From 31 January 2018, UK enforcement authorities may apply for court orders against persons suspected of being involved in or connected to serious crime or "politically exposed persons" ("PEP") outside the European Economic Area ("EEA"), requiring them to explain the source of their assets. The new orders, known as "unexplained wealth orders" or "UWOs", have wide geographical scope and may apply to any property, tangible or intangible, with a value greater than £50,000.
Conditions for the grant of a UWO
UWOs were introduced by the Criminal Finances Act 2017, which amends the Proceeds of Crime Act 2002 ("Proceeds of Crime Act"). A UWO is a court order requiring a person (the "respondent") to provide a statement setting out the nature and extent of their interest in the property in respect of which the order is made, explaining how they obtained that property, and providing such further information in connection with the property as may be required under the terms of the order.
The court will only grant a UWO if it is satisfied that:
there is reasonable cause to believe that the respondent holds the property and the value of the property is greater than £50,000;
there are reasonable grounds for suspecting that the known source of the respondent's lawfully obtained income would have been insufficient for the purposes of enabling the respondent to obtain the property; and
the respondent is a PEP or there are reasonable grounds for suspecting that the respondent, or a person connected with the respondent, is, or has been, involved in serious crime (whether in the UK or overseas).
"Serious crime" has the meaning given to it in the Serious Crime Act 2007 and includes bribery, tax and money laundering offences.
The court's powers to grant a UWO are very broad. First, the rules have wide extra-territorial scope: there is no requirement for the respondent or the relevant property to be situated in the UK, although it is likely in practice that the court would require some kind of UK nexus. Second, the provisions are retrospective and may apply to property obtained before 31 January 2018. Third, the respondent does not need to be the sole owner of the relevant property.
If the court considers it necessary, the UWO may be accompanied by an interim freezing order preventing the respondent from dealing with the property.
What happens next?
The grant of a UWO does not, by itself, give the relevant enforcement authority the power to recover assets. However, the enforcement authority will consider what further investigatory or enforcement steps are required, based on the information received in response to the UWO.
It is an offence knowingly or recklessly to provide a materially false or misleading statement in response to a UWO. The maximum sentence on conviction will be two years' imprisonment.
If the respondent fails, without a reasonable excuse, to comply with the UWO within the period specified in the order, the respondent's interest in the property may be presumed to be recoverable property for the purpose of any civil recovery proceedings under the Proceeds of Crime Act. The respondent will have the burden of proving otherwise.
Who is a "PEP"?
A UWO may be made in respect of a non-EEA PEP without the need to establish that there is a suspicion of serious criminality. For these purposes, a PEP is defined as:
an individual who is, or has been, entrusted with prominent public functions by an international organisation or by a state other than the UK or another EEA state; or
a family member or close associate of, or someone otherwise connected with, such an individual.
In accordance with the EU Fourth Money Laundering Directive and the UK Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, individuals entrusted with prominent public functions will include:
heads of State, heads of government, ministers and deputy or assistant ministers;
members of parliament or of similar legislative bodies;
members of the governing bodies of political parties;
members of supreme courts, of constitutional courts or of other high-level judicial bodies;
members of courts of auditors or of the boards of central banks;
ambassadors, chargés d'affaires and high-ranking officers in the armed forces;
members of the administrative, management or supervisory bodies of State-owned enterprises; and
directors, deputy directors and members of the board or equivalent function of an international organisation.
"Family members" will include spouses or persons considered to be equivalent to spouses, children and their spouses, and parents of PEPs. "Close associates" will include persons with close business relations with a PEP or who own a legal entity set up for the de facto benefit of a PEP.
What assets may be subject to a UWO?
The court may make a UWO in respect of any property. "Property" is defined broadly under the relevant section of the Proceeds of Crime Act to mean all property wherever situated, including money, things in action and other intangible or incorporeal property. Assets such as securities and money in bank accounts could therefore be made subject to a UWO, although real estate is the most obvious target.