Introduction
The concept of an Unexplained Wealth Order ("UWO") was introduced in the UK in January 2018 under the Criminal Finances Act 2017.1 This law was nicknamed the "McMafia" laws after the BBC's organised crime drama. In its 2017 Impact Assessment, the UK Home Office concluded that the size of the UK financial and professional services sector, the open economy and the attractiveness of its property market to overseas investors made the UK unusually exposed to financial crime.2 It found the then anti-money-laundering regime inadequate and considered that the new measures proposed and subsequently introduced by the Criminal Finances Act 2017 would increase the effectiveness of enforcement agencies in combating financial crimes.
What is a UWO?
UWOs grant new civil powers to UK law enforcement agencies to help them identify, investigate and seize property3 suspected to represent the proceeds of criminal activity.
A UWO places the burden on the individual, rather than the enforcement agency, to prove how they have accumulated their wealth and to produce evidence to verify the sources of the wealth, failing which the property may be recoverable by civil forfeiture; freezing orders may be made and penal sanctions may be imposed.
In theory, therefore, UWOs provide an opportunity for enforcement agencies to confiscate assets without ever having to prove that the property was obtained from criminal activity.
Who has the power to obtain UWOs?
Only an enforcement authority can apply to the High Court for a UWO. Enforcement authorities include:
- National Crime Agency ("NCA")
- Her Majesty's Revenue and Customs (HMRC)
- Financial Conduct Authority (FCA)
- Director of the Serious Fraud Office (SFO)
- Director of Public Prosecutions4
Who is subject to UWOs?
UWOs affect persons falling into any of the following categories5:
- Any politically exposed person ("PEP") from outside of the European Economic Area (EEA), including family members or associates of a PEP; or
- Any person where there are reasonable grounds to suspect is involved in serious crime (including fraud, money laundering, tax evasion, sanctions offences, or bribery and corruption); or
- Any person who is connected to a person suspected of serious crime in the UK or abroad.
For the purposes of a UWO, if a person is suspected of serious crime or connected to such an individual, there is no need for a criminal investigation to have commenced.
What is the territorial jurisdiction of UWO?
UWOs have extraterritorial effect in that a respondent against whom a UWO is issued ("Respondent") does not need to be a UK resident, and the property can be located outside the UK.
UK enforcement authorities may seek assistance from the foreign government of the country where the asset is based to enforce a UWO (and obtain an interim freezing order). However, it is highly unlikely that UK enforcement authorities will expend resources seeking UWOs where a UK nexus is lacking.
It is likely that practical difficulties in gathering information from other jurisdictions will be the biggest impediment to their widespread use overseas. Thus far, the focus of the prosecuting agencies requesting UWOs appears to be property situated in the UK.
When are UWOs issued?
The High Court may grant a UWO in respect of any property if it is satisfied that:
- there is reasonable cause to believe that the Respondent holds the property (whether in entirety or in part with others) and that the value of the property is greater than £50,000;6
- there are reasonable grounds for suspecting that the known sources of the Respondent's lawful income would have been insufficient for the purposes of enabling the Respondent to obtain the property;7 and
- the Respondent is either a PEP 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).8
What happens after a UWO is served on a Respondent?
A Respondent on whom a UWO is served will be required to provide a statement in the manner specified in the UWO9, setting out:
- the nature and extent of his interest in the property;
- how he obtained the property (including how any costs incurred in obtaining it were met);
- details of any settlement that holds the property as may be specified in the order; and
- other information in connection with the property as may be specified.10
Once the Respondent has complied with the UWO, the enforcement authority must decide within 60 days whether any enforcement or investigatory proceedings ought to be taken (for example confiscation or civil recovery proceedings).11
In conjunction with the application for a UWO, the authority can also apply for an interim freezing order ("IFO") to prevent the sale, transfer or dissipation of the property whilst the UWO is in place. The cases to date suggest that an IFO will be sought in the majority of UWO applications.
What happens if the Respondent fails to comply with the UWO?
If the Respondent does not comply with the requirements of a UWO, the property specified in the UWO is presumed to be recoverable property for the purposes of civil recovery by the enforcement agencies of the proceeds of unlawful conduct. This means that the Court will find the property to be recoverable property unless the Respondent can provide evidence showing that it is not.
The effects of failure to comply with a UWO do not end there. UWOs can include a 'penal notice'. This means that if the Respondent disobeys the order, they can be fined or imprisoned.
In addition, a Respondent who knowingly or recklessly makes a statement that is materially false or misleading in response to a UWO commits a separate a criminal offence, punishable by up to two years' imprisonment.12
Can a UWO be challenged?
UWOs can be challenged in the High Court and the most common grounds are:
- that the Respondent is not a person upon whom a UWO can be served. This ground of challenge will involve the Respondent showing that he is not a PEP or that there are no "reasonable grounds for suspecting" that he is "involved in serious crime" or "connected to" such a person; and/or
- that the Respondent can "explain" the provenance of the property in question. This will involve showing that the Respondent has (or had, at the time of purchase) sufficient income or wealth, of legitimate origin, to acquire the property which is the subject of the UWO.
The first UWO
Less than a month after UWOs were introduced, the NCA secured one against Zamira Hajiyeva in relation to two properties worth £22 million, namely her Chelsea home and a golf course in Berkshire. The case gained public notoriety for the details of Mrs Hajiyeva's lavish lifestyle, which included spending over £16 million at Harrods and £42 million on a Gulfstream G550 jet.13
Her husband was previously the chairman of the International Bank of Azerbaijan, who, in 2016, was sentenced to 15 years' imprisonment on charges of fraud, embezzlement and misappropriation of £2.2 billion of public funds. Both husband and wife were PEPs. Mrs Hajiyeva moved to the UK in 2006 and since then has spent significant sums of money that the British authorities said were out of keeping with her husband's official salary.
Mrs Hajiyeva appealed against the UWO on various grounds, none of which succeeded. The High Court dismissed her appeal on 3 October 2018, the Court of Appeal followed suit on 5 February 2020, and on 21 December 2020 Mrs Hajiyeva's application to appeal to the Supreme Court was dismissed.
The Supreme Court announced that it had refused Mrs Hajiyeva's application for permission to appeal the UWO made against her by the NCA, asserting that her challenge to the UWO raised no arguable point of law. Mrs Hajiyeva had already failed to convince the Court of Appeal and the High Court to overturn the order, which means that all her rights of appeal were exhausted. As a result, she will be required to provide the NCA with the information it seeks in connection with her assets.
Mrs Hajiyeva denies any wrongdoing, and her lawyers have said that the case against her husband was politically motivated. In her statement to the Supreme Court, Mrs Hajiyeva said that she has been unable to defend herself or her husband because he is imprisoned and is therefore unable to provide a detailed account of how he became a legitimate and successful businessman. If she cannot explain the source of her wealth, she stands to lose her London home and Berkshire golf course. Indeed, the Courts can fast-track the seizure of her properties without investigators having to even prove a crime.
The UWO was accompanied by an IFO, which was stayed pending the outcome of the litigation. As mentioned earlier, an IFO requires an enforcement authority to determine what proceedings, if any, should be brought in relation to the property within 60 days of compliance by a Respondent with a UWO.
Progress of UWOs in the UK
It has been reported in a Briefing Paper to the House of Commons dated 8 January 2021 ("Briefing Paper") that as of December 2020, that since their introduction, UWOs have been obtained only in four cases, and no enforcement agency other that the NCA have obtained such orders.
The Briefing Paper also reported that the first successful recovery of assets pursuant to a UWO took place in January 2019 when the NCA obtained UWOs against eight properties owned by Mansoor Mahmood Hussain who was suspected of being involved in serious crime in connection with the activities of violent gangs in the Bradford area. This eventually resulted in an out-of-court settlement whereby Mr Hussain handed over 45 properties and other assets to the NCA with a combined value of almost £10 million.14
In May 2019, the NCA obtained three UWOs and related IFOs against a property in The Bishops Avenue, London. The NCA argued that the properties were bought using criminal proceeds originating from one Rakhat Aliyev, a Kazakh national who had held several senior political roles in Kazakhstan including as deputy foreign affairs minister, before falling out with the regime in 2007.
The High Court allowed the Respondents' application to set aside the UWOs on grounds that the NCA's case was flawed and had made unreliable and unjustified assumptions. The High Court also held that the NCA had failed to take account a criminal investigation in Kazakhstan which found that Mrs Aliyev had not received criminal funds from her ex-husband and did not hold any illegally acquired funds or assets. To add insult to injury, this setback cost the NCA £1.5 million in legal costs as compared to the estimated legal costs of £5,000 to £10,000 per UWO case under the initial impact assessment carried out by the UK Government.
In July 2019 the NCA secured its fourth15 UWO against a Northern Irish woman with suspected links to serious organised crime involving paramilitary activity and cigarette smuggling. She is now required to explain how she financed the purchase of six properties worth £3.2 million in total. As IFOs have also been granted, the subject properties cannot be sold, transferred or dissipated while the investigation continues.16
Will Malaysia introduce UWOs or similar legislation?
The former Finance Minister, Lim Guan Eng, did consider introducing a legislation similar to the UK's UWO law and the same was reported to being studied by the then Attorney General.17 With the change of Government in 2020, the fate of the proposal remains unexplained.
Article by Lim Koon Huan (Partner) and Shaleni Sangaran (Partner) of the Compliance Practice (Anti-Corruption and Anti-Money Laundering) of Skrine
Footnotes
1 The Criminal Finances Act 2017 amended the Proceeds of Crime Act 2002 ("POCA") to introduce provisions relating to UWO.
3 Property includes real estate; assets such as jets, boats, motor vehicles, artwork, jewellery and intangible assets, such as securities and bonds.
4 Section 362A(7) of POCA.
5 Section 362B(4) of POCA.
6 Section 362B(2) of POCA.
7 Section 362B(3) of POCA.
8 Section 362B(4) of POCA.
9 Section 362A(4) of POCA
10 Section 362A(3) of POCA.
11 Sections 362D(2) and 362D(3) of POCA.
12 Section 362E of POCA.
13 Zamira Hajiyeva v National Crime Agency [2020] EWCA Civ 108; https://researchbriefings.files.parliament.uk/documents/CBP-9098/CBP-9098.pdf (p.12)
14 National Crime Agency v Mansoor Mahmood Hussain, Laurel Terrace Limited, Land88 Limited, Jayco88 Limited, Cubic Business Park Limited, 88M Group Limited, 2 Park Square Limited [2020] EWHC 432.
16 https://www.bbc.com/news/uk-northern-ireland-49178074. The NCA website does not disclose further developments in this case since July 2019.
17 https://www.theedgemarkets.com/article/govt-mulls-introducing-unexplained-wealth-law
Originally Published 04 August 2021
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