The UK has long been viewed as a country where criminals are able to easily launder money, particularly through the purchase of real estate and particularly in London. In order to combat this perception, new legislation was brought in in 2017 to require individuals to demonstrate the source of funds to acquire assets, if 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”. This requirement is known as an Unexplained Wealth Order (UWO). The legislation relating to UWOs is contained in Part 1 of the Criminal Finances Act 2017 and came into force in January 2018.
More recently, UWOs are back in the news as three properties worth more than £80m have been frozen by the High Court while the NCA investigates the source of funds used to purchase them.
What is a UWO?
A UWO is the power to require an individual to prove the source of funds used to acquire an asset. In practice, the asset will be UK based as this is the practical extent of UK authority, though the legislation does state that the UWO can be in respect of “any property”.
Any relevant UK authority (HMRC, SFO, FCA, NCA or Public Prosecution Service) can apply to the courts for a UWO. On making the application, the relevant authority must demonstrate reasonable suspicion that the asset could not be funded from known sources of income, on the assumption that it was purchased at market value. The recipient of the UWO must then provide relevant evidence to demonstrate the source of funds. This is effectively a “guilty until proven innocent” situation and though it flies against the traditional basis of our legal system, many would argue it is an essential approach if the Government wishes to effectively counter the UK’s reputation as a place where illicit funds can be easily laundered.
The legislation specifies that UWOs can only be applied to non UK and non-EEA individuals who are or are connected to politically exposed persons (PEPs). UK politicians (for example) are therefore exempt from the UWO legislation. It is noted that the UK authorities are already expected to have sufficient powers to investigate UK individuals who hold property funded from beyond their obvious means, though UWOs may have made the process easier. The exception to this rule is if the person has been or is suspected to have been involved in a serious crime (presumably serious enough for the NCA/SFO to become involved), in which case, whether or not they are a PEP is irrelevant.
If a person is a foreign PEP, then no evidence of criminality is required for the UWO to be issued. Politically however, it is likely the government may be wary of requesting a UWO in relation to a PEP without any suspicion of criminality.
Before a UWO is made, there must be evidence to suggest that the person on whom the UWO is being served has an interest in the property and that the value of the individual’s share in the property is at least £50,000. This is a low threshold to cross, for High Net Worth Individuals and in relation to London property.
How have UWOs been used?
The UWO legislation has been effective for over a year now, since 31 January 2018. The first person to be issued with UWOs was Zamira Hajiyeva, wife of the Azerbaijani state banker Jahangir Hajiyeva (former chairman of the international bank of Azerbaijan) who was jailed for 15 years in 2016 for fraud. The only reason the details of these UWOs are in the public domain is because Mrs Hajiyeva chose to fight rather than comply.
The terms of the UWO legislation state that “The property is to be presumed to be recoverable property for the purposes of any proceedings taken in respect of the property … unless the contrary is shown”. In April last year, the Financial Times reported that the NCA “have a number of other cases which [they]’re currently developing, involving both PEPs and people with links to serious crime”. Until recently, none of these orders have come into the public domain, either because they have not been issued or because they have not been contested.
What are the implications?
Where UK assets have been acquired illegally or using proceeds of crime from activity anywhere in the world, these assets can now be repossessed, even if there is insufficient evidence to arrest and jail the perpetrators for the initial crime.
In addition, it is likely that the professionals who have assisted with the purchase of the property, such as conveyancers or lenders, may come under additional scrutiny or be penalised if it is found that their anti-money laundering controls are insufficient. All professionals should ensure they carry out the relevant checks to the best of their abilities and take advice from their regulatory bodies or legal teams if there is any uncertainty regarding a client.
With the implementation of UWOs, there is hope that criminals will no longer see the UK as a safe environment to invest their ill-gotten gains, thus beginning to restore the UK’s reputation as a country where dirty money is no longer welcome.