Unexplained Wealth Order Lawyers

Why should decentralised finance entrepreneurs care about UWOs?

Unexplained Wealth Orders (UWO) authorise enforcement agencies to confiscate the property of so-called “politically exposed persons” (PEPs) and compel them to reveal the source of their wealth. But the phrase “politically exposed “is misleading since it is not only people in politics that are caught within the scope of UWOs. Entrepreneurs, CEOs and business people, their families and close associates are also included within the sight of law enforcement. Basically, anyone can be investigated with a UWO if they have unexplained wealth over a minimum threshold. Also, any kind of wealth can trigger the suspicion of law enforcement, including cash, jewellery, yachts, cars and houses. A routine traffic stop by the police that reveals a large amount of cash in a car can result in a UWO investigation.

Dealing in decentralised finance, including cryptocurrency and virtual currencies, is a multi-billion-dollar industry. There has been an exponential increase in the number of decentralised entrepreneurs with high-value property acquired with decentralised finance over recent years, and property arising from decentralised finance is predicted to increase in value.

Decentralised finance entrepreneurs acquire valuable property personally or through their companies with funds arising from decentralised finance.

Although only a minority of people that deal in virtual currencies may engage in wrongful activity, the anonymity, ease of use, and ability to circumvent borders and regulations have made decentralised finance extremely popular with criminals. According to the BBC in 2021, over £6 billion was laundered through cryptocurrency alone.

Naturally, decentralised finance entrepreneurs are within the radar of law enforcement, and if you own valuable property paid for or arising from decentralised finance, then you may be investigated with a UWO.

UWOs are sought against those whose wealth appears disproportionate to their means. It requires the respondent to the UIWO to explain its source of funds for the assets(s) or go through the civil process of asset recovery.

Once you are served with a UWO, you are already in a serious situation, and appealing or otherwise overturning a UWO and ancillary orders is an uphill task. The immediate action taken in the early stages of receiving notice of an application for a UWO is critical. Better still, ensure that all regulations and laws have been complied with concerning all financial matters.

Given the current regulatory trend, it would be wise for any decentralised finance entrepreneur to seek legal protection and security relating to their virtual currency activity. At the very minimum, understanding, managing and monitoring regulatory risk must be a priority for any token issue.

The UWO is an investigative tool. The suspicion of the regulator is not conclusive. The UWO can be set aside or not granted. However, it is better to take preventative measures than to seek a remedy when an investigation is triggered. UWO puts all respondents and their close associates at risk of reputation damage even before the determination of the case. Given that one’s digital footprint directly impacts their worth and credibility as an individual and business person, being targeted with a UWO can lead to financial and credibility loss, which leads to the loss of relationships and business crises.

If there is any doubt about the probity of the source of wealth, either owned personally or by the business, then I suggest you seek legal representation

What is an Unexplained Wealth Order?

The government is taking the notoriety of the UK as a major jurisdiction for corruption, including money laundering seriously.

According to the US State Department, the UK is a major money laundering jurisdiction. The National Crime Agency has identified money laundering as a threat to The UK’s national security, national prosperity and international reputation.

UWOs are another investigative tool in the armoury of UK  law enforcement to help the authorities deal with money laundering, tax evasion and other financial wrongdoing to maintain the UK’s international reputation and security.

UWOs, also known as the McMafia Order after the popular book and TV series, came into force in January 2018 under sections 1–2 of the Criminal Finances Act 2017 and are governed by sections 362A–362T of Part 8 of the Proceeds of Crime Act 2002 (the “Act”)

Who is likely to be targeted?

Anyone, including their close associates and family members, suspected of being involved in economic fraud, including tax evasion and money laundering, can be served with a UWO. The minimum asset value is + £50,000.

What is the burden of proof?

The burden of proving a case involving UWOs is on a balance of probability- this is the civil standard of proof. The burden of proof is on the individual served with the Order. The PEP in a UWO is the respondent. The respondent must prove the source of their income and clearly indicate how they have accumulated their wealth.

The Respondent

During the proceedings, the enforcement agencies must prove good faith in their investigations and assumptions.  UWO applications can be made with or without notice. A without notice application means that the respondent will not know that the application is being made until they are served with the UWO. A with notice application is when the respondent is told about the hearing before it takes place.

The enforcement agencies entitled to seek a UWO include the National Crime Agency, Financial Conduct Authority, HM Revenue and Customs, Serious Fraud Office and the Crown Prosecution Service. Although all these agencies are entitled to apply for a UWO, the CPS, NCA, and HMRC are the most likely applicants.

The applicant presumes that the asset acquired by the PEP was corruptly, fraudulently or otherwise wrongfully obtained, and it is for the respondent to refute the allegations.

PEPs, Criminal Suspects and Corporates

Respondents can be individuals or companies and other entities. An asset holding entity replies through a "specified responsible officer". The respondent must provide a statement and/or documents in response to a UWO. A “responsible officer” can be a director, officer and manager of the company.

The UWO Process

Step 1

The UWO process begins with an investigation by enforcement authorities. These agents must verify the following before issuing a UWO.

That-

1.   The property is worth more than £50,000.

2. Evidence supports the suspicion that the person in question is the owner of the object in question.

3.   It is fair to believe that the Respondent could not have acquired or afforded the property from their legitimate sources of income; and

4.   The Respondent is either considered to be a PEP or is believed to have connections to or participation with severe criminality, either in the UK or internationally.

Each UWO is unique and tailored to its facts. Even then, the order includes an explanation of the form and manner of the claim and a deadline for the respondent's compliance.

Step2

Upon receiving an UWO the Respondent must provide a statement outlining the following as a means of absolving themselves of liability.

1.   Their level of interest in the cited property, including its nature.

2.   A description of how they got the asset.

3.   Information on the property's location.

4.   Any further details the order may require or deem appropriate.

Step 3

Depending on the respondent's response, the Court can rule on whether they have a legitimate cause to the asset or issue further orders to ensure the recovery of any property or monies that were acquired fraudulently.

The assets are seized by the authorities, and the offender will face penalties or jail time if it is found that the asset in question in the UWO was obtained illegally. Where the suspect fails to respond, they are held in contempt of court and all assets are presumed to be illegal and thus recoverable.

Violation of UWOs may also be punished with fines or jail time. Where a Respondent successfully appeals a UWO the court can only award costs where it is proven that the enforcement agency acted improperly or dishonestly in seeking the UWO.

The Passage of the Economic Crime (Transparency and Enforcement) Act 2022

In response to the current situation in Ukraine, on 15th March 2022, the UK Government fast-tracked the passage of the Economic Crime (Transparency and Enforcement) Act 2022 (the “2022 Act”). The aim is to dissuade PEPs from redirecting their property to the UK unlawfully. Some of the changes introduced by the 2022 Act include:

1.   Amendments to the Unexplained Wealth Order (UWO) regime (Part 2, sections 45 to 53 of the Act). These amendments include-

 a)   The requirement that the Secretary of State shall publish an annual report in which they detail the number of UWOs applied for and granted.

b)   Creation of a new category of person who can receive a UWO. This will now include “responsible officers” of the entity that owns the property.

c)   Creation of a new alternative test for granting an UWO.

d)   Allowing the NCA to simultaneously apply for an UWO and interim freezing order prohibiting the respondent from selling it.

 e)   Limiting the liability of enforcement authorities to pay costs in legal proceedings relating to UWOs (or interim freezing orders).

 2.   Amendments to Creating a Register of Overseas Entities (Part 1, sections 1 to 44 of the Act). This amendment establishes a Register of Overseas Entities (Register), increasing transparency on ownership and control of overseas entities of UK property. Any beneficial owner with 25% ownership stake in a company must be registered.

Freezing Orders

Besides requesting a UWO, law enforcement authorities may also seek that all of the Respondent's assets be temporarily frozen to protect the suspiciously obtained assets through an interim freezing order.

Paragraphs 4.1 to 7c of the White Book Civil Recovery Proceedings Practice Direction governs applications under Part 5 of the Act. The respondent can apply to set aside the freezing order under Paragraph 7.1. The respondent can also ask the enforcement agency to amend the freezing order to permit living expenses, legal fees and other essential payments. If the enforcement agency refuses, then the respondent can apply to the court to have the freezing order varied.

The court imposes this order whenever it deems that failing to protect and maintain the asset may jeopardise any future recovery orders.

The enforcement agency has the power to request the appointment of an interim receiver if the court awards a freezing order. Such a receiver can be the employee of the relevant enforcement authority overseeing the suspected asset(s) throughout the proceedings.

Where there is an interim freezing order in force, the enforcement authority may apply to extend it by up to a maximum of 186 days. During this time, they can conduct additional investigative or enforcement steps to pursue a case against the respondent.

Responding to a UWO

If the court grants a UWO, it can negatively impact the respondent, both personally and in business.

Entrepreneurs must act quickly and effectively, if targeted with UWOs, to protect and recover any assets that were the subject of the UWOs while maintaining and managing business reputation.

Some of the steps in responding to a UWO include:

1.   consider all necessary legal documents for responding to the UWO. these could include title deeds to real property, bank account details, contracts and other agreements of sale or purchase, logbooks, and identity documents.

2.   file a legal statement in response, the failure to file a response amounts to contempt of court and may lead to the fining or imprisonment of a respondent and the civil recovery of the property in question.

Some of the things that should be included in the legal statement include;

a.   the nature of the respondent’s interest in the property

b.   details relating to how they came to own the property

c.    any further information required as per the UWO

d.   if the respondent is a trustee, then they must provide the details of the trust settlement.

The respondent can also appeal to a higher court on a point of law against the UWO being granted. There is also the remedy of judicial review of the administrative decision to apply for the UWO, which is discussed further below.

The Need for Expertise in Challenging A UWO

Responding to the UWO should be taken very seriously. It would be wise to have a solicitor or a barrister that specialises in this practice area draft the reply.

A lawyer can also verify the UWO to ensure that any orders sought, including the freeze order, are warranted. Consequently, guidance is needed to effectively present your legal statement to ensure success in either having the UWO discharged or varied. What you don’t want to do is to compound the problem.

A competent legal representative may also be able to recover your legal costs if there has been a failure of the UWO prerequisites and proof of unreasonableness or malice in seeking the UWO in the first place.

UWOs in Practice

Some of the notable cases in the UK so far include

1.   National Crime Agency (NCA) v Mrs A (Zamira Hajiyeva) [2020] 1 W.L.R. 3209

This was the first ever UK case on UWO. the respondent was a PEP by relationship. She was the wife of a convicted Azerbaijani PEP who was sentenced to 15 years’ imprisonment for large-scale fraud and embezzlement in Azerbaijan. The suspicion of the enforcement agents was roused by the respondent’s spending habits. She had transacted over £26m within a short period purchasing property in Knightsbridge through a BVI company, and other purchases at Harrods amounting to over £16m. Zamira’s application to have the UWO against her discharged was denied.

2.   National Crime Agency v Baker [2020] EWHC 822 (Admin)

In this case, the NCA sought to gather intelligence about the Ultimate Beneficial Owners of the property managed by the respondents. In deciding the case, the requirement of good faith and the credibility of assumptions made by the NCA was tested. The court found that the NCA had relied on wrong facts to assume the respondents’ culpability. As such, it discharged the UWO and the interim orders issued against three respondents who were purchasing and managing the property. This was because the NCA’s assumptions were ill-founded and unreliable.

This case also led to the development of a rule on the cap that a respondent had a right to claim if they were discharged from an UWO. It is reported that this case cost the NCA almost £1.5 million in awards to the respondent, a fact that would deter the entity from applying for UWOs in future for fear of incurring hefty costs for cases lost. To deal with this challenge, the House of Lords amended the Economics Crime Bill introducing a cap on the awards accessible to a respondent when they meet claims conditions against enforcement agencies.

In another 2019 case, the NCA obtained a UWO against Mansoor Mahmood Hussain. The ability to gather intelligence on this case through disclosing the respondent’s information led to the recovery of assets amounting to over £9m.

The Real Battleground (reclaiming your assets)

it is important to understand how a UWO affects you, how to respond to a UWO in the future and whether it is possible to prevent a UWO in the first place.

A legal expert can guide you on how to effectively manage your assets and regulatory obligations and walk you through the process if you are served with a UWO and ancillary orders. The steps to follow to recover your assets are laid down under Part 5 Proceeds of Crime Act. They include:

 Step 1

Any property that is thought to be the proceeds of crime will be the subject of a Property Freezing Order at the beginning of the assets recovery procedure (PFO). Without the approval of the crown court and prosecuting authority, the PFO defendant is not permitted to engage with the frozen assets. Depending on the specific circumstances, the sorts of property that can be frozen include houses, cars, and bank accounts. Even then, authorities cannot recover any property over 20 years unless there is reasonable cause for the recovery, such as a respondent’s intentional non-disclosure of essential facts relating to the property.

Step 2

During proceedings, if you need access to the frozen property, your legal representative can support you in presenting a valid legal argument to value the PFO or to allow you some level of access to the funds/property in question. A competent legal representative can also keep track of your legal proceedings and offer valid legal advice to support your discharge.

Step 3

If, the respondent’s claims against the enforcement agency are successful, then they are entitled to compensation and legal costs.

Judicial Review

If a respondent is not satisfied with the administrative actions of the NCA, they can apply for judicial review at the administrative court. The application is made on Form N463.

The judicial review considers whether processes were adhered to and whether they were done in a fair manner. The Administrative Court Judicial Review Guide 2021 provides adequate guidelines on the timeline, procedures and remedies that respondents can seek following a judicial review process.

In the 2017 case of Mr. Virdee and Mr. Trutschler, the PEPs brought a judicial review case against the NCA after the agency refused to release their seized property after the two were allegedly unlawfully arrested. While their application was unsuccessful, the honourable court set out the standards before a ruling or judgement can be set aside due to a material non-disclosure. This case can form a good basis for PEPs depending on the specific facts of their UWO cases.

Conclusion

Unfortunately, many of the high-profile cases and some of the wording of the UWO-related law make it sound like an issue just for the super-rich. In fact, UWOs are routinely sought in many lower-profile matters. Once a UWO and ancillary orders are handed down by the court, a respondent is already in the proverbial hot water. It is far better to act as soon as notice of an application for a UWO is received from the enforcement authority. Better still, ensure that all regulations and laws, including anti-money laundering, know your client and e-money regulations are understood and complied with to prevent any crises in the first place.

 Mr Peter Adediran specialises in representing private client wealth and decentralised finance entrepreneurs. To obtain an accurate opinion about your matter or to book an appointment, please call (020) 7305-7491 or at peter@pailsolicitors.co.uk. We would be delighted to assist you.