W&F Issue 5 2018

www.wealthandfinance-news.com 28 Wealth & Finance International - Issue 5 2018 What are UWOs? An Unexplained Wealth Order (UWO) is an order requiring a person to explain their ownership of a specific asset and how it was obtained. UK law enforcement agencies including the National Crime Agency (NCA), Serious Fraud Office (SFO) and Her Majesty’s Revenue and Customs (HMRC) have been given the power to apply for UWOs, which will be granted by the High Court if certain conditions are met. UWOs can only be obtained against two categories of person: politically exposed persons (PEPs) from outside the EEA; and persons suspected of involvement in serious crime or those connected to them. The law enforcement agency will have to convince the court that there are reasonable grounds for suspecting that the person could not have obtained the property using their lawfully obtained income. UWOs can be used in conjunction with interim freezing orders that temporarily prevent the recipient of the UWO from dealing with particular assets, for example by selling them or removing them from the jurisdiction. The UK government has estimated that around 20 cases a year will involve the use of UWOs. The NCA, the UK’s law enforcement authority responsible for tackling serious and organised crime, is the first to make use of these new powers. By February, it had announced the obtaining of two UWOs, as well as interim freezing orders, in relation to real estate worth around £22 million that the NCA believes to be ultimately owned by a politically exposed person from Central Asia. A tool with an international reach UWOs have an almost limitless international reach. An order can be obtained against an individual anywhere in the world. For an UWO to be made against a person suspected of involvement in serious crime, the alleged criminal activity can have taken place anywhere in the world, provided it would constitute an offence if it had taken place in the UK. The property in relation to which an explanation is sought may also be located anywhere in the world. Comments by law enforcement officials in relation to the first UWOs suggest a likely focus on UK- based real estate, in the context of significant political and media interest in the channelling of illicit funds through the London property market. High value immovable property is an easier target for law enforcement agencies, particularly where the ultimate owner has a relatively modest publicly declared income. However, the wide extra-territorial scope means it is possible that UWOs will be used to obtain information about the ownership of assets held in ‘offshore’ jurisdictions, including through trust or company structures. Use of UWOs as a political tool The potential for UWOs to be used as a political tool is open to debate. In the wake of the Skripal poisoning and heightened public concern about the activities of Russian individuals in the UK, members of parliament have already called for UWOs to be targeted against members of the Russian community whose wealth is thought to be attributable to their links to the current regime. NCA officials have been quick to respond that the power cannot be used to target particular nationalities and that they will always need to gather sufficient evidence to justify applying for an order. It remains to be seen how the courts will react to any use of the tool that is seen to be overly politicised. On the one hand, the wide jurisdictional reach, coupled with a low bar of ‘reasonable grounds’ for doubting the lawful acquisition of the property, give law enforcement agencies scope to use this tool in a wide range of cases, and leaves judges with limited discretion to refuse to grant an order. However, law enforcement agencies with limited resources will need to choose carefully when making use of this potent new tool and have various reasons for being circumspect. They will be aware of the risk of challenges to Explaining the Unexplained UWOs. UWOs are made without notice to the respondent, who is not able to be represented at the hearing, and this places an obligation on the law enforcement agency to provide full and frank disclosure of all the circumstances. Those who feel an incorrect or incomplete picture has been presented will be quick to challenge the UWO. Challenges on human rights grounds are also likely. An individual required to prove to the court that their property has been obtained through lawful means may argue that this constitutes a breach of their rights to property or to privacy, both protected by the European Convention on Human Rights. Law enforcement agencies will be anxious to avoid a finding by the UK appeal courts that this draconian measure is being employed in a manner that is disproportionate. Law enforcement agencies will be alive to the wider geopolitical implications of targeting certain nationalities in their use of this new tool. It seems unlikely that they will be used against PEPs from countries with strategic importance for the UK or with which the UK government enjoys friendly relations. Foreign governments may be keen to encourage use of UWOs to supplement their own corruption investigations, and a law enforcement agency may decide to open an investigation and apply for an UWO because of information passed from a PEP’s country of origin. It has been reported that the Serious Fraud Office will seek its first UWO in relation to London properties owned by former Nigerian leaders having been alerted by current president Muhammadu Buhari. It will be for the law enforcement agency to decide how to respond to tip offs such as these, and it is hard to imagine that the relationship with the current regime will not be a factor. Interestingly, one limitation on the international reach of UWOs is the somewhat arbitrary distinction in relation to PEPs. The power to make an UWO against a PEP only applies to individuals from outside the EEA. Public officials and persons connected to them from European countries with consistently high rankings on corruption indices, including Romania Hungary, Bulgaria are therefore completely excluded. A tool with an international reach: an insight into Unexplained Wealth Orders. By Neil Swift, Partner at Peters & Peters