The UK’s Unexplained Wealth Order: certainly much improved, but going after dirty money remains difficult
The United Kingdom’s Economic Crime (Transparency and Enforcement) Act received Royal Assent on 15 March 2022.
This long-promised legislation was brought forward in the context of the war in Ukraine and expedited through Parliament, signalling the UK government’s declared intent to boost the powers of law enforcement agencies to target domestically located proceeds of crime that may have a connection to Putin and his inner circle.
Aside from amendments made to the UK sanctions regime which are intended to enable the UK to impose sanctions against oligarchs already designated by other States and improving powers of sanctions enforcement, the Act has broader application against dirty money in the United Kingdom. It introduces a Register of Overseas Entities in relation to property and amends the Unexplained Wealth Order investigatory powers under the Proceeds of Crime Act 2002. This note focuses on the amendments to the unexplained wealth order regime.
As the UK government explains in this fact sheet,
“An unexplained wealth order (UWO) is an investigatory order placed on a respondent whose assets appear disproportionate to their income to explain the origins of their wealth.
An Unexplained Wealth Order (UWO) requires a person who is a Politically Exposed Person (PEP) or reasonably suspected of involvement in, or of being connected to a person involved in, serious crime to explain the origin of assets (minimum combined value of £50,000) that appear to be disproportionate to their known lawfully obtained income.
...A UWO is not (by itself) a power to recover assets. However, any response from a UWO can be used in subsequent civil recovery proceedings.”
A little-used power
Despite the great expectations which accompanied the introduction of UWOs in 2018, they appear to have been little used. Of the five agencies with the power to apply for UWOs, only the National Crime Agency (NCA) has utilised this investigatory power, so far in only four cases.
And even in these cases, the exercise of the powers has met with patchy success, with one UWO application being successfully challenged – leading to a reported costs order against the NCA of GBP 1.5 million.
The amendments to the Act are intended to improve the effectiveness of the UWO regime as follows:
The amendments introduce “responsible officers” as a new category of people who can receive a UWO. This new provision can apply where the respondent to an UWO is not an individual, but instead for example a company.
In these cases, the UWO can include the name of an individual – the “responsible officer” – who must provide the necessary information. It is anticipated that “responsible officers” will be directors, partners or managers of companies.
The intended aim of this provision is to enable enforcement authorities to obtain information in cases involving complex corporate structures that have been used to hide the owner of certain assets.
Broader scope of application
They broaden the situations in which a UWO can be sought to include cases where there are reasonable grounds for suspecting “that the property has been obtained through unlawful conduct.”
Before this amendment, the Court had to be be satisfied that “there are reasonable grounds for suspecting that the known sources of the respondent's lawfully obtained income would have been insufficient for the purposes of enabling the respondent to obtain the property.”
This has proven difficult when property was held in complex corporate structures, as enforcement authorities struggled to establish evidence of income of the owners of the property. The amendment helps with this as it is intended to allow an application for a UWO to be made when it can be shown that the property was bought with dirty money.
Extended review period
Where property is subject to an interim freezing order, the law is amended to enable law enforcement agencies to apply for an extension by up to 126 days of the period of time available to review material provided under a UWO and determine whether or not to seek further asset recovery action.
Protection against legal costs
The amendments also aim to protect the agencies from incurring substantial legal costs in cases relating to UWOs, providing they have acted reasonably.
Will they work?
While the reforms will no doubt remove some of the hesitancies that have prevented enforcement authorities from seeking UWOs in the past – particularly by removing the risk of the state facing hefty legal bills in the event of failure – the jury on whether the amendments go far enough is still out.
Even the UK Government’s factsheet on the proposed reforms was non-committal as to the extent to which these laws will actually encourage law enforcement agencies to actively seek more UWOs.
How the UK law differs from other unexplained wealth order mechanisms
When the UWO’s were first introduced in the UK, there was a widespread misconception that the order itself would enable the confiscation of assets.
However, this was never the case as the UK’s UWO is an investigatory power. It does not, of itself, provide a mechanism for the actual recovery of assets.
Assets can only be recovered when evidence obtained under an UWO is used to support a separate civil recovery procedure under the Proceeds of Crime Act, where the Court has to determine whether specific property has been derived from unlawful criminal conduct.
The UK’s unexplained wealth mechanism differs therefore from similarly named unexplained wealth-focused mechanisms that exist around the world. These typically act as a power to identify potentially unexplainable assets and also allow for their confiscation (or for a civil payment order to be made for their value against the relevant person) without the need to demonstrate that the assets are derived from criminal activity.
As such, while the recent amendments clearly improve the UK’s mechanism, they do not change the fact that the recovery of stolen assets still depends on a separate legal procedure and a requirement that courts be satisfied that the property in question is, more likely than not, derived from crime.
While this is not wrong in itself, it is also not wrong to suggest that on top of the latest amendments, the UK could also consider additional unexplained wealth-focused mechanisms, for example like those that exist in several other common law jurisdictions and that simply require the court to be satisfied that certain assets do not have a lawful explanation before potentially confiscating them.
Such tools could give the UK enforcement authorities yet another avenue to go after the dirty money that has been plaguing the London financial centre for too long.
Find more information on these types of mechanisms in Illicit Enrichment: A Guide to Laws Targeting Unexplained Wealth, an open-access book published in 2021 by the Basel Institute through its International Centre for Asset Recovery (ICAR), with research support from the NYU School of Law.
Written by Senior Asset Recovery Specialist Andrew Dornbierer, the book provides a comprehensive guide to illicit enrichment laws and their application to target unexplained wealth and recover proceeds of corruption and other crimes. It covers both criminal and civil-based laws from around the world, and is accompanied by a database of illicit enrichment/unexplained wealth legislation in 103 jurisdictions and guidance for investigators and prosecutors on conducting source and application analysis to prove such cases in court.
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