Unexplained Wealth Orders (UWO) were introduced by the Criminal Finances Act 2017 as an investigative tool for UK enforcement authorities to combat the flow of dirty money into the UK. UWOs can be used to compel an individual, trust or company to provide information about legal ownership and the source of funds used to obtain assets.
The purpose is to enable enforcement authorities to examine the financial activities of those whose assets are believed to far exceed what could be acquired by their legitimate income.
Although UWOs do not provide the power to seize or recover property, UWOs can be used alongside civil recovery powers to recover identified assets. Key features include the ability to seek a UWO without any civil or criminal proceedings having commenced and, unusually, the burden of proof shifts to the owner of property to prove it was acquired with legitimate funds.
A UWO can compel the provision of information such as:
- The nature and extent of the respondent’s interest in the property
- How the respondent obtained the property
- How the funds required to obtain the property were obtained, and
- Any other information in relation to the property specified in the order.
When making a UWO, the court can also make an interim freezing order in respect of the property prohibiting the property owner, and anyone with an interest in the property, from dealing with the property. Following compliance or purported compliance, with the UWO, the enforcement agency will review the information provided and decide whether to commence criminal or civil recovery proceedings.
Where, without a reasonable excuse, the order is not complied with in the specified period, the property is presumed to be recoverable and the court will order forfeiture, unless it can be shown that the property was not obtained through unlawful conduct. It is a criminal offence to knowingly or recklessly make a false or misleading statement when responding to a UWO.
Despite the fanfare accompanying the introduction of UWOs, there were few success stories and limited recovery of assets. The UK enforcement agencies suffered heavy blows in the UK courts, most significantly in National Crime Agency v Baker, where the UK High Court discharged three UWOs in respect of properties ultimately owned by the family of Rakhat Aliyev, a deceased Kazakh official.
To address the difficulties faced by the UK enforcement agencies, the legislation was recently amended by the Economic Crime (Transparency and Enforcement) Act 2022 (the Act) with the intention of significantly expanding and increasing the use of UWOs.
The fear of incurring substantial legal costs in the event of failure appears to have been a significant factor which led to the curtailment of the use of UWOs following the NCA’s expensive defeat in the Aliyev case. With the amendment to the cost rules, law enforcement agencies are likely to be emboldened to pursue UWOs that might otherwise have been considered at higher risk of a successful challenge by the property owner.
Previously, a UWO could only be made against two categories of persons – a politically exposed person or an individual where there were reasonable grounds to suspect they may be involved in serious crime. The court also had to be satisfied that there were reasonable grounds for suspecting that the known sources of the respondent’s legitimate income were insufficient to obtain the property.
The Act has amended the UWO regime in a number of important respects:
- A UWO can now be obtained against a third category of persons, namely a “responsible officer” of an entity that owns the property identified in the order, to cover situations where a respondent to a UWO is a trust or corporate structure rather than an individual. A “responsible officer” would include a director, manager or partner, whether situated in the UK or overseas, even where they personally do not own or control the property.
- The court may grant a UWO where there are “reasonable grounds for suspecting that the property has been obtained through unlawful conduct” whether the unlawful conduct took place in the UK or overseas. This means that a court can make a UWO even where the source of wealth for a particular asset can be explained.
- When applying for a UWO, an enforcement agency may apply for an interim freezing order, which would prohibit the person receiving the UWO from selling property identified in the order.
- The Act extends the period available to the relevant enforcement agency to decide whether further investigatory or enforcement action is required. Previously, enforcement agencies had up to 60 days to make this determination, subject to permission from the court, an enforcement agency will now have up to 186 days.
- If an enforcement agency is unsuccessful in an application for a UWO, it will not be required to pay the legal costs incurred by the respondent unless the agency acts unreasonably, dishonestly or improperly in the conduct of the investigation.
The legislative changes are indicative of the government's clear objective to target those who abuse the UK financial system. However, enforcement agencies continue to face huge challenges with resourcing and funding.
We await with interest to see whether the use of UWOs is increasing, law enforcement agencies may have been provided with more effective tools but we have yet to see the evidence of effective deployment.