21 January 2022
Are UWOs a useful tool to combat corruption?
Unexplained Wealth Orders (UWOs) were originally introduced in the UK on 31 January 2018 by the Criminal Finances Act 2017, as part of the wider crackdown on corrupt capital flowing into the UK. However, a closer look at the test for obtaining an UWO, the amount of successful applications and the resultant seizure of assets casts doubt on their general utility in the fight against corruption and money-laundering.
The concept of a UWO made its way into the parliamentary agenda primarily through pressure from agencies such as the National Crime Agency ("NCA") and Home Office. A new procedural instrument was deemed necessary to account for the estimated hundreds of billions of dollars in assets obtained by individuals assumed to be tied to illegal activities.
What are Unexplained Wealth Orders?
UWOs are a civil, investigative tool available to enforcement authorities, such as the NCA or HMRC. Following an application by the agency in question, the High Court may issue a court order demanding the respondent to provide information about certain assets, their legal ownership, and the source of the funds used to obtain the assets in question. If the authorities are not satisfied with the respondent's evidence about their sources of wealth and means to purchase the suspicious assets, the enforcement authority is granted the power to seize relevant assets or funds.
Upon an application for a UWO under Section 362B Proceeds of Crime Act 2002 (POCA), identifying the property in question and the respondent whom the enforcement agency believes to hold or control the property, the High Court will apply a four-part test:
- The High Court must be satisfied that the respondent holds the property;
- The property is worth at least £50,000;
- Respondent’s known income would be insufficient to have obtained the asset; and
- Respondent is either
- a politically exposed person (PEP) or their family member, close associate or otherwise connected, or
- involved in serious crime, or someone connected to someone who is.
It is worth noting that, the threshold for the third part of the test requires the applicant to present evidence which would give the High Court a “reasonable suspicion” that the sources of income would have been insufficient to procure the assets.
Once the UWO is successfully issued, the burden of proof shifts to the respondent to disclose their interest in the indicated assets and provide a sufficient explanation as to how any funds were raised. When the respondent has complied with the UWO, the enforcement authority will review the evidence of their wealth and decide if further enforcement or regulatory proceedings should be pursued (under POCA section 362D).
Are UWO's effective?
If the respondent cannot provide a reasonable explanation within the time limits set by the court, the asset in question is presumed to be recoverable under Part 5 of POCA proceedings. The respondent is also incentivized to avoid reckless or knowingly false statements in UWO proceedings by the threat of a maximum 2-year prison sentence.
To date, UWOs have only been used in respect of real property, although the wording of the legislation allows for wider use in respect to money, real and personal possessions, and even intangible property.
Unfortunately, if the home country’s regulators confirms that the assets are legitimate, despite the UK's suspicions, the third limb of the test for a UWO cannot be met. This obviously leaves room for corruption in home countries to defend the legitimacy of the asset for purely political reasons, or to avoid interference by the UK. Considering that a person must be a PEP to meet the first limb of the fourth part of the test, this shortfall should have been envisaged at the UWOs conception. This begs the question of whether a UWO can work against a PEP that carries political favour in the country of origin.
A British citizen can only be subject to an UWO if they are involved in serious crime, or are connected with someone who is. A British PEP cannot be subject to a UWO; this suggests that becoming British can limit the threat of being subject to this order.
Is the UWO framework fair?
Fundamentally, UWOs are often issued “before proceedings” and “without notice”. As such, a respondent is likely to be caught off-guard; this is of course beneficial to the applicant and a key strength of the UWO system. This can make it difficult for the respondent to comply with the Court's deadline for submitting of the required evidence. There is no time limit set by statute; the Court has the freedom to specify the period. The possibility of being subject to a short time limit, coupled with the without notice issuing of the UWO, could make it difficult for respondents to comply.
Secondly, an UWO may be accompanied by an Interim Freezing Orders (IFO). From the enforcement agency's perspective, without an IFO, an asset can be disposed of before UWO proceedings are complete and the court has the discretion to prevent this from happening.
Although IFOs can permit limited access to the frozen property, for instance to cover legal and living expenses, any property inside or outside the UK can technically be the subject of a UWO and property held in a corporate structure, or a trust, can also be subjected to IFO.
Thirdly, UWOs could potentially have far-reaching consequences. As UWOs force respondents to disclose sensitive information in order to sufficiently explain their ownership of the asset, this information can then be used by other authorities, for example, in an unrelated criminal investigation either in the UK or another jurisdiction. This information sharing between law enforcement agencies means that agencies may use them as a tactic to obtain information for further civil or criminal investigations, either against the respondent or associated persons. This raises wider concerns about data sharing with foreign law enforcement agencies that potentially undermine the respondent’s Article 8 ECHR right.
Additionally, a statement made in response to a UWO cannot be used in criminal proceedings, unless the person is being prosecuted for an offence of making a false statement. However, statements can be used in confiscation proceedings following criminal conviction or in Civil Recovery Order proceedings. This demonstrates that this civil order can give rise to criminal consequences.
Fourthly, whilst UWO proceedings are usually heard in private, the court can allow them to be made public, as in Hajieva v NCA. This could give rise to impacts on the respondent’s reputation.
Lastly, unreliable assumptions can be made by enforcement agencies. The court has emphasised the need for enforcement agencies to behave with caution when issuing UWOs. In NCA v Baker, the court found the NCA’s investigation was flawed by inadequate investigation. It failed to carry out a fair-minded evaluation of the new information provided by the beneficial owners and the respondents. The court states that there is a the need for caution in treating the complexity of property holding through corporate structures as grounds for suspicion in the context of UWOs.
Other Human Rights concerns?
An assessment made by Transparency International accepted that the UWO regime has sufficient safeguards in place to prevent abuse and comply with the UK's ECHR obligations, since:
- An UWO is a civil, and not criminal, measure;
- It is laid against the assets in question and not the individual;
- there is a reasonable evidential threshold required to apply to the High Court for a UWO
As such, there is a high degree of confidence that UWOs are compatible with the UK’s obligations on safeguarding human rights.
In respect of Article 6 ECHR, protecting the individual's rights to a fair trial, in NCA v Hajieva the High Court has held that there would have to be a “flagrant denial of rights under article 6, to require the NCA, and this court” to prevent the issuing of a properly made out UWO. An example would be a confession obtained through torture. However, there is no exclusionary rule that bars a court from relying on the fact of a conviction, even if it was obtained unfairly.
UWO’s raise concerns of the right to peaceful enjoyment of one’s property, under Article 1 Protocol 1 of the ECHR. This has only been briefly touched upon in current case-law. In Haijeva v NCA, the High Court stated that any interference with the respondent’s property rights was proportionate as there were grounds to believe the property was obtained through unlawful conduct and the interference was modest.
The prohibition of discrimination under Article 14 of ECHR currently does not have a court precedent in the UWO context. UWOs may be exploited aggressively by the enforcement agencies against certain nationals (and their associated natural or legal persons of certain countries) based on the presumption of corruption or, as a means of as political leverage akin to sanctions. The few existing cases have involved some discussion of human rights and UWOs. This may be explored further in the future.
Will UWOs become a more frequent procedure in the future?
In January this year, the House of Commons briefing pointed out that very few UWOs have been issued, with limited success (only one case to date has resulted in the recovery of the assets). This demonstrates that the measures created are not sufficient in themselves to tackle money laundering concerns in the UK; instead, they form part of the wider anti-money laundering regulatory matrix, and it remains to be seen how best to impose them. It is reasonable to expect that regulations might become harsher, particularly in light of the new National Security and Investment Bill 2021.
In addition, as the FCDO begins to make more executive orders sanctioning corrupt individuals under the Global Human Rights Sanctions Regulations 2020, capital raised through human rights violations may be stopped at the door without the need for internal proceedings and UWOs.
A further suggestion to make UWO’s more effective, and therefore implemented more frequently, would be to expand the definition of those that can be captured by a UWO. This would involve expanding the definition of a PEP to include domestic PEPs and PEPs from the EEA.
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