This article takes another look at new UK "unexplained wealth order" powers, their scope, and what advisors should know.

Unexplained wealth orders, a power that came into use in the UK from the start of February this year, are among the tools authorities have to chase after alleged tax evaders and holder of illicit funds. Some practitioners warn these powers could be misused.

The arrival of these powers happened a matter of days before the shocking claims that agents of the Russian state had poisoned individuals in the quiet UK town of Salisbury. That incident – the details of which are disputed by Russia – sent Anglo-Russian affairs into the worst state since the Cold War. The issue also raised the prospect of tougher action by the UK against Russian oligarchs and their entourage in the UK where there might be suspicions of financial shenanigans. Industry practitioners at the time said that Russian clients should not be unduly alarmed.)

In this article, Neil Swift, partner at law firm Peters & Peters, examines the issues. The editors are pleased to share his views and invite readers to respond. Email tom.burroughes@wealthbriefing.com

From 31 January 2018, UK law enforcement agencies have had at their disposal a new power to require individuals to provide information on the source of their wealth. Agencies including the National Crime Agency (NCA) and Serious Fraud Office (SFO) can now make an application to the High Court for an Unexplained Wealth Order (UWO).  An UWO can be made in relation to property located anywhere in the world, and irrespective of where the person suspected to be the owner resides.

The tool is designed to assist law enforcement agencies to recover property when they suspect that it has been obtained using the proceeds of crime or by holders of overseas public office who appear to have assets substantially beyond their means.

What needs to be proven for a court to make an UWO?

The legislation sets a low value threshold: the property in question must be worth more than £50,000. The law enforcement agency must show that the individual ‘holds’ the property, whether solely or jointly, as a trustee or beneficiary under a trust, or by having ‘effective control’ over the property in some other way.

The court will need to be convinced that there are reasonable grounds for suspecting that the individual could not have obtained the property using their known lawful sources of income.

Particular targets will be those alleged to hold an interest in expensive UK real estate, although the definitions are drawn very widely to include most, if not all, types of property. 

Who can be the subject of an UWO?

The High Court can make an UWO against two categories of person:

 -- Politically exposed persons (PEPs), meaning people who hold (or have held in the past) important public positions in countries outside the UK or EEA, and their family members and close associates;

--  The use of UWOs represents an additional risk to individuals who could potentially be classified as PEPs. Many in this category will have already encountered the enhanced due diligence requirements imposed on them by financial institutions; and 

-- Persons suspected of involvement in serious crime and those connected to them. The suspected criminal activity can be in the UK or abroad, and includes money laundering, corruption and tax evasion. There is no need for a civil or criminal investigation to have been opened, let alone concluded. It is enough for the High Court to be satisfied on the balance of probabilities that the person has conducted themselves in a way that is likely to have constituted a criminal offence. 

What should individuals do if an UWO is made against them?

The application for an UWO will usually be made without notifying the individual, who will only become aware of the proceedings on service of the order.

An individual served with an UWO will be asked to provide information on their ownership of an asset, including whether it is held through a trust, how they acquired it, as well as any other information or documents requested in the UWO.

Failure to provide the information by the deadline provided carries serious consequences. If the law enforcement agency brings civil proceedings to recover the asset, failure to respond will mean that the court will assume the asset was obtained through unlawful means unless the contrary can be proven. There are also criminal penalties for providing false or misleading statements in response to UWOs, with those convicted liable to up to two years’ imprisonment.

An individual served with an UWO may find that the property is subject to an interim freezing order preventing them from dealing with it, for example by selling it or removing it from the jurisdiction. Interim freezing orders can be challenged, and may be varied to exclude certain property or make provision for the payment of reasonable legal expenses, living expenses or to continue a business.

Given the above, individuals served with UWOs will need to seek urgent legal advice, as the time to respond will be relatively short, and there may be grounds to challenge an interim freezing order or indeed the UWO itself.

What happens after an individual responds to an UWO?

The law enforcement agency will make a decision on what step to take in relation to the property. If there is an interim freezing order, a decision must be made within 60 days of the response. Otherwise, there is no time limit for the agency to make a decision. The agency may decide to take no further action. However, if the information provided confirms the suspicion that the property was obtained through unlawful conduct, the agency may decide to use existing powers to recover the property through civil proceedings.

What steps can individuals take to protect against the risk of an UWO being made?
A law enforcement agency may decide to apply for an UWO because of information received in a variety of ways. For example, details could be supplied by a financial institution about a suspicious transaction, there might be adverse media comment about a particular individual, or information could be shared by authorities in a PEP’s home country.   

Individuals who believe they are at risk of being served with an UWO should ensure that the documents evidencing their acquisition and ownership of property are readily available. In order to ascertain an individual’s sources of income and wealth, the UK authorities are likely to refer to tax filings, so ensuring these are accurate and up to date in relevant jurisdictions is advisable.

What is the future for UWOs?

The first UWOs, secured by the NCA in February, related to properties in London and the South-East of England owned by a PEP. It seems likely that the NCA will continue to target UK real estate, in a climate of heightened political and media attention on the channelling of illicit funds through the London property market. There is also clear potential for UWOs to be used to identify property held abroad, including indirectly through offshore trust or company structures. This is another area in which the UK government has longstanding concerns about the concealing of assets. UWOs are likely to be challenged in the courts.

It may be possible to argue that requiring individuals to prove that their property has been obtained lawfully represents a disproportionate interference in their rights to privacy or to property. As these are orders obtained without notice to the recipient, there are obligations on the applying authority to make full disclosure of all relevant material, and any failure in that regard is likely to be drawn swiftly to the attention of the Court.  There are also likely to be challenges by those alleged to be close associates of PEPs or those involved in serious crime, who dispute that alleged association. What is certain is that we will be seeing many more UWOs in the years to come.