The government introduced unexplained wealth orders (UWOs) in January of this year through the Criminal Finances Act. It was heralded as a full-spectrum crackdown on money launderers in the UK, and a landmark moment for anti-corruption agencies. However, more than eight months on, this powerful new tool has yet to produce results. Having faced a challenge in Court, it now appears that the first test case may fail causing the National Crime Agency to reassess its backlog of cases in the investigatory phase. If that happens, the credibility of the new measures could suffer a blow.
Who or what is the target?
There are two human targets: the first is a “politically exposed person” (PEP), such as a politician or state official, outside of the UK and European Economic Area; the second is a person reasonably suspected of being involved in a serious crime.
If a person falls into either category, or is closely connected with someone who does, law enforcement may apply for a UWO in respect of property they appear to hold if there is a gap between the person's known sources of lawfully obtained income and the value of the property. Given the breadth of the definitions, these are not difficult hurdles for law enforcement to overcome. The property does not necessarily need to be in the UK, and nor does the respondent to the order. The alleged crime does not need to have taken place in the UK.
In their hunt for targets, we anticipate that the National Crime Agency, HMRC, the Home Office and other agencies will share information about an individual and his or her asset position. Data shared, say, in support of a tax return or investor visa application may well find its way into the assessment being carried out by the National Crime Agency when deciding to apply in secret for a UWO. An interim freezing order may be applied for simultaneously, to prevent dissipation of the property prior to the conclusion of any later civil recovery proceedings.
What does it mean?
If served with a UWO, an individual will be required to answer multiple questions concerning the nature and extent of their interest in the property and how that interest was funded. Documents substantiating their responses will need to be handed over, usually within 4 to 6 weeks.
Failure to comply “without reasonable excuse” will give rise to a presumption that the property is recoverable by law enforcement under a subsequent civil recovery action. This means the burden of proof will reverse. Previously, it was necessary for law enforcement to prove that a property was purchased with the proceeds of crime. Now, it will be for the owner to prove that his or her property was purchased with legitimate funds or risk it being subject to confiscation by the state.
It is a criminal offence to make materially false or misleading statements in response to a UWO, punishable by up to two years’ imprisonment or a fine.
What is happening in practice?
When the UWO regime was unveiled, Ben Wallace, the Minister of State for Security reportedly told The Times that he wanted the "full force of the government" to be brought to bear on people suspected of laundering the proceeds of crime, adding "I have put pressure on the law enforcement agencies to use them soon because too many government measures get passed but no one gets into the habit of using them and five years later people say, 'What happened to that?', we want to maintain momentum".
Yet only two UWOs have been obtained in the eight or so months since the scheme was introduced. Both were obtained by the National Crime Agency (NCA) – the four other agencies authorised to use them (HMRC, the SFO, the FCA and the CPS) have not yet done so.
Further, one of the UWOs, which relates to properties connected to a "Mr A", has been challenged in Court. "Mr A" is an unnamed PEP from a country outside of the EEA. The NCA alleges that properties in London and the South East worth around £22million were purchased using funds that Mr A embezzled when working as a senior official in a state bank. But "Mr A" is currently incarcerated abroad and is unable to communicate with the outside world. His wife has applied to set aside the order, saying that she cannot provide the information required without the input of her husband. Judgment is expected later this year.
The difficulties presented by the "Mrs A" case beg the question as to whether the NCA picked the right battle for its debut UWO. This order is being seen as a test case of how effective the new powers will be, and the NCA will be determined to achieve success otherwise they risk undermining the credibility of the entire regime and their pipeline of cases waiting to be processed. If the NCA does not secure an early result, there is a risk that the regime will 'fizzle out' before it gains any real traction.