the UK, it is doubtful whether this justifies lowering the threshold for all non-EEA PEPs in the way the legislation does. For example, no reasonable suspicion of involvement in serious crime would need to be raised to obtain a UWO against a Canadian PEP whereas it would in relation to a PEP from Romania. In the 2018 Corruption Perceptions Index, Canada’s score was 82 and Romania’s was 48, indicating that corruption in the former country is much lower. Whilst it is obviously difficult to measure corruption, such an arbitrary approach to this issue seems unjustified. Equally, there seems little justification for providing additional protections for domestic PEPs. It seems rather odd that a British politician whose income didn’t justify their assets, but who could not be linked to serious crime, could not be at risk of a UWO, whereas a US PEP in the same position would.

More astonishing is the lack of any proper definition of “income” within the CFA. Clearly, many thousands of people will hold assets worth more than £50,000 (especially real property) through inheritance or gift which they could not have purchased with their income (in the ordinary sense of the word). How is the respondent’s income to be assessed if such a property is the target of a UWO application?

Effect of the Order

Section 362A(3) states that the effect of a UWO is to require the respondent to provide the following information in relation to the property subject to the order:

“(a)setting out the nature and extent of the respondent’s interest in the property in respect of which the order is made,

(b)explaining how the respondent obtained the property (including, in particular, how any costs incurred in obtaining it were met),

(c)where the property is held by the trustees of a settlement, setting out such details of the settlement as may be specified in the order, and

(d)setting out such other information in connection with the property as may be so specified.”

Although the immediate effect of a UWO is merely to require information, it is intimately connected with the recovery of property which is subject to the Order. If a respondent fails without reasonable excuse to comply with a UWO within the time frame set by the Court, section 362C states that:

“The property is to be presumed to be recoverable property for the purposes of any proceedings taken in respect of the property under Part 5 [of POCA], unless the contrary is shown.” 

Part 5 of POCA deals with the civil recovery of property and the effect of section 362C seems to be to require the respondent to prove, in civil proceedings that property is not recoverable. The section is silent on the standard of proof to be applied but, presumably, this would be the balance of probabilities. What impact this would have on the respondent’s chances of retaining their property is of course highly fact-dependent but it will be a significant hurdle in many cases. To date, civil recovery under Part 5 of POCA has been minimal – the introduction of UWOs appears to be an attempt to tilt the balance in such proceedings in favour of the authorities.

If, on the other hand, the respondent complies or purports to comply with the order, section 362D requires the applicant authority to determine whether or not to take further “enforcement or regulatory proceedings” in relation to the property. In other words, the only thing the enforcement authority gains is the information obtained through the UWO.

The Use of Information

Although not explicit, the legislation suggests that information obtained under a UWO could be used in a variety of contexts. Section 362G(4) enables an enforcement authority to retain documents obtained under a UWO if it is necessary to do so for investigations mentioned in section 341 of POCA (which includes civil recovery investigations, cash seizure and money laundering investigations).

Moreover, 362G(5) allows an enforcement authority which has “reasonable grounds to believe” that documents “may need” to be produced in “any legal proceedings” and retention is required in order to prevent the documents becoming unavailable, the documents may be retained until the end of the legal proceedings in question. What is meant by a “may need”? Is the fact that a prosecuting agency (not necessarily the enforcement authority) may want to rely on the documents as evidence mean they “may need” to be produced in other legal proceedings? Certainly Home Office circular 003/2018 suggests that this is the case. That document states that “the subsequent use of the material may include referring the evidence to another body to consider criminal or civil action”. Prosecutors are therefore likely as well as enforcement authorities will see UWOs as a source of potential evidence.

However, it is certain that statements provided in response to a UWO cannot generally be used against the respondent in criminal proceedings (see section 362F). There are the exceptions usual in the case of statutory rights against self-incrimination (prosecution of the respondent for providing misleading information in the context of the UWO, perjury, where the document is referred to by the respondent themselves etc.). Nevertheless, there is nothing to stop such a statement being used against to incriminate another individual and such a use of the information may be very attractive to prosecutors. Moreover, the language of 362F refers specifically to “statements” not “documents”. It therefore seems that any documents produced by a respondent in response to a UWO may be used against him in criminal proceedings (as they could be if they were seized by the police under a search warrant or a statutory notice to produce).

A Significant Step

The UWO is a departure for English criminal law because it makes it possible (where an order is ignored by the respondent) to lay down a presumption that property is recoverable by the state based solely on reasonable suspicion of involvement in wrongdoing. These changes shift in emphasis severely undermines the normal protections afforded to property under English law.

The UWO regime’s targeting of non-EEA individuals raises further questions about the fairness of the new orders. In some jurisdictions it may be genuinely difficult to obtain evidence of a bona fide acquisition of property or access to income in writing (or via documents of the quality likely to be demanded by the High Court). Respondents who have dealings in such countries will inevitably be faced with the argument that their failure to produce evidence demonstrates the elicit nature of his assets. Whilst absence of evidence is not evidence of absence, the burden being on the respondent makes these arguments very difficult to meet.

The fact that the requirements for obtaining a UWO are so easy to meet and their draconian effect should encourage the courts to enforce them strictly. Any other approach is to expose respondents to an unacceptable risk of injustice. If an applicant authority cannot easily meet even the low bar set for the imposition of a UWO, it deserves short shrift from judges.

There has been some debate among commentators as to whether the reverse burden of proof imposed by a UWO violates a respondent’s human rights. As with many issues pertaining to Article 8 (the right to private and family life) and Article 1 of the First Protocol (right to protection of property) the particular facts of a case will be crucial. However, both rights are qualified and, particularly given the nexus between some UWOs and serious crime, the European Court of Human Rights may be unwilling to frustrate the UWO regime.

Clearly, it is too early to say what impact UWOs will have on either white collar crime enforcement in the UK or dirty money in the capital. The new regime is an attempt to make it easier to seize criminal property and to focus on the recovery of assets rather than the punishment of individuals. While the courts must still be presented with evidence, it is fair to say that UWOs make the seizure of assets significantly easier for law enforcement authorities.

This article was originally published in Fraud Intelligence and can be accessed here, behind a paywall. 

TwitterLinkedInEmail