Unexplained wealth orders

Introduced in February 2018, it remains to be seen how popular a tool Unexplained Wealth Orders (UWOs) will prove to be with the enforcement agencies when investigating suspected criminality. There have, to date, been reports of very few UWOs being sought, and it could well prove that the mere existence of the new law is seen more useful in being a deterrent.

An UWO can be granted by the High Court upon application by an enforcement authority, being: HM Revenue & Customs; the National Crime Agency; the Financial Conduct Authority; the Serious Fraud office; or the Crown Prosecution Service.

The application can be made where it can be shown that an individual, trustee, or company, is holding property with a value of more than £50,000 in circumstances where it is suspected that the person’s known income is insufficient to have paid for the assets concerned. In this regard, it is expected that income will be construed widely and include items which are not strictly recognised as income of the person concerned, such as capital profits, inheritances, and other legitimate receipts.

The application can be made ex-parte and can, and often will be, combined with an application for an interim freezing order.

Whilst the individual who is the subject of an order, and the location of the assets involved, can both be in the UK or outside, an application can be made only where it can be shown that:

  • The individual, or an associate, is, or has been, a Politically Exposed Person (PEP) and is based outside the European Economic Area (EEA); or
  • The individual, or an associate, whether a PEP or not, is based within the EEA and has been involved in serious crime in the UK or elsewhere.

In all instances, the enforcement authority must show the court that there are reasonable grounds that the criteria are satisfied but the burden of proof is not high; being less than the balance of probabilities.

A  PEP is an individual entrusted with a prominent public function by an international organisation or a State.  A serious crime is one which, inter alia, includes the fraudulent evasion of duties or taxes, and the common law offence of cheating in relation to the public revenue.

If the court is satisfied the application has merit, the court will order the individual to respond in whatever way the court determines is appropriate. This will typically demand that the respondent provides an explanation of the wealth, it sources, and provide supporting evidence, to the enforcement authority within around two months.

If, on the balance of probabilities, the respondent gives a satisfactory explanation for the legitimacy of the wealth, the property will be unfrozen, and the enforcement authority will have gained only the information provided in satisfaction of the order.

If the respondent knowingly makes a false or misleading statement in response to the order, the respondent can be liable to both a monetary fine and a custodial sentence of up to two years.

If the respondent fails, without having a reasonable excuse, to comply with the order, the property subject to the order is presumed to be recoverable property and the enforcement authority can proceed with confiscation proceedings.

It remains to be seen how UWOs will be used by HM Revenue & Customs, and especially when, inter alia, HMRC starts receiving information via the common reporting standard? Will UWOs be used by HMRC as new tool in discovery, or as a means of refreshing an existing discovery which has gone stale? Or will HMRC favour using the new provisions for account freezing orders instead?

Freezing & forfeiture of bank accounts

The Criminal Finances Act 2017 introduced new rules for the freezing and forfeiture of bank accounts. Whilst most of the headlines have been on the new provisions for Unexplained Wealth Orders, it might prove that UWOs are rarely used and that their existence is more for symbolism.

In contrast, freezing and forfeiture are likely to involve the authorities in less effort and prove to be a more useful resource for the law enforcement agencies.

 

What can be frozen?

Any or all of the balance in the account held with a UK bank or building society. Certainly, accounts held with branches in the UK are covered but it is unclear presently whether accounts held with overseas branches of UK banks etc., are within the scope of the rules.

The balance in the account must be at least £1,000, or the non-sterling equivalent.

 

How is an account frozen?

An enforcement agency can apply to the magistrates for some, or all, of an account to be frozen. An enforcement agency will be one of the Police, the Serious Fraud Office, the National Crime Agency, or HM Revenue & Customs.

To be successful, an application must convince the magistrates that there are reasonable grounds to suspect that the contents of the account are either recoverable property or that the account-holder, or any other person, will use the money in unlawful conduct.

Recoverable property is any asset which is obtained through criminal conduct in the UK, criminal conduct overseas, or conduct which although not criminal overseas would be criminal if carried out in the UK.

Importantly, there is no need for there to be a proven crime, merely sufficient to show reasonable grounds for the suspicion. The burden of proof lies with the enforcement agency, but is not a high burden and can be satisfied by showing a degree of likelihood lower than the balance of probabilities.

The application to the magistrates needs to be authorised by a senior officer of the enforcement agency concerned, and can be made ex-parte where there is a concern, as there will be in most instances, that the monies in the account will be extracted should the account-holder be put on notice of the intention to freeze the account.

 

How much in the account will be frozen?

Any, or all, of the account to the extent that the enforcement agency can satisfy the magistrates that the amount is reasonably suspected to be recoverable property or could be used in unlawful conduct.

The magistrates can carve out, and decline to freeze, a reasonable amount to pay for any of: the legal fees in contesting the freezing order; living expenses; and trade expenses of the account holder.

 

For how long can the account be frozen?

Up to two years.

 

Can the account be unfrozen?

The account holder, or any other interested person, can apply to the magistrates for some, or all, of the contents of the bank or building society account to be released.

Where an account has been improperly frozen, the magistrates can order the relevant enforcement authority to compensate the account-holder for losses suffered in consequence.

 

When can the account be forfeited ?

If, during the freezing period of up to two years, the account holder is found guilty of a relevant criminal offence, the account can be forfeited under the confiscation laws.

Otherwise, at the end of the freezing period, the contents of the bank account can be forfeited to the enforcement agency either upon the issue of a forfeiture notice by the agency or by order of the magistrates’ court.  Forfeiture is dependent on the contents of the account still satisfying the requirement of being recoverable property or the intention to be used in unlawful activity, on the balance of probabilities.

 

Tax

Many people incorrectly think that non-tax payment is not criminal but, broadly, any wrongdoing involving a knowing act of non-declaration or under-declaration could be argued to be a criminal offence. There are additionally, the acts of concealment, falsification of invoices etc., which are, perhaps, more obviously appreciated to be criminal in nature.

With HM Revenue & Customs being primarily an agency tasked with the assessment and collection of money, it has traditionally been the case that HMRC will eschew the instigation of prosecutions for tax evasion as an administrative convenience.

Put simply, it is cheaper overall for HMRC to collect in the tax, and interest and financial penalties, whilst incurring as little expense as possible. Notwithstanding, the more egregious and higher value cases will still be prosecuted to discourage others, with some 1,000 cases considered for criminal prosecution annually.

It is unlikely that HMRC will commence a markedly greater number of criminal prosecutions in the foreseeable future. However, the ability now merely for HMRC (and other enforcement agencies such as the NCA,, in particular) to show a lay bench that there are reasonable grounds to suspect, to a relatively low standard to proof, that the content of UK bank accounts is related to non-tax payment or other tax transgressions will now enable HMRC to engage the criminal law, and to do so at little cost.

It is too early to speculate over how the new account freezing and forfeiture rules will be invoked in the years ahead, and the degree to which these new rules will be used when compared to other collection routes available to HMRC such as the direct recovery of debts provisions introduced in 2015.

With the government in need of cash, and HMRC being ever more aggressive in their management of the UK tax system, it may prove likely that magistrates’ orders for freezing, and ultimately, forfeiture, of bank accounts will become a commonly used tool.