Speed Read: This piece canvasses the international experience of implementing, enforcing and utilising unexplained wealth laws with the aim of drawing out important loopholes to close and lessons to learn for the UK.
Since the 1990s, there has been a worldwide review of national legal frameworks and approaches to addressing criminal as well as suspicious wealth. More recently, governments have considered unexplained wealth laws as a legislative option to enhance domestic efforts to confiscate and forfeit wealth from individuals involved in nefarious activities. Of these, a variety of legal routes have been pursued. Some countries, like South Africa, Canada and – in some respects, the UK - have partially adopted aspects of the unexplained wealth concept by introducing presumptions in favour of confiscation and forfeiture for specific offences. In contrast, other countries have adopted illicit enrichment offences as provided for in the United Nations Convention Against Corruption, with variations such as limiting the offence to circumstances where there is specific underlying activity or the offender in question is a politically exposed individual.
Only three countries, namely Ireland, Australia and Colombia have fully adopted, implemented and executed unexplained wealth orders. This piece focuses its attention on the Irish and Australian experience, not least because of the similarities in legal traditions but also because of the commonality in language. Moreover, in 2014 the Colombian Congress repealed Law 793 of 2002 – which contained the ‘pure’ unexplained wealth laws regime – in favour of reforms to the asset forfeiture regime and a statutory commitment to basic liberties to individuals involved in asset confiscation proceedings.
Understanding and learning from the Irish and Australian experience will not only inform policy makers of issues for consideration but will also provide enforcement authorities and interested parties with a ‘heads up’ on what to expect should the proposed UK regime receive royal assent.
The Australian and Irish UWO regimes
Broadly speaking, both the Australian and Irish unexplained wealth regimes provide for non-conviction based assed confiscation/forfeiture proceedings that do not require a predicate offence to be established. Moreover, both the regimes contain a reversal of the burden of proof by requiring the respondent to the proceedings to explain the lawful source of the specified property. These three features are common to both Australian and Irish unexplained wealth laws frameworks – indeed, all three appear in the proposed UK regime, however there exist specific nuances to each. These nuances, along with a brief history and background, are drawn out below.
From the outset, it is also worth noting that unlike the UK proposed framework, neither the Australian nor Irish UWO regime legislatively focus attention on foreign politically exposed persons. Instead, the regimes target persons reasonably suspected of being involved in serious crime.
In 1999, the Australian Law Reform Commission (“ALRC”) released a report highlighting the disappointing and ineffective conviction-based confiscation regime established in the Proceeds of Crime Act 1987 (Cth), noting that they were not having their intended deterrent effect and were producing little by way of amounts being recovered/confiscated. In 2000, the state of Western Australia (“WA”) was the first jurisdiction in the federation to introduce unexplained wealth laws as part of the Criminal Property Confiscation Act 2000 (WA). The Northern Territory (“NT”) followed suit and in 2003 implemented the Criminal Property Forfeiture Act 2002 (NT). The NT model closely mirrored the WA regime but contained expansions and improvements. Commentators point to aspects of the NT regime that account for its “perceived success”. One such aspect is an incentivisation mechanism provided for in the legislation enabling criminal sentencing courts to take into consideration, in favour of the offender, the offender’s cooperation in forfeiture proceedings.
In 2002, spurred on by international trends targeting illicit wealth, the Commonwealth government considered whether to introduce unexplained wealth laws into the federal confiscation framework. Ultimately, owing to the “comprehensive” asset-forfeiture statute containing options for in rem and in personam proceedings, as contained in Proceeds of Crime Act 2002 (Cth), the decision was made to shelve the introduction of unexplained wealth laws in light of them being regarded as a “step too far”. In 2006, an independent inquiry (commonly known as the Sherman Report) was commissioned to review the Proceeds of Crime Act 2002 with the objective of assessing its impact, identifying limitations and making recommendations for improvement. In short, the Sherman Report noted that although the Act was more effective than its predecessor legislation, more needed to be done to combat, deter and prevent crime. Reference was made to the WA and NT unexplained wealth laws noting their effective use but questioned the appropriateness of its introduction at the federal level citing concerns over potential infringement to the individual’s rights and the interests of the community. Once again, the introduction of UWOs at the federal level was postponed. In 2008, another inquiry was initiated, again examining and reviewing the federal approach to combating organized and serious crime. Following from this inquiry, the Commonwealth government introduced the Crimes Legislation Amendment (Serious and Organised Crime) Act 2010 (Cth), amending the Proceeds of Crime Act 2002 to introduce, among other measures, the federal UWO regime. Shortly after the introduction of UWOs at the federal level, a raft of other Australian states, such as New South Wales, Queensland and South Australia, implemented state-based UWO regimes. For completeness, important differences do exist as between each jurisdiction’s unexplained wealth order regimes. For example, the Commonwealth UWO regime requires a nexus or linking, but not a conviction, to a Commonwealth offence before an order can be made. This is not only an additional hurdle but, arguably, an important safeguard. Moreover, the Commonwealth UWO regime provides for three different types of orders namely unexplained wealth restraining orders, preliminary unexplained wealth orders and a final unexplained wealth orders, which in effect is a confiscation order. Each designed for a specific purpose dependent on the stage of proceedings and each with their own requirements. Importantly, as distinct from the proposed UK regime, it is the court, as opposed to the enforcement agency, that has to be satisfied as to the individual’s explanation of their wealth before making the final order.
In 1996, Ireland became the first European country to enact a civil forfeiture regime. The Proceeds of Crime Act 1996 and the Criminal Assets Bureau Act 1996 (“CAB”) form the basis for the Irish two-pronged approach to tackling illicit and suspicious wealth. Its leadership in the area of non-conviction based asset confiscation and imposition of a reversed burden was initially – and in some respects, still continues to be – met with strong criticism, dissent and resistance. Although the Irish regime does not use the “UWO” term, its features are near to identical to the unexplained wealth law concept. The Proceeds of Crime Act 1996 enables property to be the subject of confiscation proceedings without needing to establish a predicate offence. Moreover, the regime is triggered by “belief evidence” or, reasonable grounds for suspecting that a person owns or possesses property obtained either directly or indirectly from criminal activities and is rebutted via a reversed burden which requires the respondent to show the legitimacy of the subject property. Importantly, the Irish regime applies retroactively making property acquired before or after the introduction of the Act vulnerable to confiscation.
Essential to a comprehensive understanding of the Irish civil-based confiscation regime is an appreciation of the CAB – which forms the multidisciplinary agency charged with implementing the Proceeds of Crime Act 1996 and body largely attributed with the success of the Irish confiscation regime. Members of the CAB, which include officers of Garda, the Revenue Services and Social Welfare, pull together resources, skills and vital information under the umbrella of a single agency to form an effective and forceful institution to deal with and respond to crime.
Evaluating the Australian and Irish Experience
While UWOs have operated for quite some time in Australia, no comprehensive review measuring their effectiveness has taken place. However, the limited evidence available suggests that the effectiveness and use has been mercurial at best. As at December 2016, the UWO regime in Western Australia had seen 28 applications for unexplained wealth declarations since 1 January 2001. 24 of these applications had been successful, three unsuccessful and one pending, noting importantly that between the period of 2004-2008 no unexplained wealth declarations were made – commentators attribute this ‘silence’ to extensive public criticism of the UWO regime. From these successful applications a total of AUD $6.9 million had been confiscated. In the Northern Territory, the total amount of unexplained wealth forfeited thus far is approximately AUD $3.5 million. Since implementation in 2010, the total amount recovered in NSW is AUD $2.6million, but this figure rises to $14.4 million once the amount determined by negotiated settlements, a specialist feature of the NSW regime, are factored in. These low forfeiture figures can be attributed to numerous factors including, but not limited to: judicial push-back to the use of UWOs’ prosecutorial resourcing deficiencies; lack of public support; inter-agency disputes over jurisdiction and in some cases the application of alternative confiscation laws which obviate the need for an UWO. Evidence is scant as to the Australian interrelationship between UWOs and the dealing with the proceeds of crime deterrence.
This picture sits in sharp contrast to the Irish regime with evidence suggesting a 100% success rate in civil-based confiscation proceedings. Evidence notes that the total amount of assets forfeited since 2004 totals USD $15,744,100. Research has further suggested that the Irish regime has had a significant impact on reducing, disrupting and dismantling criminal activities in Ireland, with the two-pronged approach proving a major setback for the Irish criminal fraternity. For completeness, it should be noted that some evidence suggests that in fact criminals have moved their illicit monies to other jurisdiction, such as Holland and Spain, in fear of Irish seizure.
The success of the Irish civil non-conviction based asset recovery regime has largely been attributed to the multidisciplinary CAB agency. By combining the resources and personnel of different departments, CAB becomes a highly specialized body that is able to ‘attack’ illicit wealth from three angles namely, “forfeiting property constituting proceeds of crime, taxing it and denying social welfare payments to the respondents who own or control such property.” The importance of adopting a CAB-like model has recently been highlighted by the Australian Institute of Criminology which noted the importance of collaboration and information sharing between national agencies and specialist financial investigators, the lack of which is presenting an impediment for some of the Australian jurisdictions. Indeed, a national scheme governing unexplained wealth is gaining traction in Australia. The CAB is no doubt an interesting model, one that UK should give serious thought to as it operates to tackle illicit wealth from a holistic and multidisciplinary point of view.
Like the Irish experience, the enactment of unexplained wealth laws in Australia was met with fierce resistance and opposition. Common to both experiences have been a plethora of legal and constitutional challenges to the operation of UWOs, specifically the reversed burden and the argument that they are, in essence, a disproportionate punitive measure that infringes upon fundamental rights such as the presumption of innocence and the right not to self-incriminate. Despite the many challenges, and indeed an acknowledgement by the courts of their breadth, the UWO regime has survived extensive judicial scrutiny in both Australia and Ireland. No doubt, if passed, the UK regime will likely face its own legal challenges. One that comes to mind would be a challenge to the lack of a criminal nexus in the case of PEPs or their associates.
Interestingly, the Australian experience draws out one loophole that UK enforcement authorities should take particular note of. Australian courts have considered it sufficient for respondents to point to gambling and/or horse racing winnings, gifts or inheritances received from relatives aboard, as the lawful source to explain the wealth. This is attributed to the fact that the Australian tax regime does not require funds acquired through gambling or overseas inheritance or gifts to be recorded for tax purposes. The same might arise in the UK if an individual subject to a UWO proceeding says that their unexplained wealth is the result of successful trips to William Hill.
UWOs are an innovative legal tool in the fight against illicit wealth and crime more generally. However, based on the above brief examination of the Australian and Irish experiences their impact is country, context and content specific. Ireland has shown how powerful and effective the tool can be in the fight against crime generally, whilst the Australian experience has been moderate, at best. From the above discussion, UK-interested stakeholders should be mindful of the importance and effectiveness of the CAB model, and the integral and active role it can play in enforcement and deterrence whilst keeping an eye out for potential loopholes, such as the provision of a gambling-related explanation, respondents may exploit in explaining their wealth.