A barrister examines the new powers of UK tax authorities to go after people with assets that appear not to be supported by income. A power to chase after illicit funds, maybe, but also one that carries danger.
From the start of February what are called Unexplained Wealth Orders came into force in the UK. UWOs allow authorities to freeze and recover property if individuals cannot explain why they own assets worth more than their income and show they have acquired them legally. Under the new rules, individuals can be fined and jailed if they make misleading statements. Such powers are part of a series of moves made by UK authorities in recent years to hunt down tax evaders. Arguably, the idea behind UWO might be seen as going against the principle of treating persons as innocent until proven guilty, although set against that, a person in possession of assets of a certain type might give authorities “reasonable suspicion”, or some other form of words suitable in law, to ask hard questions.
The approach of UWOs has already prompted a good deal of commentary in these pages, as in the case of this analysis here, by Chris Hamblin, editor of Compliance Matters, a sister news service to this one. Another example of commentary on the matter can be found here.
A person who know all about the need for asking such questions is Ben Keith, is a barrister at 5 St Andrew’s Hill specialising in extradition, immigration, serious fraud, human rights and public law. Here, he considers Unexplained Wealth Orders and how they are likely to be used, and why.
The editors of this news service are pleased to share these insights with readers; they don’t necessarily agree with all the views of guest contributors and invite readers to respond. Email firstname.lastname@example.org
The government have recently used the culmination of the BBC series McMafia to promote new investigative powers under the Criminal Finance Act. The new Unexplained Wealth orders are designed to target criminals and politically exposed persons and their potentially hidden wealth.
In McMafia, the arch protagonist Vadim, head of the Russian Criminal network, sits with his FSB friend and lawyer and discusses ways to cause problems for his rivals, using legal means. They suggest extradition, Interpol Red notices as well as trying to persuade the Financial Conduct Authority to investigate breaches of sanctions and freeze assets. I have seen all of these tactics used against my clients by business rivals and often rival politicians to try and make their lives difficult and cut off access to their finances. While it is possible to fight all of these and win, it takes a lot of time and finance to defeat.
UWOs are a new tool in the arsenal of the financial investigator and the likes of the Serious Fraud Office and FCA. The importance of the UWO is that an order can require anyone with property worth over £50,000 to provide details of the source of their wealth. A failure to do so will mean that the property can be forfeited. It’s a very draconian power and one that I hope will be used sparingly. I think it will be used as a lever with people who are already under investigation but whose business structures make it difficult to trance the money. While I hope that these orders will not be abused, there is always this possibility.
Failure to respond properly or in-time means that the government is able to forfeit the property. The reality is that the new powers are only as effective as those who implement them and without significant resources it will be difficult to trace and find much of the wealth in the first place. I think UWOs are meant to strike fear into those who are hiding their money in the London property market and will be used to target foreign politicians who try and hide their wealth in London. The Oligarch Arkady Rotenburg, President Putin’s former judo partner, has had his anonymity lifted in his divorce proceedings in the UK courts. Whilst he is not able to come to the UK, the divorce case is here because his wife’s residence and assets are in London and the Southeast. His affairs would be in danger of an UWO given his high political profile if investigators wanted to make his life difficult.
The anti-corruption campaign group Transparency International has highlighted a number of cases that might warrant investigation by the authorities including properties that are suspected to be held by the President of the Nigerian Senate and Nawaz Sharif, the former President of Pakistan.
It remains to be seen just how effective UWOs will be when put into practice. The London property market is particularly good for keeping money because of the massive rise in prices in recent years and the fact that the UK government up until now has not sought to investigate ownership of the property. Investment in a stable economy where money will not be forfeited easily is an attractive long-term investment for those who want to invest both legitimately and illegitimately.
For high net worth individuals who are politically exposed, these UWOs mean that advisors and lawyers will need to be acutely aware of the fact that their assets and source of wealth may have to be justified even when no criminal offence or impropriety is alleged. I hope that they will not be misused by the authorities but it is unclear if these orders will be used as part of overarching investigations or stand-alone orders to make the London market less attractive to politically exposed investors.