Unexplained Wealth Orders now form part of a global crackdown on financial crime, write Agnes Qaushie and Nabeel Osman
There is a worldwide strategy to combat illicit wealth flowing from organised crime. Enforcement authorities have increased international co-operation and information sharing across jurisdictions is becoming increasingly common.
The UK real estate market has developed a reputation as a safe haven for those investing (or hiding) illicit wealth. The recent introduction of Unexplained Wealth Orders (UWOs), is a new enforcement tool designed to enable authorities to seize and dispose of assets that they believe to have been unlawfully obtained. It is therefore attracting interest from all over the world. UWOs can be made against persons defined as either “politically exposed” or those suspected of being involved in or connected to serious crime.
Since 31 January 2018, the date UWOs came into force, there has been worldwide media coverage focusing on the consequences for Russian oligarchs and Middle Eastern government officials who own real estate in London and elsewhere in the UK.
Undoubtedly, foreign owned real estate will become an early target for enforcement authorities, especially as the UK government has announced plans for a public register detailing beneficial ownership of overseas legal entities that own or buy property in the UK.
However, UWOs could affect a range of individuals (whether UK or non-UK nationals) and can potentially apply to any type of property valued at over £50,000. The low value threshold can easily include property such as jets, boats, performance cars, artwork, or even smaller items, such as luxury watches or expensive jewellery.
Where authorities seek a UWO, the UK High Court may grant one if it is satisfied that the value of the property in question is disproportionate to the owners known sources of income. For a UWO to be granted, it does not matter if the owner is in the UK or not. Additionally, a freezing order can be simultaneously imposed, prohibiting the movement, sale and in some circumstances, use of the property in question.
The UK’s National Security Minister, Ben Wallace MP, has shown some excitement over the introduction of UWOs and how they can be used to crackdown on organised crime, saying: ‘When we get to you, we will come for you, for your assets and we will make the environment that you live in difficult.’
For those subject to a UWO, there are legal consequences that will follow. The person specified in the UWO will be required to provide a formal statement in response by a deadline set by the High Court. The statement will need to explain the nature and interest in the property; how the property was obtained (i.e. origin of funds); details of the trust settlement (if held in trust); and any additional information specifically asked for by the court.
For example, if an application for a UWO relates to real estate, the High Court might require the owner to produce sensitive – and otherwise confidential – documents. Such documents could include family trust deeds, foreign tax returns, and/or overseas bank statements. Submitting a false or misleading statement in response is a criminal offence, which can result in up to two years’ imprisonment, a fine, or both. Those who fail to provide the statement by the deadline could have their property seized and disposed of by the government.
For those who own property that was lawfully obtained, but which might be difficult to explain, taking a proactive approach is very important. This could include pre-empting what property may be subject to a UWO and the likely requirements for a Statement in Response, including supporting documents.
Given information contained in the statement in response can be referred to other enforcement agencies to consider criminal or civil action, whether in the UK or elsewhere, advance preparation becomes particularly important. Enforcement authorities will find it difficult to successfully counter a robust Statement in Response and in some circumstances, might become liable to pay the legal costs of a person improperly pursued.
Agnes Qaushie (legal partner) and Nabeel Osman (barrister) practice in the regulatory and commercial disputes team within PwC‘s legal network.