John Binns and Ami Amin look at the introduction of Unexplained Wealth Orders and the ways in which the new powers could compromise the rights of a respondent.
The Criminal Finances Act 2017 (CFA) amends the Proceeds of Crime Act 2002 (POCA) and introduces the new regime of Unexplained Wealth Orders (UWOs). UWOs enhance the powers of enforcement agencies to recover the proceeds of crime enabling the courts to require a respondent to provide a statement setting out the nature and extent of their interest in specified property/assets, and how they were funded or obtained. In the absence of a satisfactory statement explaining the legitimacy of the funds used, the property/assets will be presumed to be recoverable for the purposes of civil recovery proceedings under Part 5 of POCA.
The scope of the new legislation targets illegitimate wealth in the UK and reverses the burden of proof onto the subject of the UWO to demonstrate the legitimate source of their wealth. A closer analysis of the drafting of the new provisions reveals that the legislative safeguards for the respondent are limited.
The evidential burden upon the enforcement agency is low.
UWOs may be granted by the High Court on the application of an enforcement authority (e.g. the NCA, HMRC, FCA, SFO & CPS) in respect of specific property, with a value in excess of £50,000. They can (and no doubt will) be applied for without notice. The individuals that will be exposed to the reach of UWOs have been categorised as follows: i) PEPs (and their family members, close associates or connected persons) and ii) those against whom there are reasonable grounds to suspect involvement in ‘serious crime’ (and connected persons). The evidential burden upon the enforcement agency seeking a UWO is low – once the holder of the property is established as a member of one of these categories, they need only have reasonable grounds for suspecting that the respondent’s lawful income (from known sources) is insufficient to enable them to have obtained the property.
The new provisions present difficulties for respondents from the very outset in that the enforcement agency need only “describe” the property in respect of which the order is sought, and it is enough for the application to simply refer to who is thought to hold the property, which has the potential for mistaken UWOs being granted. The legislation does not provide for any practical options to stop such an application being made or to stop the UWO from being granted, and there is no mechanism allowing a respondent to apply to the High Court to vary or discharge a UWO in England and Wales.
Therefore, a mistaken UWO will still require a respondent to demonstrate their innocence without any practical alternative remedy.
Another issue is the lack of certainty around what, if any, additional documents will be required of a respondent at the time a UWO is made. In addition to providing a statement, the judge has a wide discretion to seek further information and documents, and is not limited in how specific or extensive that information needs to be. One might think, that with the assistance of suitable legal advice, meeting the requirements of a UWO should be straightforward. However, where a respondent is essentially being ordered to prove their innocence, there are risks associated with a regime that does not require certainty and uniformity in its application.
Also of significant concern is the retention by the enforcement agency of information provided in response to a UWO.
There is a sole caveat in the legislation which provides that a statement made in response to a UWO cannot normally be used in evidence against that person in criminal proceedings. However, the question of where and how else that information might be used still arises.
In the absence of enforcement agencies setting out, or being given, clear limitations as to the subsequent use of the information they receive, there may be far-reaching consequences for respondents who may find themselves facing investigation by other authorities in the UK or abroad.
Additionally, the question arises – to what extent could that information be used for the purposes of an interview under caution against that individual, or anyone else? Once a UWO has been made, and in the absence of an appropriate answer from the respondent, enforcement agencies will then have the option of bringing further action against the property in question, including a civil recovery claim under Part 5 of POCA. A non-response to a UWO would effectively relieve the authorities of the burden of having to prove that the property is recoverable (i.e. obtained through ‘unlawful conduct’, as defined by section 241 POCA).
In such instances, it will be for the respondent, on the balance of probabilities, to establish that the property was lawfully obtained.
A respondent is essentially being ordered to prove their innocence.
Importantly, for the purpose of civil recovery, all respondents are afforded with the protection of dual criminality: the ‘unlawful conduct’ needs to be unlawful both in the UK and where it occurred. However at the time a UWO is sought, there is no requirement whatsoever to demonstrate dual (or any) criminality on the part of a PEP. For those where there are reasonable grounds for suspicion of involvement in ’serious crime’, there is a possibility that dual criminality will not be a requirement for the UWO to be granted, where the judge considers the alleged conduct to be “sufficiently serious” to fit that description. Therefore, the legislation enables enforcement agencies to target a much wider group of individuals than would otherwise fall within the remit of reasonable suspicion.
In the course of any subsequent civil recovery proceedings, where a respondent can provide a reasonable explanation for their wealth, the enforcement agency may then seek to disprove that explanation. It is anticipated that this will be done either by challenging the credibility of the respondent or potentially seeking to enlist the assistance of overseas authorities to obtain further information to rebut the respondent’s explanation. Ultimately, any cooperation sought from overseas will be dependent on the UK’s diplomatic relationship with those territories at the time.
UWOs present a disproportionate penalty with limited safeguards for respondents.
Before UWOs came into force, there was significant disquiet amongst practitioners about the proposals in the Criminal
Finances Bill, specifically the reversal of the burden of proof, the indefinite retention of materials by enforcement agencies and the draconian nature of any subsequent civil recovery proceedings. Little has been done to remedy that unease in the CFA. What is clear is that UWOs present a disproportionate penalty with limited safeguards for respondents and specialist legal advice will need to be sought either as soon as a UWO is made, or (perhaps more prudently) wherever it seems a realistic prospect.