Summary: UK law enforcement agencies may now obtain unexplained wealth orders and supporting interim freezing orders when they have reasonable grounds to suspect a person holds assets unlawfully. Such orders shift the burden of proof from the investigator to the investigated. As the implementing legislation is widely drafted, it will be necessary to monitor how the courts interpret the requirements that must be met for an application to be successful.
As of 31 January 2018, UK law enforcement agencies are able to reach for a new weapon in their investigative arsenal: the unexplained wealth order. Such orders seek to give UK law enforcement agencies more power in circumstances where they have reasonable grounds to suspect that a person holds assets illegally. Last month, the National Crime Agency secured the first two unexplained wealth orders and supporting interim freezing orders against two properties totalling £22 million that are believed to be ultimately owned by a politically exposed person. The National Crime Agency has not yet named the individual, citing that the respondent has been given time to reply.
In essence, an unexplained wealth order is a civil power and an investigative tool that moves the burden of proof from the investigator to the investigated. It can be deployed against non-EEA politically exposed persons, individuals suspected to be (or have been) involved in serious crime, and persons connected to individuals suspected of being involved in serious crime. A concurrent application for a supporting interim freezing order may also be made to ensure that the assets in question cannot be dissipated before a response to the unexplained wealth order is provided.
The introduction of unexplained wealth orders has been welcomed by anti-corruption agencies such as Transparency International. The ability to use unexplained wealth orders to target non-EEA politically exposed persons and those suspected of involvement in serious crime who have suspicious wealth but, crucially, may not have been convicted of any offence is seen as a significant step.
Such wide ranging new powers are not without controversy and uncertainty. As such, their full impact has yet to be determined. At the very least, firms will need to give careful consideration and remain cognisant of their due diligence and KYC obligations, as well as their duty to report suspicious activity.
What Is An Unexplained Wealth Order?
An unexplained wealth order is an order issued by the High Court requiring the respondent, which may be an individual or legal person, to provide a statement that:
- sets out the nature and extent of their interest in property that is valued at more than £50,000;
- explains how they obtained the property, including how any costs were met;
- details of the settlement where the property is held on trust; and
- sets out any other information connected to the property as may be required by the order.
The High Court may also concurrently impose a supporting interim freezing order if it considers one necessary to reduce the risk of the respondent disposing of the property before they have complied with the terms of the unexplained wealth order.
The respondent must comply with an unexplained wealth order within a specified period of time; the repercussions for failing to comply can be severe:
- if the respondent fails to comply, the property may be presumed to be a recoverable asset for the purposes of any proceedings taken in respect of the property under Part 5 of the Police and Criminal Evidence Act 2002; or
- if the respondent is found to have made a statement that they know to be false or misleading, or recklessly makes a statement of this nature, they could be convicted of an offence resulting in a sentence of up to 2 years or a fine or both.
Notably, the Government guidance published in Circular 003/2018 states that evidence compelled in response to an unexplained wealth order cannot normally be used against the person who provided it in any subsequent criminal prosecution.
How Can An Unexplained Wealth Order Be Obtained?
An unexplained wealth order can only be obtained upon the application of the NCA, HMRC, FCA, Director the of the SFO or Director of Public Prosecutions.
To be successful, the applicant must show that:
- there is “reasonable cause” to believe that the respondent holds the property, which has a value of more than £50,000;
- there are “reasonable grounds” for suspecting that the respondent’s known, lawful income would be insufficient to meet the costs of obtaining the property; and
- the respondent either:
- is or has been a non-EEA politically exposed person; or
- there are “reasonable grounds” for suspecting that they are or have been involved in serious crime, or a person connected to the respondent has been so involved.
Limitations and Points to Note
The legislation implementing unexplained wealth orders leaves many questions unanswered and is widely drafted:
- The authority need only have a “suspicion” that the respondent is directly or indirectly involved in serious crime and/or that their known, lawful income is insufficient to acquire the property. No criminal conviction is required.
- The standard required is “reasonable cause” and “reasonable grounds” but no guidance has been provided as to what would constitute reasonableness in these circumstances. It remains to be seen whether the courts will impose any sort of threshold requirement that must be met before it will determine that the applicant has made out this element of the test.
- So long as the total value exceeds £50,000, the property in question may comprise multiple assets and other individuals may hold an interest in it. This would appear to allow the authorities to target low hanging fruit where the assets in questions are, individually, of much lower value.
- No UK jurisdiction requirement has been set in respect of the assets has been to allow authorities to obtain unexplained wealth orders in respect of property located anywhere in the world.
- In responding to an unexplained wealth order, respondents will need to discharge the applicant’s concerns that the assets in question are held unlawfully. This will likely give rise to information about third parties needing to be disclosed, which in turn may create a conflict of interest for financial services institutions, for example. The disclosure of information relating to third parties will also likely provide the enforcement authority with new avenues of investigation, including any corporate entities named in the response.
As the burden of proof is reversed and the implementing legislation is drafted widely, unexplained wealth orders have the potential to be utilised extensively. Proper scrutiny by the court of each application is therefore all the more important to ensure that the power afforded by unexplained wealth orders is not abused by UK law enforcement agencies. In this context, we note the comments made by Director of the SFO, David Green, and the Joint Head of Bribery and Corruption, Camilla de Silva, that the SFO will not use its new powers until it has the “right case”, which indicate that the SFO is taking a cautious approach.