England and Wales court sets out rules for granting UWOs

Monday, 02 March 2020
The England and Wales High Court (EWHC) has stated a series of general principles setting out when it will grant unexplained wealth orders (UWOs) and interim freezing orders (IFOs), both of which can be applied to foreign individuals as well as UK residents.

The powers to apply for such orders were created by the Criminal Finances Act 2017, and enacted as new sections 362A and J of the Proceeds of Crime Act 2002 (POCA 2002). They have two major targets: organised crime within the UK, and 'politically exposed persons' suspected of embezzling state-owned assets in foreign jurisdictions. The set of principles enunciated by the EWHC appear in NCA v Hussain (2020 EWHC 432 Admin), a case which deals with UK organised crime, but they also apply to foreign targets of UWOs.

The recipient of a UWO is required to provide a statement setting out their interest in certain property and explaining how they obtained and paid for the property, including details of any trust through which the property is held. It is not a criminal offence in itself to fail to comply with a UWO, but it is an offence for a person to knowingly or recklessly make a false statement in purported compliance with a UWO. Moreover, the Hussain case has now established that the courts will consider an inadequate reply to these questions as suggesting that the relevant assets are the proceeds of crime, triggering a property freezing order on them.

The EWHC has now shut off the most likely challenge to a UWO, by adopting in full the UK National Crime Agency's (NCA’s) view of the legislative tests for reasonable suspicion. The POCA 2002 requires the enforcement authorities to have 'reasonable grounds to believe' that the person holds the property concerned, and that there are 'reasonable grounds for suspecting' that the known sources of the respondent's lawfully obtained income would have been insufficient for the purposes of enabling the respondent to obtain the property.

Murray J, giving the EWHC’s judgment, accepted the NCA's argument that 'reasonable grounds' did not mean proof, even to the civil standard, but only that the authorities thought that something was the case and that there were objectively reasonable grounds for that belief, not even amounting to a firm conviction. Moreover, a belief may be held on the basis of information that has not been proved.

The EWHC does specify that applicants for a s.362 order must justify their suspicion by reference to disclosable intelligence or information about the target of the order. In the case of non-residents, this can include open-source material from overseas public registers relating to property and public servants' income.

Murray J also resolved the interpretation of the words 'obtaining property' where the transaction is made through a trust. He noted that s.362H(2) of the POCA 2002 provides that a person is to be taken to hold property where, among other things, the person has effective control, is a trustee of a settlement in which the property is comprised or is a beneficiary (actual or potential) in relation to the settlement. The same test, he declared, is to be used for 'obtaining' property for the purposes of a UWO application.

A further issue considered in the judgment deals with arguments as to whether the relevant hearings must be held in private, in order to protect the UWO recipient's reputation given the 'considerable media interest' in UWOs. Again, Murray J largely accepted the NCA's position, which is that the level of press interest is undeserved, and that UWOs are merely a tool designed to assist with information-gathering during the early preliminary stages of an investigation, where the threshold tests for the application are relatively low and fall short of that necessary to establish actual involvement in crime. Nevertheless, the NCA said, it would be unfair to the respondent for the press to hear of the NCA's suspicions as to the respondent's character and criminal involvement, and the details of the amount and suspected source of their wealth. Moreover, publicity might defeat the object of the hearing. In general, said the NCA, the UWO application and the IFO application should be made without notice and the hearing conducted in private. Morgan J agreed.


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