Proceeds of Crime Act 2002 Unexplained Wealth Orders

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.

Practicalities

Further details of the nature of the order are contained in subsections (4) to (7). They explain that:

(i) 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);

(ii) the Court will also decide the time period for providing disclosure; and

(iii) 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 seized.

In the only reported case to consider the issue, it was argued that a penal notice was inappropriate because Parliament had not specified in POCA 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].

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.

Following the changes made by the ECA, a UWO can - where a legal entity holds property - be extended to impose obligations on a "responsible officer" of that legal entity.

(A) 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 either (i) "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), OR (following the amendments made by s.47 of ECA 2022) (ii) the property has been obtained through unlawful conduct.

(B) Types of Respondents

(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.

(C) Responsible Officers

As paragraph 197 of the ECA's Explanatory Notes explained, this reform

"... means increasing the scope of existing powers to enable UWOs to seek information more easily from persons who are officers of legal entities thought to have control over the asset, and therefore subject to the obligation to provide the information sought by it, even though the responsible officer is not the property holder. This is to ensure that individuals cannot hide behind complex ownership structures."

The term 'responsible officer' is defined by the new s.362A(8) of POCA, to include:

• Directors and those occupying the position of a director (even if they are called something else or are a member of some other similar body, e.g. a foundation council or a management or supervisory board).
• A "manager, secretary or similar officer" of the respondent.
• If the respondent is a partnership, a partner or member of the incorporated partnership.
• "any person in accordance with whose directions or instructions the board of directors or equivalent body of the respondent are accustomed to act."

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

Option 1: Non-compliance

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); and
• 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 also 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.

Option 2: Compliance

Where there has been compliance, but only in cases where an interim freezing order has been obtained, the relevant enforcement authority had (under the original legislation) to 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).

The ECA modifies this time limit. The problem was this: complex offshore structures often take a long time to investigate.

And so a new s. 362DA has been introduced into POCA to enable the enforcement authority to apply to extend the 60 day period by up to 63 days on two occasions, meaning that the interim freezing order can be maintained for up to 183 days.

As the ECA's Explanatory Notes explained:

"This strikes an appropriate balance between the rights of the individual and the time needed for law enforcement to have sufficient time to investigate a case."

On making any such application, the enforcement authority must show that (a) it is working diligently and expeditiously, (b) further time is needed and (c) it is reasonable in all the circumstances for further time to be granted.

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 of POCA; and
• where the previous inconsistent statement rule applies, or where the respondent introduces the issue of his UWO disclosure, in other criminal proceedings.

The UWO aspects of POCA, as modified by the ECA, introduce a number of other important changes.

Interim Freezing Orders (IFOs) are probably the most important. But there are also measures designed to protect enforcement authorities from adverse costs awards and a publication requirement forcing the Secretary of State to explain whether UWOs are actually being used.

Interim freezing orders

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, though this period is (as noted above) capable of being extended twice: 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 can 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 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.

Costs

The NCA v Baker case mentioned above resulted in an adverse costs order of c. £1.5m being made agains the NCA. This had a chilling effect: no further UWOs were sought in 2020 or 2021.

The ECA seeks to give enforcement authorities further protection, by introducing s. 362U into POCA. It provides that costs orders can only be made against enforcement authorities were they have acted unreasonably, dishonestly or improperly.

Annual reporting

Many of the changes made by the ECA provide carrots for enforcement agencies. But there is also a stick.

The new s. 362IA of POCA requires the Secretary of State to publish and lay before Parliament each year a report which explains (a) the number of UWOs granted by the High Court and (b) the number of applications made by enforcement authorities for UWOs.

There are likely to be some difficult questions to answer, and some red faces, is the upgraded UWO legislation is not pressed into action pretty soon.