The High Court has handed down judgment in an appeal of the first Unexplained Wealth Order (UWO). The judgment unequivocally rejected an appeal against the original UWO. In doing so, areas for argument in future cases have been uncovered. Richard Kovalevsky QC and Pia Mithani consider the ruling of Mr Justice Supperstone in National Crime Agency v Mrs A [2018] EWHC 2534.

The judgment has set the bar high in several areas for any respondent wishing to set aside UWOs and the onerous disclosure obligations flowing from them.

In adopting a robust approach, the High Court has given support to criminal investigative authorities in their efforts to trace and confiscate assets acquired from the proceeds of international crime. The war on laundering money through the purchase of UK assets has been waged for a long time, with constant criticism that not enough is being done to seize these assets. The caution of criminal investigators, who have been criticised for not using UWOs, was no doubt in part due to them not wishing to be the first to fail. The judgment, welcome as it is to prosecutors, may see action taken in relation to other cases, which we understand the authorities have waiting to go.

Whilst this may mark the beginning of wider use of UWOs, Mr Justice Supperstone’s judgment has illuminated the field and drawn battle lines for those seeking to set aside a UWO in the future.

UWO

The UWO is an investigatory tool available under Part 8 of the Proceeds of Crime Act 2002 (POCA) to UK criminal investigative authorities. A person holding assets in excess of £50,000 can be required to disclose extensive details of their interest in those assets if:

  1. They are a Politically Exposed Person (PEP) (or closely associated with a PEP); or
  2. They are suspected of being involved in or associated with financial crime; and
  3. There are reasonable grounds to suspect that their lawfully obtained income is insufficient to enable them to purchase the asset.

This appeal resulted from the National Crime Agency (NCA) obtaining the first UWO, in February 2018, against Mrs A, the wife of a suspected PEP located outside the European Economic Area (EEA).

Mrs A’s application to set aside the UWO was launched on a number of grounds, all of which were rejected in their entirety in a judgment handed down on 3 October 2018.

Issues of Particular Interest

Politically Exposed Persons

Mrs A argued that her husband was not a PEP as the bank he worked for was not a state-owned enterprise and his role did not constitute a prominent public function for an international organisation or a state. In dismissing the first argument, the court accepted evidence which showed that the state consistently held a majority shareholding in the bank. Mr Justice Supperstone avoided expressing any view as to what the position would be where only a minority holding was in the hands of the state.

In dealing with expert evidence to the effect that the bank was not a state-owned enterprise, the court held that this was an English law question and was one for the enforcement agency and the court to determine. The court was of the view that “ownership and control” were the factors which determined the characterisation of the bank, not its legal status or its powers.

In dismissing the argument as to the prominence of the role occupied by Mrs A’s husband, the court considered Article 3 of Directive 2015/849/EU of the European Parliament and of the Council, which is applied through s362B of POCA. The court found that when dealing with PEPs who were not in the UK or EEA, no distinction was to be drawn between, on the one hand, heads of state and government and, on the other, members of the administrative, management or supervisory bodies of state-owned entities. The judge held that a substantial role in an entity “owned” or “controlled” by a non-EEA State is sufficient to be categorised as a PEP.

Foreign convictions and human rights

The NCA relied in part upon Mrs A’s husband’s conviction for fraud in a non-EEA country to establish that her husband’s lawfully obtained income was insufficient to purchase the property in question. The court accepted Mrs A’s evidence of human rights violations and serious deficiencies in the criminal system of the state in question, but held that it was still permissible to have regard to the conviction. On the facts of the case, that decision was supported by the evidence of the lavish lifestyle enjoyed by Mrs A, which included spending £16.3m in Harrods over 10 years.

Privilege against self-incrimination

The judge refused to afford protection to Mrs A under the doctrine of privilege against self-incrimination. Finding that the purpose of the UWO regime was to obtain disclosure of information, the court turned to s14 Civil Evidence Act 1968 and adopted the territorial restriction contained within it. In particular, he concluded on the facts that there was no evidence of a real and appreciable risk that either Mrs A, or Mr A, would be prosecuted in the UK.

The court considered that an overly generous approach to this privilege would render the regime redundant. There may be issues with aspects of the route taken to achieve this public policy goal, in view of the international reach of the UWO regime. The regime has effect across jurisdictions (eg it applies to PEPs overseas and suspected crime committed abroad). When dealing with assessments of appreciable risks of prosecution in the UK, no weight was given to the fact that documents produced under the UWO requirement may be used in certain criminal proceedings against either Mr A or Mrs A, and possibly shared with other law enforcement authorities. The fact that a successful UWO inevitably increases the risk of a money laundering prosecution in the UK may be a point to be considered in the future.

Contempt of court and penal notices

In a bold move, Mr Justice Supperstone sanctioned the ability to attach a penal notice to a UWO. Non-compliance results in a statutory rebuttable presumption that the property is recoverable for the purposes of civil recovery action under s362C POCA. False, misleading and/or reckless statements in purported compliance with the terms of a UWO result in a criminal offence under s362E POCA. Despite this, the court thought that there was an “enforcement gap” and decided that Parliament had intended to subject UWOs to a penal notice, resulting in contempt of court and possible committal in the event of non-compliance.

This decision to give the High Court additional teeth to enforce compliance outside the ambit of the statue itself, for proceedings under the statute, is interesting. In the future, this may be another string to the bow of those wishing to conduct private civil recovery exercises in conjunction with law enforcement.

As can be seen, this is an important decision leaving further issues to be resolved.