Unexplained Wealth Orders – the key issues

Unexplained Wealth Orders (UWOs) are one of the latest enforcement tools available to UK authorities, and they have been on the receiving end of a lot of press attention since they came into force at the end of January 2018. These controversial orders permit certain UK authorities to apply to the High Court for an order that a named person (which could be a corporate body or a trust) explains how they obtained an interest in property, within a set time frame, otherwise the property may be deemed to be recoverable property for the purposes of the Proceeds of Crime Act ie the property may be permanently confiscated.

This article summarises the key facts you need to know: when do UWOs apply; how they are being used; and what trustees need to be aware of – including the possibility of challenging UWOs and the interim freezing orders that will typically accompany them.

When do UWOs apply?

UWOs apply to all property with a value of over £50k where the "known sources of income" of the person would have been insufficient to obtain that property. The "persons" they can apply to are:

• any non-EU PEP (including persons connected with such a PEP), or
• any person where there are "reasonable grounds" to connect him or a person connected to him to "Serious Crime", which is widely defined and includes offences such as fraud, money laundering and tax evasion. A criminal conviction is not required – just reasonable grounds for a connection with serious crime.

Are they being used?

The threat posed by UWOs is real, and as soon as they came into force in January the National Crime Agency (NCA) made its first application for a UWO. In a case that has been widely publicised, "Mrs A", now known to be Zamira Hajiyeva was served with a UWO by the NCA. Mrs Hajiyeva is the wife of an Azerbaijani banker who was jailed in Azerbaijan for allegedly defrauding the state owned bank he worked for (which he denies). She spent £16m in Harrods over ten years, amassing a valuable collection of jewellery, which has been seized, and has two multimillion pound properties in London, worth £22m, which were jointly owned with her husband. The disparity between the value of these properties, and the Hajiyevas' known income (around US$30k and US$150k per year between 2001 and 2008), piqued the interest of the NCA. A UWO and accompanying freezing orders were sought on the basis that Mr Hajiyeva was a PEP (the bank he worked for being majority owned by the Azerbaijani state) and Mrs Hajiyeva was therefore a connected person. Mrs Hajiyeva sought to resist the UWO on various grounds, and to maintain her anonymity in the process, but her appeal was dismissed, and her name made public.

As yet, other enforcement agencies are yet to apply for any UWOs, but the NCA has indicated that it is encouraged by the court's response to the challenge raised and that it intends to apply for further orders in the coming months.

What do trustees need to know and be aware of?

Firstly, you need to identify any clients who are potential targets. High net worth individuals from jurisdictions with a poor transparency rating are likely to be particularly at risk, especially those whose wealth is family wealth or who are beneficiaries of interests in trusts, as the source of their finances may not be immediately obvious.

Your clients need to be aware of what to do if they get served with an order:

• They should immediately seek legal advice. UWOs, and their accompanying freezing orders, are highly susceptible to challenge.
• Nonetheless, they should be prepared to explain, in detail, the source(s) of their wealth, and it is therefore advisable for "at risk" clients to get that evidence in order. This is particularly important given that the case of Mrs A demonstrates that the court will be robust in resisting challenges.

Failure to comply with a UWO means that the property is presumed to be recoverable under the Proceeds of Crime Act. If a response is provided, then the relevant authority has 60 days to determine what enforcement or investigatory proceedings should be taken in relation to the property.

The second issue which trustees need to be aware of is the impact that UWOs may have on them directly. The information provided in response to a UWO could be used to investigate the conduct of professionals and firms connected with the respondent. The head of the NCA has indicated that the AML procedures undertaken by professionals will be closely scrutinised – a sentiment that has been repeated by Ben Wallace, the Minister for Security. It is therefore important to ensure that your AML and client on-boarding procedures are fully compliant with the law.

Conclusion

The future impact of UWOs and the level of take up from law enforcement authorities remains to be seen. However, given the serious consequences of failing to comply with a UWO, it is important to be aware of the risks they pose and the steps which should be taken if you or a client are served with one.