Unexplained Wealth Orders: Prepare Yourself for Scrutiny

The UK Government in January 2018 passed the Criminal Finances Act 2017 (the “Act”). The Act introduced Unexplained Wealth Orders (“UWOs” or “Orders”) as part of its strategy to tackle UK money laundering, corruption and terrorist financing. UWOs empower all the significant investigating authorities to compel individuals to provide information about assets they own in the UK and, in successful cases, will make it easier to confiscate those assets.¹ The National Crime Agency (“NCA”) brought the first case in February 2018. The NCA’s case against Zamira Hajiyeva (“ZH”),² and ZH’s subsequent appeal,³ is a good example of how investigators use UWOs to exert real pressure on High Net Worth individuals (“HNWs”) implicated by the Act. So far, the NCA has utilised their powers against four individuals, including ZH, to seek information regarding assets totalling over £115.2 million.

This OnPoint – following Dechert’s 2017 “Dirty Money” Trilogy on the UK Criminal Finances Act 2017 – examines the lessons learned from ZH’s case, and considers the implications for HNWs with assets in the UK. Dechert has also been quoted in the national press discussing this issue.⁴

Executive Summary

An individual or company served with a UWO faces onerous requirements placed on it to explain the source of their UK assets as well as potentially significant reputational damage. HNWs should seek advice now to protect their position in the event of an application for a UWO which affects their property. Dechert can advise on the appropriate next steps.

Unexplained Wealth Orders: A Refresher

The authorities will apply for UWOs if they believe there is a disparity between the value of a person’s assets and their lawfully obtained income. When applying for an Order, investigators will have to show that the person named in the Order is either:

a) a Politically Exposed Person (“PEP”), which is defined as –

           i.  an individual who is or has been entrusted with prominent public functions by an international organisation or a State outside the European Economic Area;

           ii.  a family member of an individual within paragraph (i);

           iii.  a close associate of an individual within paragraph (i); or

           iv.  any person otherwise connected with an individual within paragraph (i); 

or

b) involved (or has been involved) in serious crime, or is connected to someone who has been involved in serious crime.⁵

The definition of a “close associate” of a PEP includes (but is not limited to):

• anyone who has joint beneficial ownership of a company or other legal arrangement with a PEP;
  
• anyone who has sole beneficial ownership of a company or legal arrangement set up for the benefit of a PEP; or
  
• any other person with close business ties to a PEP.⁶
  

• three properties worth over £80 million at the time of purchase held by offshore companies said to be linked to a politically exposed person who the NCA believes is involved in serious crime;⁷
• eight properties worth £10 million owned by a property businessman, which the NCA believes were purchased using funds from the supply of firearms, armed robberies, and drug trafficking. This is the first UWO that was obtained solely based on an individual’s alleged involvement in serious organised crime;⁸ and
• six properties worth £3.2 million that the NCA believes belong to a Northern Irish woman suspected of association with criminals involved in paramilitary activity and cigarette smuggling.⁹
  

1. The imprecise definition of PEP
   The definition of PEP comes from EU legislation11 and is imprecise and broad in order to capture the PEP, their family and associates. The definition includes board members of central banks and members of the management or supervisory bodies of state-owned companies, and their family members. Applying that definition, the Courts had no difficulty in finding that ZH, as the wife of a former chairman of a majority state-owned bank was a PEP. ZH was not involved in any criminal conduct and is not a public official herself.
   
   
2. Information provided will be used to confiscate assets
   Using relevant information, if the investigator proves on the balance of probabilities (i.e. that it is more likely than not) that the property is (or has been purchased using) criminal property, having been obtained through unlawful conduct, the property will be confiscated.
   
   If the subject of the Order fails to provide the information requested in a UWO without a reasonable excuse, the High Court will assume that the asset is criminal property, unless the subject of the Order proves (again, on the balance of probabilities) that the property was financed lawfully. By assuming the asset is criminal property, the High Court effectively shifts the burden of proof from the investigator to the owner.
   
   
3. Information provided could incriminate HNWs outside the UK
   ZH successfully challenged the application to extradite her to Azerbaijan to face criminal charges of embezzlement. If she had lost that challenge, her responses to the UWOs could have strengthened the evidence against her in any prosecution in Azerbaijan. Although the legislation prohibits using a person’s responses to a UWO against them in criminal proceedings, that prohibition only applies in the UK. A criminal court overseas may not recognise that prohibition, which means prosecutors overseas could use a person’s statements in the UWO proceedings as evidence against them in an overseas prosecution.
   
   
4. Failure to comply can be a criminal offence
   Anyone who deliberately or recklessly makes a materially false or misleading statement in response to a UWO commits an offence and, if found guilty, can be sentenced to a fine or imprisonment of up to two years. Separately, if the investigator or the High Court believes that a person has deliberately or wilfully failed to comply with the UWO, the investigator may ask the High Court (or the High Court may decide itself) to prosecute that person for contempt of court. If found guilty, the sanction is either a fine or imprisonment of up to two years.
   
   
5. Interim Freezing Orders prevent dealing with affected assets
   Alongside the UWOs, the High Court in ZH’s case and subsequent 2019 cases also made interim freezing orders. An interim freezing order is a temporary order which prevents the person named in the order from selling or otherwise dealing with the affected assets pending the outcome of the UWO application. An interim freezing order also prevents anyone with knowledge of the freezing order from helping to dispose of the asset. Anyone who knowingly breaches an interim freezing order can be held in contempt of court, fined or imprisoned and have their assets seized.
   
   
6. Adverse publicity
   ZH’s case makes clear that HNWs will need to have a cogent reason for keeping cases private. The High Court prevented the media publishing ZH’s identity at the outset of the proceedings because the NCA applied for the Orders in private. When ZH could not demonstrate grounds for keeping the case private the High Court lifted the reporting restrictions, applying the general rule that court proceedings in England should be public. Consequently, ZH’s personal spending habits, details of her and JH’s assets in the UK, together with details of her extradition proceedings and JH’s prosecution in Azerbaijan, have all been widely publicised.

Conclusion: Prepare for Scrutiny

1. They are the National Crime Agency; HM Revenue & Customs; the Financial Conduct Authority; the Serious Fraud Office; and the Crown Prosecution Service.
2. National Crime Agency v Mrs. A [2018] EWHC 2534; [2018] All ER (D) 21 (Oct).
3. Zamira Hajiyeva v National Crime Agency [2020] EWCA Civ 108.
   
4.  “Are unexplained wealth orders the cure for Britain’s reputation as a haven for dirty money?” by Henry Foy and Barney Thomson, Financial Times, 30 April 2018.
   
5. “Connected Person” is defined widely and includes relatives, business partners, fellow directors and connected companies. The full definition of “connected person” is set out in footnote 11 of our previous OnPoint on Unexplained Wealth Orders.
   
6. The full definition of “close associate” is set out in footnotes 10 and 11 of our previous OnPoint on Unexplained Wealth Orders.
   
7. “NCA secures Unexplained Wealth Orders for prime London property worth tens of millions,” National Crime Agency, 29 May 2019.
   
8. “NCA secures first serious organised crime Unexplained Wealth Order for property worth £10 million,” National Crime Agency, 18 July 2019.
   
9. “NCA secures Unexplained Wealth Order against properties owned by a Northern Irish woman,” National Crime Agency, 31 July 2019.
   
10. The implementation of the Order relating to the Mill Ride Golf Club was stayed pending the resolution of the Knightsbridge Order proceedings.
    
11. European Union Fourth Anti-Money Laundering Directive 2015/849.