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Unexplained Wealth Orders and Account Freezing Orders – a Year On

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Unexplained Wealth Orders and Account Freezing Orders – a Year On The Law Society UNEXPLAINED WEALTH ORDERS AND ACCOUNT FREEZING ORDERS – A YEAR ON Michael Potts Byrne and Partners LLP Ross Dixon Hickman & Rose The Law Society Contents 1 UWO’s – the law 2 UWO’s – 1+ year on 3 Reluctance of Enforcement Authorities to use UWO’s. 4 What have we learned from Respondent’s challenges? 5 What for the future of UWO’s? 6 AFOs - the law 7 AFOs – 1+ year on 8 AFOs – the future The Law Society Unexplained Wealth Orders – the law The Law Society What is a UWO and what is the law on obtaining an order? What is an Unexplained Wealth Order (“UWO”)? The law on obtaining a UWO? • The Unexplained Wealth Order (“UWO”) is a civil • An application is made to the High Court if an investigation tool requiring either a Politically Exposed enforcement authority has reasonable cause to believe Person (“PEP”) or a person suspected of involvement in that a person holds unexplained property in excess of £50,000 and they are either: serious crime (or association with it), to disclose assets that appear disproportionate to their known legitimate income. It is not a determination that property was • Any non - EU PEP or a person closely associated or obtained as a result of criminal conduct. connected with a PEP (including family); or • that there are reasonable grounds for suspecting that person is or has been involved in serious crime (in the UK or elsewhere) or is connected with such a person. Serious • A UWO is only available to the following identified crime as defined includes money laundering, bribery and enforcement authorities: corruption, slavery, people trafficking, drug trafficking and other offences • the National Crime Agency • Her Majesty’s Revenue and Customs • The enforcement agency must prove that there are • the Financial Conduct Authority reasonable grounds for suspecting that the known • the Director of the Serious Fraud Office sources of the individual’s lawfully obtained income • the Crown Prosecution Service would have been insufficient for the purposes of enabling them to obtain the property in question. The Law Society What is a UWO and what is the law on obtaining an order? What individuals and property can a UWO apply to: Are there any defences to complying with a UWO? • UWOs can be made in respect of any property or assets, • section 362C of POCA states that the respondent will not regardless of where in the world they are located, and have complied with a UWO if it has failed “without against any individual whatever their place of residence reasonable excuse” to comply with the terms of the UWO. or business (there is no requirement to demonstrate a connection to the UK). • “Reasonable excuse” is not defined in the legislation. No examples are given in the Explanatory Notes but could • The focus of the UWO is on individuals rather than fairly be supposed to include circumstances where companies but the Act does not preclude the issuing of specific requested documents have been destroyed or a UWO against a corporate respondent. otherwise irretrievably lost. • The basis of targeting PEPS is that individuals who have, • In practice, this defence is very limited and risky in terms or have had, a high political profile, or hold, or have held, of the consequences of getting it wrong – see next slide. public office, can pose a higher money laundering risk, as their position may make them vulnerable to corruption. The Law Society What must a respondent to a UWO do and what are the consequences of non – compliance? What must the respondent to a UWO do? What are the consequences of non – compliance? • A UWO requires the respondent to provide a statement • False or misleading disclosure in response to a UWO setting out: constitutes a criminal offence, the maximum penalty for which is imprisonment for a term not exceeding two • the nature and extent of the respondent’s interest in years, or a fine, or both. the property; • how the respondent obtained the property; • if the property is held in trust, details of the settlement; • If a respondent fails to comply with a UWO, there will be and a rebuttable presumption that the property is recoverable • any other requested information. for the purposes of civil recovery action under the Proceeds of Crime Act 2002. • The material received pursuant to a UWO cannot be used in criminal proceedings against the respondent (except in certain limited circumstances including a prosecution for another offence where the respondent has provided inconsistent evidence or a prosecution for perjury). The Law Society What comes with and after a UWO? Interim Freezing Orders (“IFO”): A precursor to civil recovery proceedings: • The High Court may grant a IFO to prohibit a respondent • Enforcement authorities can apply to the High Court for a to a UWO (and any other person with an interest in the Civil Recovery Order in order to recover criminal property) from dealing with the property specified in the property. UWO. • An authority must prove, on the balance of probabilities, • An IFO will be granted only where the Court considers it that the specified property was obtained through unlawful necessary due to the risk that any subsequent civil conduct and that it is recoverable (as defined in POCA). recovery order might be frustrated. • It was perceived that the new “reversed” burden in the • The effect of an IFO is that the respondent (and any absence of a response to a UWO may lead to increased other person with an interest in the property) is prohibited use of CROs by the UK authorities. from dealing with it. The Law Society Unexplained Wealth Orders – One year+ on The Law Society What was the government expectation for UWO’s versus public perception? What was the government expectation for UWO’s? What is public perception of the need for UWO’s? • In a Home Office Impact Assessment dated 20 June • Transparency International says it has identified £4.4bn 2017, the HO estimated that: worth of British properties linked to criminals or “politically exposed persons”. • there would be 20 cases per year that will use UWOs, after an initial year of no cases. • That this would lead to the recovery of £6.1 million • TI has published details of 5 cases where it says over a ten year period. identified properties in London belong to PEP’s with no obvious means of purchasing such properties. • In fact, on the next slide we will see that there have been four cases (15 UWO’s spread across those four cases) in • Regular articles in the press about the “McMafia” order – a period of 19 months (with first 12 months expiring in February of this year). popular television programme reference to UWO’s and yet the reality has been somewhat different. • The National Crime Agency is the only authority that has currently sought UWO’s The Law Society UWO’s thus far Description of individual PEP or link to serious crime Authority seeking order Nature and value of assets Civil recovery proceedings subject to order identified and frozen or not Zamira Hajiyeva – wife to Janhgir A person closely associated with National Crime Agency Two UWO’s – one relating to None Hajiyev – former Chairman of or connected with a PEP £22m of London Properties and International Bank of Azerbaijan another relating to in excess of £1.5 million of jewellery Three UWO’s relating to PEPS or persons linked to PEPS National Crime Agency Three residential properties in None unidentified individuals London exceeding £80 million Unidentified businessman in Linked to serious crime National Crime Agency £10 million property portfolio None North of England A Northern Irish woman with Linked to serious crime National Crime Agency Six properties worth £3.2 million None suspected links to paramilitary criminals The Law Society What has been the experience in Australia and Ireland? The Australian equivalent to UWO’s: The Irish equivalent to UWO’s? • The UWO regime has operated in Australia since 2000 • In 1996, Ireland was one of the first European States that (although different states have different starting dates). In adopted civil forfeiture laws that reverse the burden of Western Australia, as at December 2016, the regime had proof on the respondent. produced only 28 applications for unexplained wealth declarations of which 24 were finalized. • The perception and reality of non-conviction-based asset • High Court of Australia and other Western Australia recovery in Ireland is one of relative success; in 2015, courts have not looked favorably on the civil forfeiture the value of assets frozen under Section 2 of POCA was regimes because they consider them too radical and too €941,078.59, which equated to thirteen cases infringing on fundamental civil rights. • The main reason for the success of UWOs in Ireland was • There has also been criticism of the competence of the creation of a highly effective multi-agency task force officers in financial investigations and the cost of the – the Criminal Assets Bureau (“CAB”). The strategy of regime has been seen as a limiting factor. the CAB was to target well-known criminals and the principals of criminal organizations The Law Society Why not use UWO’s? The Law Society Why the reluctance of Enforcement Authorities (other than NCA) to use UWO’s? Controversial aspects of UWO’s: What other tools do the Enforcement Authorities have? • A person made subject to them does not have to have been charged in a criminal court; • Cash seizure and forfeiture under the Proceeds of • The burden of proof is reversed. If a person subject to a Crime Act 2002. UWO fails to respond to a request for an explanation, there is a presumption that the subject property has been • Asset freezing orders and asset forfeiture orders under purchased with illegitimate funds; the amended POCA 2002.
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