Unexplained Wealth Orders (UWO) are the UK’s new weapon in fighting money-laundering and organised crime.  Introduced by the Criminal Finances Act 2017, they are aimed at fighting Britain’s reputation as a welcoming port for dirty money.

And what a haven it is.  Between 2008 and 2018, £68bn has flowed from Russia into Britain’s offshore satellites such as the British Virgin Islands, Cayman, Gibraltar, Isle of Man, Jersey, and Guernsey.  And the 2015 Dark Money report, prepared by Deutsche Bank showed that since the early 1990s, £133bn had arrived in the UK without ever being publicly accounted for.   Deutsche Bank was subsequently fined $425m (£317m) in the US and £163m in the UK after traders in Moscow were caught secretly dispersing $10bn (£7.5bn) of client money out of Russia through illegal exploitation of the stock market.

UWOs are designed to assist police and government agencies such as the National Crime Agency, HMRC, and Serious Fraud Office investigate the financial activities of people whose assets far exceed what could be bought by their ‘legitimate’ income.

But do they work?  When we examine the effectiveness of similar orders in other countries, it appears not.

What is an Unexplained Wealth Order?

Dubbed “McMafia Orders” after the hit BBC series, UWOs are a civil order and one of its key features is that the burden of proof is on the Respondent rather than the issuer.

If a person is issued with a UWO, they must provide a statement:

  • Detailing the nature and extent of their interest in the property in respect of which the order is made.
  • Explaining how they obtained the property.
  • If the property is held in Trust, setting out such details of that Trust.
  • Providing any further explanations related to the property as requested.

A UWO can only be granted if the recipient is a Politically Exposed Person, or someone involved in or connected to a person involved in serious crime.  There does not need to be any evidence of criminal behaviour.

UWOs have been utilised twice in the UK.  The first time was in 2018 against Zamira Hajiyeva, the wife of an Azerbaijani banker who is currently serving time in prison.  Despite having no identifiable source of income, Mrs Hajiyeva spent £16.3 million at Harrods between 2006 and 2016.  She also held extensive properties in exclusive London postcodes.

She is currently appealing the Orders.

In May 2019, a UWO was issued against a Politically Exposed Person who has an £80 million property portfolio in the capital.

Assets subject to a UWO can be frozen whilst an investigation takes place.  If the Respondent cannot provide a credible explanation as to how the assets were legally acquired, they can be confiscated.

UWOs are draconian, but are they effective in tackling the enormous problem of money laundering?  One way to understand their value is to look at their use in Columbia and Italy, two countries racked by organised crime over the past 100 years.

 

 

Colombia

Prior to the death of Pablo Escobar, Colombia was a hell-hole of drugs, cartels, kidnapping and violence.  It is now one of the strongest economies in South America and tourists flock to enjoy its beautiful beaches and laidback culture.

However, be under no illusion, the cocaine trade is still flourishing in Colombia.  In 2002, the government adopted the Civil Asset Forfeiture Law, widely referred to as Law 793.  It made illicit enrichment an illegal activity and provided prosecutors with the power to confiscate assets if the owner could not point to their legitimate origin.  Like UWO, the burden of proof is on the Respondent to prove the legitimacy of targeted assets and the Court can order confiscation regardless of any criminal prosecution.

Despite Law 793 and Law 785, which introduced several policies to strengthen the management of seized assets, and being the most sophisticated seizure laws in South America, they have not proved very effective.  The Fiscalia (the General Prosecutor) has a large backlog of cases, and there is not enough police and prosecutors to carry out money laundering investigations[1].  Also, attempts to seize property are often frustrated because land deeds are inaccurate and local officers are corrupt and refuse to co-operate with over-stretched prosecutors.  It can also take many years for the Courts to make a final decision on assets subject to Law 793.

 

Italy

Few countries have had more experience in combatting organised crime than Italy.  It was one of the first nations to introduce legislation to go after the financial gains of dirty money.  The measures, known as Misure di prevenzione personale, were brought in during the 1950s to combat organised crime in Southern Italy, have been heavily criticised for potential human rights violations.

A 1982 amendment to Misure di prevenzione personale authorised the seizure and confiscation of property and assets of the suspects belonging to mafia organisations.  According to Article 2-bis of the 1965 amendment to Misure di prevenzione personale , the source of income of those suspected of belonging to a mafia organisation is assessed in terms of their lifestyles, financial means, property, and economic activities.

The effectiveness of Misure di prevenzione personale and its subsequent amendments are said to be minimal.  Only around one third of seized assets are permanently confiscated.  Like Colombia, one of the problems is protracted judicial proceedings.

Staying one step ahead of organised crime is a never-ending challenge for law enforcement agencies.  But the biggest concern with UWO is not only that they have not been proven effective, but that they potentially put innocent people in the position of having to explain how they acquired their property.  With no requirement for a criminal prosecution, the recipient of a UWO is faced with the intimidating presence of police or government agencies demanding information.  Assets are also frozen, which may not only affect the Respondent but also innocent third parties.

It could be argued that UWOs breach a recipient’s right to private life under Article 8 of the European Convention on Human Rights and Article 6, which protects the right to a fair trial.  As more are issued, it is likely the courts will need to decide if they are worth the stress and financial damage they cause.

Tanveer Qureshi is a Legal 500 barrister, specialising in ASA compliance, business to business fraud, health and safety, food standards, civil litigation, and corporate crime.  If you require legal representation, please contact directly on 020 3870 3187.

[1] Francisco E. Thoumi & Amrcela Anzola: Extra-legal Economy, Dirty Money, Illegal capital inflows and outflows and money laundering in Colombia

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Tanveer is a specialist in criminal and regulatory law. He has been recognised by the Times Newspaper as a legal star of the future and ranked in Legal 500 as a recommended barrister. Tanveer writes regularly on topics ranging from financial crime to regulation and terrorism law.

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