Compliance

The UK's Unexplained Wealth Orders - How System Is Performing

Edward Grange, 8 June 2020

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This article probes into how unexplained wealth orders, a tool introduced into the UK two years ago, has fared in a number of high-profile, colourful court cases, and what the future may hold. This publication is looking at the topic in coming days and has spoken to a range of legal experts.

This news service has been examining the UK’s recently launched regime of “unexplained wealth orders”. We have been talking to barristers, other legal experts and transparency advocates about them, and will publish a roundup of commentary in coming days. To whet readers’ appetite, here is a guest comment from Edward Grange, a partner at specialist criminal law firm Corker Binning

UWOs have been controversial, and their introduction has already excited debate and commentary from the legal profession. Their arrival speaks to how London and the UK more widely has been a destination for illicit money. At the same time, politicians knew there were no votes to be lost in being seen to “crack down” on certain sources of wealth. It will be interesting to see how the UK, no doubt keen to attract inward investment after the COVID-19 pandemic winds down, will want to balance law enforcement against creating a friendly environment for foreign money. It is also worth noting that UWOs are not specifically aimed at foreign-sourced funds, but at the domestic economy as well. 

The usual disclaimers about articles from external contributors apply. To respond, email the editors at tom.burroughes@wealthbriefing.com and jackie.bennion@clearviewpublishing.com

Introduction
The Unexplained Wealth Order has captured much attention since its inception. Nicknamed the McMafia order, reports of extraordinary amounts of money being used to purchase homes in the most exclusive London postcodes and a £16 million ($20.3 million) shopping spree at Harrods were always going to make headlines. Compared with the prosaically named Account Freezing Order, introduced at the same time under the Criminal Finances Act 2017, the UWO was inevitably going to grab the limelight. But as history often tells us, “all that glitters is not gold” and a recent setback for the National Crime Agency has given the AFO its time to shine. 

This article aims to explain why, in spite of being overshadowed by the UWO, the AFO (and the related Account Forfeiture Order (“AFrO”) appears to be the more effective tool in the state’s armoury against organised crime and corruption, and what respondents can do if served with one. 

The rise and (minor) fall of the UWO
Some of the attention-grabbing headlines of 1978 related to police disrupting a country-wide drug network that apparently sprung to life when a group of academics started to manufacture and sell LSD.

“Operation Julie” not only made for a good crime story because its undercover police officers dressed as hippies, it also created a legal problem that needed to be solved. Ex turpi causa non oritur actio - a person should not profit from their wrongdoing - but in this case a decision of the House of Lords resulted in the return of close to a million pounds seized by the police as there was no legislation in place to strip the drug traffickers of the profits from their crimes. 

The start of the millennium culminated in the introduction of the Proceeds of Crime Act 2002, which introduced an array of powers enabling the state to confiscate the proceeds of crime via the criminal and civil courts. But concerns remained that law enforcement agencies, whilst suspecting assets were the proceeds of crime, continued to have insufficient power to freeze or recover them. This lacuna was closed when the UWO and the AFO were introduced in 2017, designed to “make the UK a more hostile place for those seeking to move, hide or use the proceeds of crime or corruption”. (1)     

Both draconian measures, the UWO in particular is intrusive as it requires a respondent to i) make a statement, ii) answer questions, and iii) disclose confidential records in respect of sensitive personal financial matters. Failure to comply can result in the forfeiture of the property and results in criminal liability if a respondent makes a statement that is false or misleading. The intention of gathering such information is that if proceeds of crime have been used to purchase the property, civil recovery of that property would be made easier, although to date, no civil recovery proceedings have been commenced against any of those subject to UWOs. 

But on 8 April 2020 two prominent Kazakh nationals (2) successfully persuaded the High Court to discharge three UWOs made against three residential properties owned for the benefit of Nurali Aliyev and his Kazakh politician mother, Dariga Nazarbayeva. The value of the properties in London exceeded £80 million. The NCA suspected the properties were bought with funds embezzled by Mr Aliyev's deceased father, Rakhat Aliyev, nicknamed “Sugar” for his control over the sugar trade said to have been the basis of his fortune. 

However, in a 68-page judgment, Mrs Justice Laing found that the NCA’s approach to the case and their assumptions that Rakhat Aliyev was the source of the money were mistaken and unreliable. Importantly, the Judge reiterated an important point of principle that “the use of complex offshore corporate structures or trusts is not, without more, a ground for believing they have been set up to enable money laundering”. As the Judge correctly highlighted, many very wealthy people invest in complex offshore corporate structures or trusts for a variety of lawful reasons such as privacy, security or tax mitigation.

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