UK financial crime: New investigative power – unexplained wealth orders

On January 31, 2018 the Criminal Finances Act 2017 (CFA) introduced unexplained wealth orders (UWOs). This is a new investigative power enabling UK enforcement authorities (such as the Her Majesty’s Revenue & Customs; the National Crime Agency; and the Serious Fraud Office (SFO)) to seize and dispose of any property suspected to be obtained using illicit wealth.

UWOs extend the UK’s existing civil recovery scheme (as set out in the UK Proceeds of Crime Act 2002 (PoCA)) with no need for criminal proceedings to be initiated. If the High Court issues a UWO, the individual concerned (the respondent) must provide a satisfactory response explaining how the property was lawfully obtained. Who is affected? Recent news coverage has predominantly focused on London real estate owned by Russian oligarchs and Middle Eastern government officials but the scope of those affected is much broader and the minimum value of property that can be targeted is relatively low (£50,000) and is not confined to real estate.

Those at risk do not need to be in the UK and include: (i) non-EEA politically exposed persons (PEPs); or (ii) any person where there are reasonable grounds to suspect they are involved in, or connected to, serious crime (e.g. corruption, fraud, money laundering). The anti-corruption agency Transparency International has already identified £4.4 billion worth of property in the UK that could be considered for UWOs. The outgoing director of the SFO, David Green CB QC, said: “We have been combing through all existing case work and intelligence and have matters of interest…” The application An application for a UWO can be “without notice” and simultaneous with an application for an interim freezing order, as a means to avoid dissipation of the assets.

Therefore a Respondent might only become aware of the UWO once the order is made. An application must specify:
• The property in respect of which the UWO is sought; and
• The person whom the relevant enforcement authority believes to hold the property. The High Court may grant a UWO if it is satisfied that:
• The respondent holds at least a £50,000 interest in the property (even if others might share an interest in the same property); and
• There are reasonable grounds for suspecting that the respondent’s known sources of income would have been insufficient to have lawfully obtained the property. Responding to a UWO A UWO will force the respondent to set out the nature and extent of their interest in property and how they lawfully obtained it in a formal “statement in response”.

This will be required within a discretionary period set by the court (some guidance can be taken from Civil Procedure Rule Part 15.5, which allows up to 28 days for a defence statement to be filed) and will need to contain details, including:

• The nature and interest in the property;
• How the property was obtained (i.e. the origin of funds used);
• Details of the relevant trust settlement (if the property is held in trust or was purchased using a distribution); and
• Any additional information as stated in the order (e.g. supporting documents). Failure to provide a statement in response without reasonable excuse allows enforcement authorities, without time constraint, to pursue civil recovery of the property in question. Recklessly misleading the court through a false statement in response carries a risk on indictment of up to 24 months imprisonment, a fine, or both.

While a statement in response cannot normally be used in a subsequent criminal prosecution against the person who tendered it, subsequent use of the material may include referring the evidence to another authority or body to consider criminal or civil action (whether in the UK or elsewhere). Be active Increased international cooperation between authorities, information sharing and coordinated strategies to achieve effective law enforcement demonstrate a worldwide strategy to combat illicit wealth.

Further to UWOs, plans in the UK include a public register detailing beneficial ownership of overseas legal entities which own or buy property (this is in addition to the Fourth Money Laundering Directive “Persons of Significant Control” regime). It is therefore important for those potentially affected by UWOs to be prepared in order to respond effectively and quickly. “For those who may be at risk, taking a proactive approach in response to the introduction of UWOs is crucial – a robust explanation contained in a formal statement in response would be difficult for enforcement authorities to counter,” said Andrew Trollope QC, a leading financial crime barrister. By pre-empting property that may be subject to a UWO, the likely requirements of a statement in response, including supporting documents where needed (these might be confidential in nature, span multiple jurisdictions and require translation), active steps can be taken in advance. This may help safeguard against civil recovery of property that was lawfully obtained, but difficult to explain.

Produced by Thomson Reuters Accelus Regulatory Intelligence 16-Feb-2018

Published 15-Feb-2018 by Agnes Quashie and Nabeel Osman

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