The National Crime Agency (“NCA”) estimates that many hundreds of £billions of corrupt money flows through London each year. At the same time, although thousands of individuals are prosecuted and convicted of acquisitive criminal offences where confiscation orders are made, in 2016/17 only £162 million was collected and some £1.9 billion remains outstanding and unpaid despite lengthy default terms of imprisonment being imposed. Those facts alone illustrate a disparity of such proportion that a new approach is thought needed.
On 31 January 2018 the Unexplained Wealth Order (“UWO”) was released into the wild. The media reaction was almost universal and stereotyped in describing the UWO as a predator designed to disgorge Russian oligarchs of their illicit wealth. Should we be picturing investigators unleashing this beast upon Mayfair’s colourful McMafia characters and seizing their assets or is the reality more likely to be a bit of growl and less bite?
Transparency International UK were quick to place five properties under the spotlight for the authorities to consider, the owners of which were said to be the first family of Azerbaijan, the current Russian First Deputy Prime Minister, a former Libyan Major General, the President of the Nigerian Senate and the former Prime Minister of Pakistan. The combined estimated value of just those five properties was estimated at £54 million. The Tory MP Andrew Bridgen called for NCA to seek an UWO in relation to the property ownership of the labour MP Keith Vaz who was a member of the Home Affairs Committee which looked into the confiscation regime under POCA in 2016. Most recently on 28 February 2018 the NCA reported that they had secured the first UWO’s to investigate assets totalling £22million in relation to a property in London and one in the South East of England. In addition to the UWOs, interim freezing orders (“IFOs”) were granted, preventing the assets from being sold, transferred or dissipated while subject to the order. It was reported that these properties were believed to be ultimately owned by a politically exposed person (“PEP”), the Financial Times stating that it was an Asian politician. These are interesting times.
On 27th April 2017 the Criminal Finances Act 2017 inserted sections 362A to 362T into the Proceeds of Crime Act 2002 (“POCA 2002”) within Part 8, Investigations. The twenty new provisions came into force on 31 January 2018. These civil provisions are standalone and do not require there to be an ongoing criminal investigation/civil recovery investigation. They are likely to be used as a forerunner to applications for civil recovery, they have an extra territorial effect and they have the sanction of a criminal offence if there is non-compliance. Although they are similar to the pre-existing powers of compulsion under s.357 of POCA 2002 (Disclosure Orders) they differ in that they are specifically focussed on the derivation of the property and the category of respondent.
An UWO is an order requiring the respondent to provide a statement within a specified time period setting out the nature and extent of their interest in the property, explaining how they obtained the property, detailing the terms of settlement where the property is held by trustees and any other information so specified (s.362A(3)). In addition, the order may also require the respondent to produce documents (s.362A(5)).
Applications are to be made to the High Court and may be made by an enforcement authority, defined in s.362A(7) as the NCA, HMRC, the FCA, the SFO and the DPP. An application can be made without notice (s.362I(1) and s.362J(5)). The application must specify both the property in respect of which the order is sought and the person whom the enforcement authority thinks holds the property (including a person outside the UK). The High Court must be satisfied that there is reasonable cause to believe that the respondent holds the property and that the value of the property is greater than £50,000 (s.362B(2)). The property may comprise more than one item of property, it is the total value of the property that must exceed that sum (s.362B(10).
The court must 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 (s.362B(3)). The respondent must either be a politically exposed person (“PEP”)(s.362B(4)) or there must be reasonable grounds for suspecting that the respondent is, or has been involved in serious crime in the UK or elsewhere, or a person connected with the respondent is, or has been, so involved (s.362B(4). Serious crime is defined by s.362B(9) by reference to the Serious Crime Act 2007 (ss.2, 2A and 3 and Part 1 Schedule 1 of that Act.).
It is likely that applications for UWOs will be coupled with an application for an IFO to act as a protective measure over the property which is subject of the UWO. In fact if an IFO is to be applied for, it must be made in the same proceedings as the application for the UWO (s.362J(4)(b)). Under s.362J where an UWO is made the court may make an IFO if it is considered necessary to do so for the purposes of avoiding the risk of a civil recovery order being frustrated (s.362J(2)). Unless any exclusions are permitted, the IFO prohibits the respondent to the UWO (and any other person with an interest in the property) from in any way dealing with the property (s.362J(3). Exclusions are dealt with in s.362L and may include provision to meet the persons reasonable living expenses, to carry on a trade, business or profession and to meet reasonable legal expenses (limited to proceedings under Part 8, Chapter 2 of POCA 2002). If an IFO is made an enforcement authority can apply (without notice if necessary) for a receiver to be appointed in respect of any property to which the IFO applies (s.362N). An appointed receiver’s powers are contained in s.362O and Court supervision of the receiver is provided for in s.362P. There is provision in s.362S for the Secretary of State to request assistance from foreign government(s) in relation to property believed to be abroad. The High Court may vary or discharge an IFO under certain circumstances set out in s.362K and must give an opportunity to the parties to the proceedings and any person who may be affected by its decision to be heard (s.362K(10)).
Non-compliance with an UWO will establish a presumption (unless the contrary is shown) that the property is recoverable property for the purposes of Part 5 proceedings for Civil Recovery (s.362C(2)). That could turn out to be an effective and swift route to concluding the civil recovery proceedings because that property is presumed to have been obtained through unlawful conduct. Where there is compliance or purported compliance with the UWO the enforcement authority has 60 days to decide what enforcement or investigatory proceedings, if any, it considers ought to be taken in relation to the property (s.362D(2) and (3)). For England & Wales there is no specific provision providing for an application to vary or discharge an UWO as s.362I(3) and (4) deal with the position for Northern Ireland. We are of the view that this does not mean that there is no opportunity for the enforcement authority and/or the respondent to make such an application to the High Court of England and Wales. The inherent jurisdiction of the High Court will suffice and we understand that this was considered in the drafting stage and thought unnecessary to include. Furthermore, we understand that the orders themselves will include reference to the availability of an application to vary/discharge.
It will be a criminal offence if in purported compliance with a requirement imposed by an UWO, the person makes a statement that the person knows to be false or misleading in a material particular or recklessly makes a statement that is false or misleading in a material particular. The offence is triable either way. A summary conviction can result in a fine and/or a maximum of 12 months imprisonment. A conviction on indictment can result to a fine and/or a maximum of 2 years imprisonment.
The legislative expansion targeting the proceeds of crime continues with these orders which provide investigators with further powers and alternatives to complex and expensive criminal prosecutions which require convictions to be established before the full force of the POCA confiscation regime can be unleashed and the coffers are fed (or not as the outstanding balance owed on confiscation orders demonstrates). UWOs as a precursor to civil recovery proceedings are capable of resulting in a more streamlined system than that offered by the criminal justice system. If the NCA are right and £billions of criminal proceeds pass through or remain in the UK each year there may be rich pickings in these austere times. We think that the challenge in many cases will be identifying who the person is who actually holds the property. It is said that some 100,000 properties in England and Wales are owned by companies registered offshore and that in London alone such properties may be worth up to £100 billion. A public register of the true owners of overseas companies who own property in the UK is not yet a reality and a recent Government announcement suggests that it may not be so until 2021. If offshore corporate ownership of UK property is as extensive and desirable for the criminal and the corrupt to hide, enhance and potentially legitimise illicitly generated wealth, then transparency of ownership is fundamentally necessary. Without it how can the Home Office expect to achieve its stated aims: firstly, to deny criminals the use of their assets; secondly, to recover the proceeds of crime; and thirdly, to deter and disrupt criminality.
We see a number of issues arising in due course, including:
- Applications by the respondent to vary or discharge an UWO. It might be argued that firstly, the requirements in s.362B have not been met (and the order should not have been made) where the evidence relied on by the applicant enforcement authority was insufficient to establish the grounds to the required standard, or secondly where the evidence is said to be inaccurate and/or unreliable, or thirdly where there has been a failure in the duty of candour upon the applicant at the ex parte hearing to present evidence that was contrary to their application.
- What the breadth of justified circumstances may be for non-compliance with an UWO on the basis of a reasonable excuse as per s.362C(1).
- Whether the criminal offence in s.362E is limited to where there is purported compliance rather than simply non-compliance by refusal.
- PEPs who may seek to assert that they have immunity from responding to an UWO.
- The extent to which statements and evidence provided in response to an UWO will be used for investigation and intelligence and/or in other proceedings notwithstanding the general prohibition against using them in criminal proceedings contained in s.362F.
- How the compensation provision in s.362R will be applied in practice when IFO’s are discharged and the owner pf the property alleges that they have suffered loss as a result due to the serious default of the enforcement authority.
As with all new POCA creations we will have to allow a period for the UWO to take its first steps and grow accustomed to its environment before we can fully judge the predatory qualities and success in seeking what has, to date, been hidden and unexplained.
 Income is lawfully obtained if it is obtained lawfully under the laws if the country from where the income arises, s.362B(6)(c),
 The reasonable grounds for suspecting test appears in other parts of POCA, such as with applications for a Restraint Order (s.40(2)(b)), Search and Seizure warrants (s.353(2)) and Disclosure Orders (s.358(2)).
 A PEP is defined in s.362B(7), includes an individual who is, or has been, entrusted with prominent public functions by an international organisation or by a State other than the UK or another EEA state, a family member of a person as described above, a known or close associate or such a person or otherwise connected with a person as described.