Recent judgments help to clarify purpose and threshold of unexplained wealth orders.

The National Crime Agency (NCA) has had a mixed start to 2020, with appeals heard on unexplained wealth orders (UWOs) testing the new investigative tools provided under the Criminal Finances Act 2017 (CFA).

What is an unexplained wealth order?

UWOs were introduced by the CFA (in force from 31 January 2018), creating a new section 362A of the Proceeds of Crime Act 2002 (POCA).

A UWO is an order requiring the respondent to provide a statement about a specific property, which sets out:

• The nature and extent of their interest in the property
• How they obtained the property (including how any costs were met)

• Details of any settlement that holds the property as may be specified in the order

• Other information in connection with the property as may be so specified

Only an enforcement authority (the NCA, the Serious Fraud Office, HMRC, the Financial Conduct Authority, or the Director of Public Prosecutions) can apply to the High Court for a UWO. For an enforcement authority to obtain a UWO, the High Court must be satisfied that there is reasonable cause to believe that:

• The respondent holds the property (in its entirety or in part with any other persons)
• The value of the property is greater than £50,000

• 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

• The respondent is either a politically exposed person or there are reasonable grounds for suspecting that the respondent (or a person connected to the respondent) is, or has been, involved in serious crime (anywhere in the world)

If the respondent fails, without reasonable excuse, to comply with the requirements imposed by a UWO before the end of the response period, the property is presumed to be recoverable property for the purposes of any proceedings taken in respect of the property under Part 5 of POCA (Civil recovery of the proceeds of unlawful conduct). Further, if the respondent makes a statement that they know to be false or misleading in a material particular, or is reckless in doing so, then they are committing an offence.

If a UWO is applied for in conjunction with interim freezing orders (IFOs), then properties cannot be sold, transferred, or dissipated while the enforcement authority’s investigation continues.

Recent developments

In February 2020, the Court of Appeal upheld the imposition of a UWO in the widely publicised case of Zamira Hajiyeva v. National Crime Agency.[i] In doing so, the Court provided judicial support for the NCA’s approach to the UWO in this test case.

Also in February 2020, the NCA obtained an IFO to prevent the sale of 17 addresses as part of an ongoing investigation into a Leeds businessman with suspected links to serious organised criminals. As part of the same investigation, the NCA had obtained a UWO relating to eight properties in July 2019, and in January 2020 secured a £1.13 million account freezing order connected to a company linked to the same individual. The NCA noted to the court that the individual had failed to comply with the requirements of the UWO, and that this non-compliance provided a good case that a number of the properties were the proceeds of crime.

The written judgment[ii] for the grant of the UWOs was handed down on 28 February 2020, and included a detailed review of the requirements for making UWO and IFOs under POCA. The judgment noted a presumption under the relevant practice direction[iii] that UWO applications would be without notice, in private, and that the IFO application should be made in in the same proceedings as the UWO request.

However, on 8 April 2020, in the unrelated case of Andrew Baker and others, the High Court discharged three UWOs that had been granted in May 2019, as part of an investigation into London properties worth £80 million.[iv] The NCA had alleged that the properties were acquired as a means of laundering the proceeds of unlawful conduct of a Kazakh government official who died in prison in Austria on 24 February 2015. The orders were previously anonymised, but ties to the ultimate beneficial owner (UBO) and politically exposed person were revealed in court.

Mrs. Justice Lang found the NCA case was flawed by inadequate investigation into some obvious lines of enquiry and that the NCA failed to carry out a fair-minded evaluation of the new information from the UBOs and respondents. In particular, the court criticised the weakness of evidence of purchase on behalf of the UBOs and the absence of any link between the government official and the respondents. The NCA have stated they will appeal.

What do these judgments mean?

The court’s judgment in NCA v. Barker serves as a reminder that UWOs have a relatively limited purpose — to obtain information: “A UWO is one of a number of investigative tools contained in Part 8 of POCA 2002 i.e. production orders, search and seizure warrants, disclosure orders, customer information orders, and account monitoring orders whose purpose is simply to obtain information”. Ultimately, the NCA received information regarding the ultimate owners of the assets, which it would not otherwise have been able to obtain.

The requirements of an ex parte UWO application are for the enforcement authority to demonstrate a “reasonable cause to believe”. This is a low threshold test to meet, and the NCA has made full use of this legislation and demonstrated its effectiveness. However, the mixed results with the Hajiyeva and Barker cases demonstrate that that, on notice, the orders must still stand up to rigorous judicial scrutiny. However, whether the NCA can convert the information gathered through these orders into civil recovery under POCA remains to be seen.

[i] [2020] EWCA Civ 108 [2020] WLR(D) 75.

[ii] National Crime Agency v. Mansoor Mahmood Hussain & 6 Ors [2020] EWHC 432 (Admin).

[iii] Practice Direction for Civil Recovery Proceedings.

[iv] NCA v. Baker and others, case numbers CO/1540/2019, CO/1541/2019, CO/1542/2019, CO/1543/2019, CO/1544/2019 and CO/1545/2019.