U.K.—Unexplained Wealth Orders Explained
The Criminal Finances Act 2017 introduced several new weapons to aid in the fight against “dirty money.” Receiving the lion’s share of the fanfare were the strict liability corporate offences of failure to prevent the criminal facilitation of domestic and foreign tax evasion. No doubt their publicity has been helped by the corporate panic that comes with the spectre of unlimited fines and confiscation of assets.
Unexplained Wealth Orders (“UWOs”) are, perhaps, less well understood despite their potentially immediate and huge impact. They are now in force and, despite some speculation that it would be some time until we saw them being deployed as authorities waited for “the right case,” are now being issued by U.K. authorities; in February 2018 the National Crime Agency (“NCA”) secured two UWOs, and interim freezing orders, on assets totalling 22 million pounds.
Accountants, private client managers and tax advisers should understand how UWOs work and prepare for the worst, lest they find themselves, and their clients, exposed.
What are UWOs?
UWOs have been introduced as a means to recover the proceeds of crime through civil powers rather than criminal powers. Relevant enforcement authorities are now able to apply to require a person to explain and account for the origin of their assets where it appears that the assets are disproportionate to their known legitimate income. They will no doubt make it easier for assets (suspected of being the proceeds of crime) to be seized as the application for a UWO may be based on suspicion alone, with the burden of proof reversed onto the respondent to prove that this is not the case.
How are UWOs Obtained?
UWOs are orders made by the High Court and can be applied for and issued without notice to the respondent. They can be applied for by several authorities, such as HM Revenue & Customs (“HMRC”), the NCA, the Serious Fraud Office (“SFO”), the Financial Conduct Authority (“FCA”) and the Crown Prosecution Service (“CPS”).
In order to obtain a UWO, the authority must persuade the court that a number of factors exist. The authority must be able to show a reasonable belief that the respondent holds the property and that the property exceeds 50,000 pounds. They must also demonstrate that the respondent is a non-EEA Politically Exposed Person (“PEP”) or that there are reasonable grounds to suspect that the respondent, or a person “connected” with the respondent, is or has been involved in serious crime (in the U.K. or elsewhere), which includes tax evasion. This is incredibly wide and persons connected with a PEP may find themselves caught up in proceedings even if there is no suspicion that they are involved in a criminal offence.
The authority will then need to persuade the court 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 them to obtain it.
Rather importantly, it does not matter:
- When the property was acquired (UWOs can bite on assets acquired before the powers came into force);
- Whether or not the respondent is in the U.K.;
- Whether there may be other persons who hold the property; or
- Where the property is located.
Pending a response, the authorities are able to apply for a freezing order over the property in order to prevent the respondent from dealing with or disposing of it. If the respondent is unable to comply within the time specified in the UWO, it raises a rebuttable presumption that the asset constitutes recoverable property for the purposes of a civil recovery order.
It is a criminal offence for a respondent to recklessly or knowingly provide misleading or false information in response to a UWO, and is punishable by up to two years’ imprisonment, a fine, or both.
Use of the Statement by Authorities, and Future Development
UWOs are not intended for use in criminal proceedings and are for civil recovery only. Information provided in response to a UWO may not be used in criminal proceeding against the respondent, although there are some exceptions: if the respondent makes a statement in any subsequent prosecution that is inconsistent with the statement given in response to the UWO or a prosecution for perjury is commenced.
Despite this, it is clearly an attractive and easy route for authorities to obtain and share information in order to uncover and seize “dirty money.” Enforcement authorities have limited funding and given the cost of large-scale fraud and corruption investigations, it seems inevitable that we will see UWOs being deployed for the “low-hanging fruit.” Obtaining information through UWOs certainly seems easier given that once the reasonable suspicion of crime is demonstrated, the burden of proof is reversed so that the respondent must be completely transparent or risk committing a criminal offence.
The first U.K. UWOs were issued against an unidentified politician from central Asia with a multi-million pound property portfolio. The NCA was granted the power to enforce a UWO against 22 million pounds of assets relating to two properties and was granted an interim freezing order against the ultimate beneficial owner.
Impact on Tax Practitioners
Not only is the law now in force, but enforcement authorities have shown a willingness to use new powers where they traditionally adopt a more cautious approach. Tax practitioners must be alert to the risk that certain clients could find themselves subject to a UWO. As UWOs can be applied for and granted without notice, and with limited time in which to give a full account of certain assets, practitioners must plan ahead:
- Identify clients at risk, namely non-EEA PEPs with substantial assets;
- Ensure that your client has provided you with documentation explaining how relevant assets (i.e. property) were purchased, and that you understand the complex structures your clients may use to purchase and hold assets across multiple jurisdictions;
- Prepare a draft response that explains your client’s source of funds in order to hit the ground running. The details of the specific assets would need to be dealt with if particularised by a UWO;
- Prepare to challenge immediately. If the application is made without notice and in the absence of the respondent, the decision may be overturned by challenging the evidence supplied ex-parte, and providing a potential costs risk to the authority; and
- If a UWO is made, the response must be careful and accurate. Good legal advice will be indispensable.
Tom Orange is a solicitor in the criminal litigation team at Byrne and Partners LLP, U.K.