Anti-corruption: unexplained wealth orders struggle to live up to the hype

Jonathan WatsonTuesday 12 May 2020

The UWO was made by the United Kingdom’s National Crime Agency (NCA). ‘This is a significant result which is important in establishing Unexplained Wealth Orders as a powerful tool helping us to investigate illicit finance generated in, or flowing through, the UK,’ said Sarah Pritchard, Director of the National Economic Crime Centre (NECC), which sits within the NCA, in a statement. ‘As a new piece of legislation, we anticipated that there would be legal challenge – we are pleased that the court has upheld the case. It will set a helpful precedent for future UWO cases.’

Although much heralded, UWOs have rarely been used so far, says Neil Swift, UK Country Representative for the IBA Anti-Corruption Committee and a partner at Peters & Peters. ‘Only a handful have been obtained and as yet, none have reached their natural conclusion: the making of a civil recovery order. No doubt the NCA chose its target for the first UWO carefully. Having weathered the challenge in the High Court and the Court of Appeal, the NCA and other law enforcement bodies will feel emboldened to make further use of UWOs.’

However, in April, the High Court ruled the NCA was wrong to claim that three London properties worth £80m and owned by the daughter and grandson of Kazakhstan’s former president were purchased with dirty money.

The NCA says it plans to appeal against this ruling. ‘The NCA is tenacious,’ said Graeme Biggar, Director-General of the NECC, in a statement. ‘We have been very clear that we will use all the legislation at our disposal to pursue suspected illicit finance and we will continue to do so.’

This more recent case has highlighted major weaknesses in the UK’s defences against suspect funds that should be addressed urgently, says Duncan Hames, Director of Policy at Transparency International UK. ‘The government should require transparency over who really owns secretive offshore companies holding UK property, making it easier to identify property bought with suspicious wealth and giving the corrupt no place to hide.’

Jessica Parker, Co-Chair of the IBA Business Crime Committee and a partner at Corker Binning, was not surprised by the NCA’s decision to appeal. ‘Prior to the introduction of UWOs they already had the power to apply to recover the proceeds of corruption through part 5 of the Proceeds of Crime Act 2002, provided they could establish its provenance,’ she says.

The appeal of UWOs was the reversal of the burden of proof, effectively leapfrogging a full investigation by requiring the beneficial owner to establish lawful provenance. ‘In a judgment which determined that the NCA had failed to carry out a “fair minded investigation”, the NCA are reminded that… they are required to be rigorous in their application of the rules,’ Parker says.

Many have argued that when it comes to real estate, a public register revealing the ultimate owners of the overseas companies seeking to purchase property in the UK would be more helpful in exposing corruption. Such a register has the support of politicians of all parties in the UK and is in the pipeline, but there is no current commitment to its launch.

Daniel Simon, a member of the IBA Private Client Tax Committee Advisory Board and a senior partner at Collyer Bristow, says that UWOs offer a more ‘sensible and proportionate’ approach to fighting money laundering than such a register. His colleague Samara Dutton, a partner in the firm’s contentious trusts and probate team, adds that the Court of Appeal’s upholding of the order against Hajiyeva was absolutely critical to establishing the effectiveness of UWOs as an anti-corruption measure.

‘The decision confirms that the courts will interpret the statutory preconditions for obtaining an UWO (eg, that the target be a politically exposed person) widely and that they will not easily be persuaded that a potential target should fall outside the scope of the regime just because he or she does not fit precisely within the definitions set out in the relevant legislation,’ says Dutton.

Politically exposed persons, according to UK regulator the Financial Conduct Authority, are individuals whose prominent position in public life may make them vulnerable to corruption. The definition extends to immediate family members and known close associates.

Dutton believes the decision against Hajiyeva, coupled with the widespread publicity it attracted, should help to give UWOs real teeth. ‘Future targets are less likely to challenge UWOs and we would instead expect to see more early settlements of the sort reported in the case of Malik Riaz Hussain, who agreed to hand over £190m in assets to the NCA at the end of last year.’

However, the source of funds used to acquire property might not be income, notes Swift. ‘It might be capital gain, gift or inherited wealth. There is only so much that legal professionals involved in property purchases can do.’

According to Swift, the NCA and other law enforcement bodies have so far made much more extensive use of account freezing and forfeiture orders than they have UWOs. ‘The former has the advantage of being relatively cheap and easy for law enforcement to pursue, with any litigation taking place in the magistrates’ court,’ he says. ‘UWOs are potentially far more resource intensive.’