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. • The standard of proof is that there must be ‘reasonable • Part 8 Disclosure orders under POCA 2002 (often grounds’ for suspicion: this is lower than the criminal made prior to a civil recovery action). standard – beyond reasonable doubt; • Restraint Orders and Criminal Prosecutions. • Even if an authority does not have the power to apply for a UWO, it may refer the matter to other enforcement authorities; and • Any recovered funds benefit the UK, not usually the state from which funds may have been stolen. • Going after PEP’s can involve difficult arguments on political factors – see Hajiyeva extradition request. The Law Society
Why the reluctance of Enforcement Authorities (other than NCA) to use UWO’s?
The successes of the NCA and the future: The stated position of other Enforcement Authorities:
• Orders obtained in four cases thus far both against • Serious Fraud Office (no applications): PEP’s or their associates and against those linked to serious crime. • Elizabeth Baker, Head of the Proceeds of Crime and International Assistance Division at the SFO speaking at the Cambridge International Symposium on Economic Crime in • NCA’s Economic Crime Director Donald Toon informed September 2018: reporters back in April 2017 that he expected five more UWO to be issued in the coming months and that “there • Stated that UWO’s were only a partial answer – difficulties were about another 100 cases [his] officers were working of attributing assets to individuals and proving that wealth identified is unexplained. on”.
• HM Revenue and Customs (no applications). In response • Ben Russell, deputy director of the NCA’s National to a FOI request in November 2018 citing this fact HMRC Economic Crime Centre, has told the press that, replied stating: “Mainstreaming… will require additional resources and specialist capabilities across the landscape, to make sure that we disrupt, deny and ultimately recover the proceeds • UWOs require due consideration for their applicability, of crime from the organised criminals that blight our including whether other forms of asset recovery powers communities.” may be more appropriate. The Law Society
Respondent challenges to UWO’s The Law Society
What have we learned from respondent challenges (or lack of them) to UWO’s?
Challenges thus far: Why are challenges proving difficult:
• Mrs Hajiyeva challenged her husband being categorized • In PEP cases, there is a relatively lower burden to prove as a PEP – dismissed at first instance on the basis that as the PEP does not need to be connected to serious the husband was a “prominent person” within a “state- crime. owned enterprise”.. • She also challenged the UWO as being “disproportionate” in terms of a failure to prove that there • Where allegations are made in relation to involvement in are reasonable grounds for suspecting the known serious crime the individual may be able to challenge the sources of the individual’s lawfully obtained income UWO by demonstrating that the activity in question did would have been insufficient for the purposes of enabling not occur. Or, in the case of overseas conduct, that the that individual to obtain the property (the Income Threshold) dismissed at first instance. allegations made were spurious or politically motivated (but see UK refusal to Azerbaijan request to extradite • She relied on expert evidence and supporting factual Hajiyeva). evidence that the husband’s criminal proceedings were "abusive, conducted without any regard to any defence rights, and ultimately amounted to a show trial". • Additionally, there may be scope to challenge a UWO on • Some of the arguments are under appeal. human rights grounds (Mrs. H mounted such a challenge), if it can be shown to violate Article 1 of the First Protocol (right to protection of property) and/or Article 8 (the right to private and family life) of the ECHR. The Law Society
What for the future of UWO’s? The Law Society
What for the future of UWO’s?
What is the government saying and doing?: What are we seeing in practice:
• UK government's published Serious and Organised • UWO’s may not be the panacea that was first envisaged. Crime Strategy (1 November 2018), which states that the PEP cases are more straight forward but proving first of its four strategic objectives is: connections to serious organized crime may be more • "Relentless disruption and targeted action against the difficult. highest harm serious and organized criminals and networks" [and notes that the government] "will use new and improved powers and capabilities to identify, freeze, • Resources at authorities are stretched. UWO’s usually seize or otherwise deny criminals access to their require external legal spend, asset freezing orders do not finances, assets and infrastructure, at home and at least at the early stages. overseas including Unexplained Wealth Orders and Serious Crime Prevention Orders".
• Reported policy considerations regarding the national • A UWO is still only a precursor to a civil recovery action. security threat presented by Russia – see the House of Civil recovery actions can be expensive and take Commons Foreign Affairs Committee, Moscow’s Gold: Russian Corruption in the UK, 21 May 2018. considerable time. The Law Society
What is public expectation for the future?
Transparency International UK: The press:
• TI (UK) has just published (October 2019) “At Your • Reporting on UWO’s is mixed. Most note the importance Service - Investigating how UK businesses and of stamping out the UK being used for the acquisition of institutions help corrupt individuals and regimes launder assets from ill gotten gains. However, some note the their money and reputations.” intrusion of privacy and the inroad into the principle of being innocent until proven guilty. • In that report, TI, states, “A lack of adequate resources for law enforcement agencies undermines the effectiveness of the UK’s response to corruption and • However, what is clear is that there is increasing associated money laundering….The Government and international and domestic pressure for the UK law enforcement agencies should carry out and Government to clean up the perceived prevalence of implement a joint review of the human resources and money laundering in the UK and the direction of travel funding needed to establish and maintain and effective will only be for more regulation and investigation of this law enforcement response to corruption and money area. Time will tell whether the proper resourcing of such laundering.” activities will follow. The Law Society
Account Freezing Orders – the law The Law Society
What is an AFO and what is the law on obtaining an order?
What is an Account Freezing Order (“AFO”)? The law on obtaining an AFO • An AFO is an order prohibiting withdrawals or payments • An enforcement officer with reasonable grounds for from a bank or building society. It freezes an account for suspecting that money held in the account is either up to 2 years. recoverable property (property that is obtained through unlawful conduct) or intended by any person for use in • The frozen monies may be forfeited either by way of an unlawful conduct may apply for an AFO. unchallenged Account Forfeiture Notice issued by law • An application is to the Magistrates’ Court (NOT the High enforcement, or by way of Forfeiture Order made by the Court) court. • An AFO is granted if the court is satisfied (to the civil • AFOs are available to a broad range of law enforcement: standard) the officer has reasonable grounds for their • Revenue and Customs officer suspicion • police constable • Restrictions on making an application: • SFO officer • must be greater than £1,000 in the account • Accredited Financial Investigator • must be made or authorised by a senior officer • Application can be made without notice • Order can be made subject to exceptions for legal expenses and day to day living expenses The Law Society
What happens after an AFO is made (law enforcement)?
What will law enforcement do? Account Forfeiture Notice • Make further enquiries while the order is in place (up to 2 • Senior officer gives Notice, including a period of time in years) which to object • On completing their investigation: • If no objection is made the amount is deemed forfeit, the ➢ If satisfied the funds are not recoverable property bank/building society transfers the funds and the AFO or intended for use in unlawful conduct, make an ceases to have effect application to set the order aside • If objection is made the Notice lapses. The AFO ceases ➢ If satisfied the funds are recoverable property or to have effect 48 hours after objection is made, unless a intended for use in unlawful conduct seek forfeiture further application is made either to vary the AFO or to in one of two ways: forfeit the funds i. Account Forfeiture Notice Forfeiture Order ii. Forfeiture Order • Application to the Magistrates’ Court who will order forfeiture if satisfied that the money is recoverable property or is intended by any person for use in unlawful conduct The Law Society
What happens after an AFO is made (account holder / person affected)?
Application to set aside or vary Opposing forfeiture • Can be made at any time by any person affected by the • Gathering evidence order • Representations in advance of a final determination • Application to set aside • Parallel criminal investigations and AFO/forfeiture • Suspicion is a very low bar. Is it worth it? proceedings • Application to vary • Costs • Exclusions to the order may (amongst other things) be • Compensation made for the purpose of enabling a person: • To carry on any trade, business, profession or occupation • To meet reasonable living expenses. • To meet reasonable legal expenses The Law Society
Account Freezing Orders One year+ on The Law Society
How have AFOs been used?
High profile cases • February 2019. Son of the former prime minister of Moldova studying in the UK. Forfeiture Order £0.5m following an AFO “The case highlights how exposed UK professionals are to suspicious wealth and their importance in reporting this activity to the police. The private sector is the first line of defence against corrupt wealth entering the UK, with vigilance and full cooperation required to counter this threat.” Transparency International “The National Crime Agency should now be asking the bank, the university, the estate agent and the car dealer what checks they made on this suspicious spender and his Cayman Island companies.” Global Witness • February 2019 – 95 AFOs made on accounts belonging mainly to Chinese students. Coordinated by the National Economic Crime Centre with applications across the country. Approximately £3.6m in allegedly laundered funds frozen. • March 2019. Convicted fraudster who fled the UK in 2000s. Forfeiture Order £1.5m following an AFO • May 2019. Member of Syria’s ruling Assad family studying in the UK. Forfeiture Order £25,000 following an AFO • August 2019. AFOs on 8 bank accounts totalling more than £100m suspected to have been derived from bribery and corruption overseas. Followed an AFO in December 2018 freezing a further £20m held by a linked individual The Law Society
Account Freezing Orders the future The Law Society
AFOs: the future
What have we learnt so far? The future • Used by a number of agencies – NCA, SFO, NECC • Potential to be a substantial revenue generator for Government • A range of underlying criminality tackled: • UK fraud • More applications by a wider range of law enforcement? • Overseas bribery and corruption • Breach of sanctions • 2019 has been a significant year with the expectation of many more AFOs to follow • Used to target laundered funds from overseas and the UK • Used in a coordinated manner Issues for practitioners • An AFO is a relatively straightforward step to take in • Increased scrutiny on “professional enablers” following response to a SAR an AFO / Forfeiture Order • Avoids the complications of a POCA Restraint Order to • AFOs as a response to SARs freeze funds • Forfeiture following an AFO is a lower hurdle than confiscation following a criminal conviction, or PCOA civil recovery