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?