These orders were introduced into the weaponry of UK law enforcement in 2018, prompted by concerns about how the UK was being used as a haven for illicit funds. Several prominent court rulings later, how well have they worked?

The recent UK sanctions against Russia, and continued coverage of financial centres such as London having been used to launder money, mean that tools created to hunt down illicit funds remain an important issue for the wealth management industry. A weapon that was created more than four years ago was the Unexplained Wealth Order. There have been a few court rulings since, the combined effect of which has sent a mixed message as to how effective they are. How should advisors consider UWOs? (See a previous discussion here.)

To respond to such points is Colette Kelly, partner, regulatory solutions at law firm Ince, and Robert Payne, managing associate, private client, at the same firm. The editors are pleased to share these comments and invite readers to jump in with comments. The usual disclaimers apply about the views of outside contributors. Email tom.burroughes@wealthbriefing.com
 

What are UWOs?
Unexplained Wealth Orders were first introduced in January 2018 as part of a series of measures and investigatory tools aimed at tackling money laundering and terrorist financing in the UK. The UK has long been perceived as attractive to those wishing to conceal and use criminal proceeds (including those arising in the context of organised crime and/or corruption whether in the UK or overseas). 

UWOs are legally binding orders made by the UK courts that require those individuals that are either: 

1) Deemed to be a Politically Exposed Person (PEP), such as those with powers, or being connected to someone who has powers, that might be used inappropriately for gain or financial advantage; or 

2) Reasonably suspected of involvement in, or being connected to someone who is involved in, serious crime to explain the source of their wealth and assets. This is on the basis that their wealth appears disproportionate in the context of their known lawfully-obtained income.  

How do UWOs work?
The threshold for having a UWO granted by the courts is not particularly high; it is on the lower civil standard of proof/the balance of probabilities.

There is no need for a criminal investigation to have started or criminal charges to be brought against the individual concerned for a UWO to be granted. UWOs are unusual in that they shift the burden of proof from the governmental body alleging wrongdoing to the asset owner themselves, requiring the owner to demonstrate that their property was lawfully obtained, with failure to do so potentially leading to asset forfeiture. Therefore, UWOs may be very helpful for the authorities when there is a lack of background detail, but an individual’s wealth appears to be inexplicable in the circumstances. 

For a UWO to be granted, the property under consideration needs to be worth more than £50,000, wherever in the world it is situated. Property is very widely defined; often including real estate, artwork and bankable assets.  

What are some previous examples of granted UWOs?
-- Mansoor Hussain, a suspected ‘professional enabler’ for criminal gangs operating in the Leeds/Bradford area. This led to him forfeiting assets worth in the region of £10 million in 2020, without any prior criminal conviction.

-- Zamira Hajiyeva, the wife of a jailed Azerbaijan banker, who was required to disclose her source of wealth under the terms of a UWO. The case included details of her spending at Harrods, which was understood to be in the region of £16 million over the course of a decade. The UWO generated huge media interest, raising the profile of the problem of dirty money in the UK, and providing a significant boost to the NCA’s reputation.

However, UWO cases have been uncommon since their introduction and their use has dropped even further in recent years. To date, only four have been granted, with an estimated value of £143 million. None have been issued since 2019. The only agency to employ the regime has been the UK’s National Crime Agency (NCA).

What are the proposed reforms of UWOs?
The Economic Crime (Transparency and Enforcement) Act 2022 (the Act) came into force on 15 March 2022 and contains a number of changes to the UWO regime.

UWOs have not seen nearly as much use as the government initially expected. Perhaps, reforms have been proposed to the UWO regime because of this and the high-profile failure of the NCA in the Aliyev case; where it was criticised for its poor investigation, failure to appreciate that the wealth in question had been explained and an over-reliance on assumption based upon the use of complex corporate structures. The NCA was required to pay costs of £1.5 million, believed to be around half its entire annual budget.

The reforms also arrive in the context of the Russian invasion of Ukraine and the widening use of sanctions in that context. Priti Patel, Home Secretary, has said: “Time is up for Putin’s cronies hiding dirty money in the UK and this new legislation will help…removing key barriers to using unexplained wealth orders.”

With these reforms, the government’s stated intent is to enable UWOs to be sought against property held in trust and other complex ownership structures (such as foundations, which are a civil law concept with some similarities to trusts).

The proposed changes to the UWO regime include:

-- Reducing the potential adverse cost liabilities for those law enforcement agencies seeking UWOs, so that costs will not be granted against an authority seeking a UWO, unless there has been unreasonable, dishonest or improper conduct. This is a likely consequence of the concerns following Aliyev, allowing authorities to take a more robust approach going forward (though if a party is successful in discharging and appealing a UWO, one questions whether it is right that they should bear their own costs should the NCA bring an action against them);

-- Expand the category of persons who may be respondents to a UWO to include "specified responsible officer," allowing information from those involved in the management of companies and other entities to be obtained. This may be a very effective way of exerting pressure on those who administer property of which there are concerns about the source. Corporate trustees will be expected to provide this information given the potential damage to their professional reputation which could otherwise result. It is also likely that there will be a greater emphasis on obtaining information in relation to trust and other fiduciary structures more generally; and

-- Extending the power to grant UWOs where there are reasonable grounds to suspect that property has been obtained through unlawful conduct, rather than requiring suspicions by reference to lawfully obtained income. 

Most UWOs will be accompanied by an interim freezing order (IFO) to preserve the property. To obtain an IFO, the court must be satisfied that there is a risk that any subsequent recovery order would be frustrated unless the property is preserved. The new changes allow for a longer extension for IFOs from 60 days up to 186 days after a UWO has been complied with, giving the enforcement authority more time to review material it receives in response to the UWO and make a determination on whether there are grounds to proceed to a civil recovery.

What is the expected impact of these changes?
The impact of these changes remains to be seen, but it is at least likely that there will be renewed interest in the use of UWOs. Going forward, UWOs may be granted more easily, in a broader range of circumstances and with reduced cost concerns. It is quite likely that the relevant authorities will be seeking to use the orders to generate some high-profile success stories. In particular, the changes to the rules on cost liabilities are likely to embolden them.

However, the Act does not address the fact that there are insufficient resources within the relevant enforcement agencies to properly take advantage of the powers they already have, let alone these new ones. As such, it is anticipated that targets of UWOs will continue to challenge them.

What steps should you take?
Receiving a UWO will be extremely concerning and the nature of UWOs is that there is almost a presumption of guilt that needs to be rebutted (with associated negative publicity issues). Once served with a UWO, there will be a limited period within which to provide a response and/or comply with certain requirements. The enforcement authority then has a period to review any explanations and supporting material provided in response to the UWO, and decide whether to take further action, such as issuing a further UWO, commencing a civil recovery investigation or applying for a civil recovery order under the provisions contained in part 5 of the Proceeds of Crime Act 2002.

Failure to respond and comply will trigger the presumption that the asset(s) in question was/were obtained through unlawful conduct.

Any response served and documents received by law enforcement agencies may be used in other investigations including the conduct of criminal investigations.

The rules are complex, and the stakes are likely to be high. It is essential to take legal advice at the earliest opportunity to understand the implications and the options available.