Proceeds of Crime Act 2002 Unexplained Wealth Orders

Unexplained Wealth Orders, or UWOs, are the National Crime Agency's latest weapon in combating domestic and international serious crime.

UWOs require the respondent to explain what interest they have in specified property and how they paid for it, provide other information about the property, and provide underlying documents.

UWOs can be made where (1) there are reasonable grounds for suspecting that the respondent's lawful income was insufficient to acquire the property and (2) the respondent is a "politically exposed person" or there are reasonable grounds for suspecting involvement in serious crime.

The focus on PEPs was in response to a perception that corrupt foreign leaders were acquiring substantial UK property (in particular trophy houses in London).

UWOs were introduced on 31 January 2018. The first case to consider them, NCA v A, was decided by Supperstone J in October 2018.

1. Background

UWOs were introduced by amendments made to the Proceeds of Crime Act 2002 ("POCA") by the Criminal Finances Act 2017.

The 2017 Act followed the publication of the April 2016 Government Action Plan for anti-money laundering and counter-terrorist finance. The plan noted that UWOs were used in other jurisdictions, including Australia and Ireland.

The changes respond to three main concerns.

  • Difficulties faced by the NCA and other investigative agencies in obtaining evidence from abroad. In particular, mutual legal assistance provisions are often limited in scope and slow to operate; there had been instances of overseas authorities tipping off the suspect; and there had been instances of requests being refused following political interference.
  • To improve the rate of recovery of criminal assets.
  • Concerns raised by NGOs that the UK, and London in particular, had become the destination of choice for corrupt foreign officials seeking to hide assets. They pointed out, for example, that 37,910 properties in central London are owned by offshore companies.

2. Obligations imposed by UWOs

Section 362A(3) of POCA explains what an unexplained wealth order is.

It requires the respondent to provide a statement:

  • setting out the nature and extent of the respondent's interest in the property in respect of which the order is made;
  • explaining how the respondent obtained the property;
  • if the property is held by a trust, setting out details of the trust; and
  • providing any other information required by the terms of the order.

Further details

Further details of the nature of the order are contained in subsections (4) to (7). They explain that: the Court can decide the manner in which information is to be provided (presumably an affidavit will be required, as with freezing order asset disclosure); the Court will also decide the time period for providing disclosure; and that the Court can also require the respondent to produce documents (which is sometimes done in a civil freezing order context, but which is not part of the standard form order).

Other procedural requirements

Section 362A(7) explains who may apply for a UWO. In addition to the NCA, which is likely to be the chief beneficiary of the new legislation, the SFO, HMRC, the FCA and the DPP are also specified "enforcement authorities".

Other interesting features of the new legislation are that the respondent to the order need not be present or resident/domiciled in the UK (s. 362A(2)(b)) and that UWOs can relate to overseas property (s. 362A(1)).

Finally, there is an exception excepting from disclosure information that is subject to legal professional privilege: see s. 362GG(2).

Penal notice?

In civil proceedings, the requirement to provide information is imposed by an injunction and typically accompanied by a penal notice. The notice will usually say something like:

If you [the Respondent] disobey this order you may be held to be in contempt of court and you may be imprisoned, fined and your assets may be siezed.
In the only reported case to consider UWOs, it was argued by the respondent that a penal notice was inappropriate because Parliament had not specified in the Proceeds of Crime Act 2002 that UWOs could be enforced by contempt proceedings.

Supperstone J rejected this argument: POCA did not impliedly oust the court's jurisdiction to attach a penal notice to its order; and such notices are important because they further the public interest in ensuring that court orders are obeyed. See NCA v A [2018] EWHC 2534 (Admin), [94]-[96].

3. Who can a UWO be made against?

The short answer is: quite a few people.

More specifically, once certain threshold conditions are met UWOs can be made against (i) politically exposed persons and their associates and (ii) those who may have been "involved" in serious crime and their associates.

Threshold conditions

There are three threshold conditions:

  • That there are reasonable grounds to believe that the Respondent "holds" property: see s. 362B(2)(a). This concept is extensively defined by s. 362H: it includes those who have "effective control" over property and trustees and beneficiaries of trusts of the property.
  • That there are reasonable grounds to believe that the property in question is worth more than £50,000: see s. 362B(2)(b).
  • That there are "reasonable grounds to suspect that the respondent's lawfully obtained income would have been insufficient [to enable] the respondent to obtain the property: see s. 362B(3).

(i) Politically Exposed People (PEPs)

The definition of a PEP is found in s. 362B(7): a person must have been "entrusted with prominent public functions by an international organisation or by a State other than the United Kingdom or another EEA State."

Authoritative guidance as to who has been entrusted with prominent public functions is contained in Article 3(9) of EU Directive 2015/849/EU.

In NCA v A (supra), it was argued that the Chairman of a systemic bank that was majority owned by an unnamed state was not entrusted with a prominent public function. The argument failed, Supperstone J concluding that the bank was a "State-owned enterprise"

Family members of people entrusted with prominent public functions are also PEPs (s. 362B(7)(b)), as are their "close associate[s]" and those who are "otherwise connected" with them (s 362B(7)(c) and (d)).

Close associates include "natural persons who are known to have joint beneficial ownership of legal entities or legal arrangements, or any other close business relations, with a politically exposed person": see Article 3(11) of the 2015 EU Directive.

Connected people are those stipulated by s. 1122 of the Corporation Tax Act 2010 and include companies that are controlled by the same person.

(ii) Those who may have been "involved" in serious crime

The first question is: what is "serious crime"? The answer is given by s. s. 362B(9)(a), which cross-refers to the Serious Crime Act 2007. That Act, in turn, defines serious crime as including:

  • Various drug trafficking, slavery, people trafficking, firearms and prostitution offences.
  • Various fraud, money-laundering, cheating the revenue, bribery and counterfeiting offences
  • Inchoate offences of the same nature, as well as earlier corresponding offences under legislation that has since been replaced.

The second question is: what does it mean to be involved? The answer is provided by s. 2 of the Serious Crime Act 2007: you are caught if you commit a serious crime, facilitate the same, or act in such a way as is likely to facilitate a serious crime.

4. Consequences of a UWO

The consequences of a UWO largely depend upon a respondent's attempts at compliance

Order not complied with

Here, the first key consequence is that the property named in the UWO is presumed to be recoverable property within the meaning of Part 5 of POCA unless "the contrary is shown".

In other words, failure to comply with a UWO means that the burden of proof in subsequent civil recovery cases will be reversed. However, this consequence only kicks in if a respondent fails to comply with a UWO without "reasonable excuse": see s. 362C(1). Indeed, it only kicks in if there has been absolutely no attempt at compliance with at least one aspect of the order; it does not apply where there has been purported compliance: see s. 362C(5).

Failure to comply with a UWO that contains a penal notice will, of course, open up a respondent to contempt proceedings. In addition, a specific offence of knowingly or recklessly making a false statement in response to a UWO is introduced by s. 362E of POCA. It is punishable, on conviction on indictment, but a two year prison sentence and/or an unlimited fine.

Order complied with

Where there has been compliance, but only in cases where an interim freezing order has been obtained, the relevant enforcement authority must decide within 60 days what "enforcement or investigatory proceedings, if any, it considers ought to be taken in relation to the property." If the decision is that no further action will be taken, the High Court must be notified. See s. 362D(3)-(4).

A decision to take no further action can be reversed for any reason: see. s. 362D(6).

What use can be made of the information provided?

Section 362F provides that, save in a number of specific cases, a statement made in response to a UWO cannot be used against that person in subsequent criminal proceedings.

The exceptions are:

  • for various offences of giving false evidence, including under s. 5 of the Perjury Act 1911;
  • for prosecution in relation to the offence created by s. 362E; and
  • where the previous inconsistent statement rule applies or where the respondent introduces the issue of his UWO disclosure in other criminal proceedings.

5. Interim freezing orders, challenges and more ...

Interim freezing orders are another new innovation

They are introduced by s. 362X of POCA to (a) freeze the assets that are the subject of the UWO and (b) then give the relevant enforcement agent a reasonable period to apply for (most likely) a property freezing order pursuant to s. 362K of POCA.

The relevant period is 60 days plus 48 hours from the date of purported compliance with the UWO: see s. 362D and 362K of POCA. Thereafter, if no application for further freezing relief is sought, the court "must" discharge the interim freezing order: s. 362K(2) of POCA.

Challenging the order

The new legislation expressly anticipates that interim freezing orders cqn be sought without notice (s. 362J(5)), which is almost invariably the way that civil freezing orders are sought. Presumably they can be set aside on the same basis as any other without notice order, in particular if there has been a serious material non-disclosure.

The modified undertaking in damages

Typically, when a civil litigant obtains a freezing order on an interim basis, he has to give an undertaking in damages. In other words, he promises the court that (if the freezing order is subsequently set aside) he will comply with any order the court deems just to compensate the defendant for the fact that his assets have been improperly frozen.

This rule is changed under the interim freezing order regime. Perhaps chastened by experiences such as the SFO's improper raid of the Techenguiz brothers, and the subsequent multi-million pound settlement that the SFO had to pay, the legislation provides that compensation will only be payable where there has been a "serious default" on the part of the enforcement authority obtaining the order and that but for that default the order would not have been made: s 362R.