New powers under the Criminal Finances Act 2017 came into force on 31 January 2018 relating to unexplained wealth orders (UWOs).
The purpose of these orders is to require a person to account for the origin of their assets.
Under this new legislation, the High Court can make an UWO in respect of any property held by a person which is greater in value than £50,000, and when the Court is satisfied that there is reasonable cause to believe that the respondent is a politically exposed person who has been involved in serious crime or that a person connected with the respondent is, or has been, involved in serious crime.
A politically exposed person is described as an individual whose prominent position in public life may make them vulnerable to corruption. These categories include heads of state, heads of government, members of parliament and members of the boards of central banks.
While financial advisers are not specifically referred to within the new provisions, under legislation they must remain mindful of their regulatory duties or risk criminal sanction.The enforcement agencies with the power to apply for these orders are the Financial Conduct Authority, Serious Fraud Office (SFO), the National Crime Agency (NCA), HM Revenue and Customs, and the Crown Prosecution Service.
If the Court makes an order then the respondent must provide a statement covering the following matters:
(a) setting out the nature and extent of their interest in the property in respect of which the order is made;
(b) explaining how the property was obtained (including, in particular, how any costs incurred in obtaining it were met);
(c) 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; and
(d) setting out such other information in connection with the property as may be so specified.
At the end of February 2018, the Court used these powers for the first time to grant two unexplained wealth orders following an application by the NCA.
While the person who is the subject of the orders has remained unnamed, it is believed that they are a politician from central Asia.
The NCA has stated that the orders relate to two properties with a combined valued of £22m.
If the respondent of the order is unable to show the origin of the property and demonstrate that it was obtained with legitimate funds, then there is a risk that it will be recovered under civil enforcement.
How will this affect financial advisers?
Prior to these orders being available, financial advisers were required to comply with anti-money laundering regulations to take steps to prevent their services from being used for money laundering or terrorist financing.
While financial advisers are not specifically referred to within the new provisions, under legislation they must remain mindful of their regulatory duties or risk criminal sanction.
The courts have powers to issue interim freezing orders when making an UWO, which could give rise to concerns when dealing with any property belonging to the recipient of the order.
An adviser may wish to consider their own anti-money laundering procedures in relation to such clients, although under the fourth money laundering directive, politically exposed persons should already be the subject of enhanced due diligence.
It may be that the introduction of these orders focuses the mind and makes the adviser more aware of signs of illegal activity.
The adviser should be alert to any large transaction whereby the client’s known lawfully obtained income or assets would be insufficient to allow them to obtain the property.
They may wish to consider whether it is appropriate to make a suspicious activity report if there are concerns as to the legitimate funding for an asset.
Failure to report suspicions or to ‘tip off’ the client is a criminal offence and the adviser could be prosecuted.
The future
These orders offer a lucrative and effective means of recouping of illegitimate funds.
UWOs have been available in Australia and Ireland for many years and while they have not been particularly utilised in Australia, the success rate is high - 24 out of 28 applications have been successful since 2001.
Ireland has had even more success, with a 100 per cent success record, and it is reported that they have recovered in excess of $15m.
At the beginning of the year it appeared that enforcement agencies would be slow to utilise their new powers.
The director of the SFO, David Green, stated that it would be waiting for the “right case” and believed there would not be a sudden onslaught of forced asset disclosure.
It may have come as a surprise, therefore, for the SFO to witness the NCA taking such quick action.
Donald Toon, director for economic crime at the NCA, says: “Unexplained wealth orders have the potential to significantly reduce the appeal of the UK as a destination for illicit income.
"They enable the UK to more effectively target the problem of money laundering through prime real estate in London and elsewhere. We are determined to use all of the powers available to us to combat the flow of illicit monies into, or through, the UK."
What is clear is that the government is prepared to keep introducing legislation to combat money laundering and terrorist financing with lucrative consequences to encourage the enforcement agencies to keep tackling this area of crime.
It seems the draconian approach in these types of cases is set to continue.
Marie Bourke is a senior associate at Russell-Cooke
