Friday Highlight  

Are your clients vulnerable to foreign law enforcement action?

Are your clients vulnerable to foreign law enforcement action?

On November 12 2018, a little-noticed provision came into force, which potentially places a host of ‘draconian’ law enforcement weapons into the hands of countries with little respect for the rule of law. 

Since 2017, the UK authorities have been able to apply for unexplained wealth orders (UWOs), account freezing orders (AFOs) and a number of other measures designed to toughen up the UK’s response to money laundering.

Now, thanks to the snappily-titled Proceeds of Crime Act 2002 (External Investigations and External Orders and Requests) (Amendment) Order 2018, those measures are available to other countries, on request.

Any other jurisdiction, including those that are widely regarded as using criminal powers for political or improper means, such as Russia, can now send a mutual legal assistance (MLA) request to the UK asking for a UWO or AFO in relation to UK-based assets - irrespective of whether the UK police or National Crime Agency (NCA) have any grounds to suspect wrongdoing.   

The UK’s Proceeds of Crime Act (POCA) has been repeatedly described as ‘draconian’ by the courts, and UWOs are no exception.

They require persons who hold property worth more than £50,000 and who are reasonably suspected of lacking the means to have obtained that property lawfully to disclose their interest in the property and precisely how it was acquired.

Respondents must be either politically exposed persons (Peps) or reasonably suspected of involvement in serious crime, whether in the UK or elsewhere. Non-compliance can lead to forfeiture of the property, as well as up to two years’ imprisonment.

Thus far, the NCA has used UWOs cautiously, only applying for one order against the wife of a convicted Azerbaijani banker (who spent £16m in Harrods and owned property worth more than £20m), but has a handful more said to be in the pipeline.

Therefore, while financial advisers will have been mindful of the potential risks to clients who are Peps, it looks like the NCA will only un-holster a UWO in obvious and egregious cases.

By contrast, the NCA has been much quicker on the draw with AFOs, which allow funds in a bank or building society account to be frozen, with a view to being forfeited to the state, on the relatively low threshold of whether there are reasonable grounds to suspect them to be either obtained by, or intended for, use in unlawful conduct.

Any account holder is in the line of fire, not just Peps or suspected criminals. AFOs provide a much simpler route to freezing and seizing assets than full-blown criminal proceedings.

The NCA is carefully developing its approach to these new measures. But, can we expect the same restraint from other countries?

Will they target political opponents rather than persons genuinely suspected of acquiring assets unlawfully?