Beware the prospect of Unexplained Wealth Orders

Published 8 December 2016

The Criminal Finances Bill (the "Bill"), which was introduced to the House of Commons on 13 October 2016, contains a new "unexplained wealth order" ("UWO") which will require an individual or organisation to explain the nature and extent of their ownership of a particular property, as well as the source of the funds used to purchase that property.

The new UWO reverses the burden of proof onto the individual or organisation once the government is able to prove, on a balance of probabilities, that the individual or organisation has "unexplained wealth".

How will the new UWO operate?

It is proposed that the High Court will have the power to make UWO's on the application of certain enforcement authorities, such as HM Revenue & Customs, the Serious Fraud Office and the DPP, provided that a set of requirements are fulfilled. These include a requirement that the respondent be a politically exposed person, or there being other reasonable grounds for suspecting that the respondent is, or has been, involved in serious crime.

The UWO must be made in respect of specified property, and may include requirements for the respondent to provide certain information and/or produce certain documents.

Power to make interim freezing orders

In addition to making UWO's, it is also proposed that the High Court will be able to make interim freezing orders in respect of the property that is subject to the UWO, where it considers it necessary to do so in order to "avoid the risk of any subsequent recovery order being frustrated". The High Court will only be able to do so on the application of the same enforcement agency that applied for the UWO.

Non-compliance with an UWO

Where a respondent fails to comply with the requirements of an UWO without a reasonable excuse, the property (or the respondent's interest in the property) will be recoverable, provided its value is above £100,000.

Additionally, it will be an offence to knowingly or recklessly give false or misleading information in response to an UWO.

Purported compliance with an UWO

It is interesting to note that "purported compliance" will not necessary be "non-compliance" with an UWO. Therefore, where a respondent has taken steps to comply, it will be for the enforcement authority to determine whether any enforcement or investigatory proceedings ought to be taken.

Other powers

It is proposed that the High Court will, on the application of the enforcement agency, be able to appoint receivers in respect of the property that is subject to an interim freezing order, and that the receiver may be a member of staff of the enforcement agency.

Commentary

The High Court will, on the current wording of the proposed legislation, be able to make UWO's in respect of politicians and officials (as well as their associates) that are resident overseas, provided that the property is situated in the UK. This could potentially assist in tackling proceeds of crimes undertaken abroad being laundered in the UK.

UWO's could also be helpful in discovering the true ownership of properties that are owned by companies and trusts with nominee directors and shareholders as UWO's may be made against persons not resident in the UK.

Whilst it is clear that the level of evidence required to obtain an UWO (that there are "reasonable grounds" for believing) is not the same as the level of evidence required in a criminal trial (that it is "beyond a reasonable doubt"), it is not entirely clear what the prosecuting authority will be required to show in able to establish that there are "reasonable grounds". Where applications are made without notice in the absence of the respondent, there are likely to be cases where the decision to grant the UWO may be subject to challenge, whether on the grounds of material non-disclosure or that the Judge simply got it wrong.

UWO's will be attractive to the enforcement authorities because they will have the effect of cutting down significantly on the time and cost of investigating money laundering and other related offences. Whilst there will undoubtedly be circumstances in which UWO's may be entirely appropriate, the government will need to ensure that they are used appropriately. The reversal of the burden of proof means that UWO's may be made on arguably limited evidence. In particular, it must be ensured that UWO's are used in such a way so as to comply with Article 8 of the Human Rights Act, which protects the right to privacy, and Article 6 which protects the right to a fair trial.

UWO's are not law yet and the legislation may change before it comes into force, which is expected to be in 2017.