Digging beneath the headline figures

Unexplained wealth orders (UWOs) have arrived among a fanfare of media attention, with the gaze firmly on the property sector, particularly the luxury part of the market, which is often dominated by foreign investors. The tool is designed to catch politically exposed persons (PEPs) who use unexplained wealth to purchase property and assets in the UK.  What is a UWO? As of 31 January 2018, the High Court has the power to make a UWO, without prosecution, requiring a person holding an asset valued at more than £50,000 to explain their interest and how they acquired the asset. A UWO creates a reverse burden on the respondent to prove the legitimacy of the income used to acquire the property. If they are unable or refuse to explain the source of their wealth, the asset can then be recovered through the civil recovery regime under the Proceeds of Crime Act 2002 and frozen or seized more easily than under the previous legislative regime. Additionally, an interim freezing order can be imposed where there is a risk of the asset being disposed of prior to compliance with the UWO, or to avoid the risk of any recovery order that might subsequently be obtained being frustrated.  Who can use the powers? The enforcement authorities who are allowed to make an application for a UWO are: ■ Serious Fraud Office (SFO); ■ National Crime Agency (NCA); ■ HMRC; ■ Crown Prosecution Service (CPS); and ■ Financial Conduct Authority (FCA). Although only these enforcement authorities can apply for a UWO it is anticipated that they will use information gathered from a variety of sources including the Land Registry, beneficial owner registers and lobbying groups such as Transparency International. There might even be a situation where a business competitor files a dossier with an organisation to inflict damage on their competitor. Who is at risk/being targeted? The order can be made only where there are reasonable grounds to believe that the person holds an asset valued at more than £50,000 and there are reasonable grounds to suspect that the known source of the person’s lawfully obtained income would have been insufficient for the purposes of enabling them to obtain the property.  An additional criteria is that the person must be one of the following: ■ politically exposed persons (PEPs): an individual who is, or has been, entrusted with prominent public functions by an international organisation or by a state other than the United Kingdom or another EEA state, and any family member, known close associate or anyone otherwise connected with that person; or ■ persons where there are reasonable grounds for suspecting that they are, or have been, involved in serious crime (whether in the UK or elsewhere), or a person connected to them, or previously connected to them, was involved. Practical issues and mitigating the risk Jurisdictional reach: assets beyond the UK are still at risk. A person holds property where they: (a) have effective control; (b) are the trustee of a settlement in which the property is comprised; and (c) are a beneficiary (whether actual or potential) in relation to such a settlement. The subject of a UWO does not need to be resident in the UK nor must the property be located in the UK. However, a UK enforcement authority may seek assistance from foreign authorities to enforce a UWO and an interim freezing order. The willingness of foreign authorities to assist in enforcement will be a key factor in the geographical reach of UWOs and therefore the success of a UWO. Status as PEP: The UK enforcement authorities will have access to government databases of known heads of state and ministers holding senior roles and will also inevitably rely on open-source materials. Reducing an individual’s online footprint to remove links between them and PEP positions will reduce the risk of investigation, such as profiling the individual’s online presence, lobbying PEP databases to correct information and considering what information is available on public registers in order to structure business assets appropriately. Trigger events and the global reach: there may be trigger events that result in an individual increasing their chances of becoming the subject of a UWO: ■ banking relationships – large unexplained deposits/withdrawals may arouse suspicion, or frozen or closed accounts could be a red flag; ■ property purchases – information can be fed into the UK enforcement authorities; ■ high-profile asset purchases/sales (art, yachts, cars) – particularly where a company facilitates the sale; ■ share purchases/sales – large and unusual transactions; ■ criminal investigations both in the UK and abroad – or known associations to those investigations; and ■ high profile contractual relationships with foreign governments. Audit trail: Individuals at risk may wish to start putting together a dossier/evidence pack or audit trail of legitimate, auditable and traceable income that could be used quickly and efficiently to meet the reverse burden under a UWO. Care should, however, be taken as to what is provided in response to a UWO as, although that material cannot be used in any criminal prosecution as it is compelled information, it can be used in civil recovery and other investigations and is likely to be shared across multi-agency functions. Going forward Our sense is that resourcing issues are not going to allow a trawl back through all property/land purchases by PEPs over the past five to 10 years. The focus will be those which were most high-profile and easy wins including new asset purchases and repatriation of assets by high-profile suspected criminals or PEPs. It is early in the life of UWOs and enforcement authorities are going to be keen to select the right test cases to establish a robust precedent for the circumstances in which they will seek a UWO. At the time of writing, we understand that only two UWOs had been obtained, one over a London property and one over a Surrey property and were accompanied by interim freezing orders. The NCA has stated that the UWOs were obtained to “investigate assets totalling £22m that are believed to ultimately be owned by a politically exposed person”. The focus will invariably therefore be where there is clear disconnect between a PEP’s known sources of income and their apparent wealth and where there is no ostensible legitimate explanation so as to point to the PEP having abused their position. Craig Weston is a senior associate (employed barrister) in Irwin Mitchell LLP’s regulatory and criminal investigations group