Unexplained Wealth Orders

April 8, 2020

By Damian Nolan 

This article discusses Unexplained Wealth Orders (UWOs) introduced by section 1 of the Criminal Finances Act 2017. They came into force on 31 January 2018. The article explains the purpose of the order, the process for securing an order (considering the recent decision of NCA v Hussain) and their relationship with other civil and criminal sanctions regarding the proceeds of crime.

What is an unexplained wealth order?

A UWO is a mechanism designed to confiscate the proceeds of crime by using civil, rather than criminal, powers.

The power was introduced by section 1 of the Criminal Finances Act 2017. The Act creates a new section 362A of the Proceeds of Crime Act 2002 (POCA).

A UWO is an order requiring the respondent to provide a statement:

  • Setting out the nature and extent of the respondent’s interest in the property in respect of which the order is made.
  • Explaining how the respondent obtained the property (including, in particular, how any costs incurred in obtaining it were met).
  • Where the property is held by the trustees of a settlement, setting out such details of the settlement as may be specified in the order.
  • Setting out such other information in connection with the property as may be so specified.

(Section 362A (3), POCA.)

How can an unexplained wealth order be obtained?

An enforcement authority, including the National Crime Agency, Serious Fraud Office or any police force, can make an application to the High Court for a UWO (section 362A(1), POCA). A UWO can be made in respect of any property if the court is satisfied that each of the requirements for the making of the order is fulfilled.

An application for a UWO can be made without notice (section 362 I).

In National Crime Agency v Hussain and others [2020] EWHC 432 (Admin), the High Court stated that the presumptive starting point is that a UWO application will be made without notice and that the hearing of a UWO application and any related Interim Freezing Order (IFO) will be in private.

Press applications challenging the decision to hear the application in private were made. The National Crime Agency (NCA) opposed the applications being held in public in order to protect the integrity of the NCA’s underlying investigation, as well as to protect the rights of the respondent to the UWO.

The judge agreed that Civil Procedure Rule 39.2(3) was engaged, requiring the court to hold the hearing in private to secure the proper administration of justice due to:

  • The very early stage of an investigation at which a UWO application will be sought by an enforcement authority.
  • The relatively low threshold for obtaining a UWO under section 362B of POCA.
  • The potentially disproportionate personal and reputational impact on a respondent of the fact that a UWO has been obtained if that fact is publicised though no decision had been made to prosecute him through the criminal courts.

This outcome was anticipated by the statutory framework and guidance applicable to UWOs, which makes it clear that, while close and careful regard must be had to the specific circumstances of each case, the presumptive starting point is that a UWO application will be made without notice and that the hearing of the UWO application and any related IFO application will be in private.

What are the requirements for making an unexplained wealth order?

The High Court must be satisfied that there is reasonable cause to believe that:

  • The respondent holds the property.
  • The value of the property is greater than £50,000.
  • There are reasonable grounds for suspecting that the known sources of the respondent’s lawfully obtained income would have been insufficient for the purposes of enabling the respondent to obtain the property.
  • The respondent is either a politically exposed person (PEP) or there are reasonable grounds for suspecting that:
    • the respondent is, or has been, involved in serious crime (whether in a part of the UK or elsewhere); or
    • a person connected with the respondent is, or has been, so involved.

(Section 362B, POCA.)

The respondent can hold the property in its entirety or in part with any other persons. It does not matter whether the property was obtained by the respondent before or after the legislation permitting UWOs came into force.

Known sources of the respondent’s income are the sources of income (whether arising from employment, assets or otherwise) that are reasonably ascertainable from available information at the time of the making of the application for the order. To determine reasonable grounds for suspecting that a person’s known income is inadequate, the following can be taken into account:

  • Any mortgage, charge or other kind of security that it is reasonable to assume was or may have been available to the respondent for the purposes of obtaining the property.
  • An assumption that the respondent obtained the property for a price equivalent to its market value.
  • Income is “lawfully obtained” if it is obtained lawfully under the laws of the country from where the income arises (Section 362 B (6).)

Where the property is an interest in other property comprised in a settlement, the reference to the respondent obtaining the property is to be taken as if it were a reference to the respondent obtaining direct ownership of such share in the settled property as relates to, or is fairly represented by, that interest.

A PEP is defined in as:

  • An individual who is, or has been, entrusted with prominent public functions by an international organisation or by a state other than the UK or another EEA state.
  • A family member of a person described in the first bullet point above.
  • Someone known to be a close associate of a person described in the first bullet point above.
  • Someone otherwise connected with a person described in the first bullet point above.

(Section 362B (7).)

What should an application contain?

An application for an order must:

  • Specify or describe the property in respect of which the order is sought.
  • Specify the person whom the enforcement authority thinks holds the property (the respondent).

(Section 362 A (2), POCA.)

The person specified may be based outside the UK.

What happens when an unexplained wealth order is made?

Section 2 of the Criminal Finances Act 2017 creates a new section 362J of POCA. Section 362J applies where a UWO is made in respect of any property.

The court may make an interim freezing order in respect of the property if the court considers it necessary to do so for the purposes of avoiding the risk of any recovery order that might subsequently be obtained being frustrated.

An interim freezing order is an order that prohibits the respondent to the UWO, and any other person with an interest in the property, from in any way dealing with the property.

An interim freezing order:

  • May be made only on the application of the enforcement authority that applied for the UWO to which the interim freezing order relates.
  • Must be made in the same proceedings as those in which the UWO is made.
  • May be combined in one document with the UWO.

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In (Hajiyeva v National Crime Agency [2020] EWCA Civ 108), the Court of Appeal rejected an appeal against the first UWO imposed on an individual in the UK. The appellant was the wife of a former manager of a bank in Azerbaijan, who was convicted of several offences in Baku. The UWO concerned a property in London valued at £11.5 million. The court held that the appellant was a politically exposed person (PEP), that there were grounds for suspecting that the value of the property came from crime, that the bank was a “state-owned enterprise” and the “income requirement” of section 362B (3) of POCA had been met, and that the UWO did not offend the rule against self-incrimination or spousal privilege. If an application for a UWO in respect of any property is made without notice, an application for an interim freezing order in respect of the property must also be made without notice.

Can an interim freezing order be varied or discharged?

The High Court may at any time vary or discharge an interim freezing order (section 362K, POCA).

There are three particular circumstances in which the High Court must discharge an interim freezing order:

  • Where the applicable 48-hour period has ended, and a relevant application has not been made before the end of that period.
  • Where a relevant application has been made before the end of the applicable 48-hour period in relation to the property concerned, and proceedings on the application (including any on appeal) have been determined or otherwise disposed of.
  • Where the court has received a notification in relation to the property concerned under section 362 D (4)(notification from enforcement authority of no further proceedings).

The applicable 48-hour period is calculated as:

  • In a case where the respondent complies, or purports to comply, with the requirements imposed by a UWO before the end of the response period, the period of 48 hours beginning with the day after the day with which the 60-day period mentioned in section 362D (3) ends.
  • In any other case, the period of 48 hours beginning with the day after the day with which the response period ends.

(Section 362K (6).)

Before exercising power under this section to vary or discharge an interim freezing order, the court must (as well as giving the parties to the proceedings an opportunity to be heard) give such an opportunity to any person who may be affected by its decision, other than when discharging such an order in one of the three cases.

A relevant application means an application for:

  • A restraint order under section 41 or 190.
  • A property freezing order.
  • An interim receiving order.

(Section 362K (11).)

What must the subject of a UWO do?

A respondent will be given a fixed period of time under which he must comply with the requirements imposed under a UWO. The respondent complies with the requirements imposed by a UWO only if all of the requirements are complied with (section 362D (7), POCA).

The requirements can be varied, but would normally include the sending of information in writing to, or the production of documents at, an address specified in the order.

If the UWO is complied with, the next step depends on what other action has taken place:

  • If an interim freezing order has effect in relation to the property (see section 362J), the enforcement authority must determine what enforcement or investigatory proceedings, if any, it considers ought to be taken in relation to the property. A determination must take place within 60 days of the day of compliance.
  • If there is no interim freezing order in effect in relation to the property, the enforcement authority may (at any time) determine what, if any, enforcement or investigatory proceedings it considers ought to be taken in relation to the property. A decision to take no further enforcement or investigatory action does not prevent such proceedings being taken subsequently.

What are the penalties for non-compliance?

Section 362C of POCA applies in a case where the respondent fails, without reasonable excuse, to comply with the requirements imposed by a UWO in respect of any property before the end of the response period.

The term “reasonable excuse” is not defined in the POCA. Circumstances where non-compliance with a UWO might be considered reasonable include:

  • If the documents requested have been destroyed or otherwise cannot be located.
  • If a third party has failed to provide material required under the UWO and there are no other ways of obtaining such information.
  • If the respondent suffers from a serious physical impediment.
  • However, reasonable excuse can only ultimately be determined by a court.

The property is to be presumed to be recoverable property for the purposes of any proceedings taken in respect of the property under Part 5 of POCA, unless the contrary is shown.

The presumption above applies only so far as relating to the respondent’s interest in the property, and only if the value of that interest is greater than £50,000. It is for the court hearing the proceedings under Part 5 in relation to which reliance is placed on the presumption to determine the above.

Criminal offences

A person commits an offence if, in purported compliance with a requirement imposed by a UWO, the person either:

  • Makes a statement that the person knows to be false or misleading in a material particular.
  • Recklessly makes a statement that is false or misleading in a material particular.

(Section 362E POCA.)

A person guilty of an offence under section 362E is liable:

  • On conviction on indictment, to imprisonment for a term not exceeding two years, or to a fine, or to both.
  • On summary conviction in England and Wales, to imprisonment for a term not exceeding six months, or to a fine, or to both.

Are there any safeguards in place?

A UWO will normally require a person to provide a written statement detailing his interest, if any, in the property referred to in the order. The general rule is that any statement made for this purpose cannot be used in any subsequent criminal proceedings. Some exceptions to this rule include:

  • Confiscation proceedings under Part 2 of POCA.
  • A prosecution for an offence under section 362Eof POCA.
  • A prosecution for an offence under section 5of the Perjury Act 1911.
  • A prosecution for any other offence where, in giving evidence, the person makes a statement inconsistent with the UWO statement (and only in circumstances where evidence relating to it is adduced, or a question relating to it is asked by the person or on the person’s behalf in proceedings arising out of the prosecution).

How will unexplained wealth orders work in practice?

The Criminal Finances Act 2017 (Commencement No. 4) Regulations 2018 (SI 2018/78) brought UWOs into force on 31 January 2018. UWOs draw an obvious parallel with Civil Recovery Orders .The legislation is potentially very powerful, but the extent to which they will be used remains unclear. One issue will be, as ever, whether those agencies who pursue such applications are ever given the necessary resources to pursue such cases. The agencies are likely to continue to be left to the mercy of Treasury and other politically devised objectives. Against that, with the lower standard of proof required they often present the agencies with a chance of well publicised successes when set against the costs involved for a criminal investigation where the higher standard required for conviction will always remain a difficult hurdle to surmount.

Damian Nolan specialises in serious crime and fraud work. He undertakes defence work mainly, but is also a Category 4 Prosecutor. He has been appointed to the CPS Specialist Rape and Child Sexual Abuse List and is a member of both the Serious Crime Panel and the Fraud Panel. In the 2019 and 2020 editions of Chambers and Partners, Damian was one of only 3 junior counsel ranked in Tier 1 on Circuit. 

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