Unexplained Wealth Orders - false dawn or new beginning
As the Government’s ‘Financial Crimes Bill’ cuts a swathe through the red tape and makes its way into the minds of all financial crime practitioners, is it time to ask whether one of the Act’s main components will be a solution or a hindrance in the fight against those who seek to profit from their illicit activities.
Hailed as one of the biggest developments in the fight against financial crime in recent times, ‘Unexplained Wealth Orders’ (UWO’s) seek to reverse the burden of proof and place the onus on the individual to “come clean” and show that property has been derived from a legitimate source. In theory, it sounds just like the piece of legislation required to fill the gap that Section 5 of POCA 2002 can’t. However, when you start to consider the practicalities concerned with UWO’s will they be as effective as the legislator’s hope.
Two jurisdictions have for some time been making use of UWO’s in the fight against financial crime, namely our cousins across the water in Ireland, and further afield in Australia and they provide a somewhat different level of success. In Ireland thanks to an efficient and determined Criminal Asset Bureau and joined up criminal justice system there have been notable successes. I would suggest that this partly down to the fact that Ireland has taken the stance that “quality rather than quantity” is the answer to the solution, with an emphasis on what might be considered the higher profile cases that have the greatest chance of success.
In Australia UWO’s found their way on to the statute at the start of the new millennium but have struggled to find the same level of success. Several reasons have been cited such as overly cautious prosecutors, disagreements between law enforcement and prosecutors over application of the law, shortage of suitably qualified investigative staff and stringent forfeiture laws for drug crimes that in some cases deem the need for UWOs as unnecessary.
So, what about the UK and its chance of success in the use of UWO’s. The new law states that the figure of the property concerned must be “more than £100,000” and an Order will be granted upon an application to the High Court. With the High Court setting the benchmark for the standard of proof, it is assumed it will be extremely high, and therefore unlikely this type of order will be an everyday occurrence. Although the figure has been set at a relatively low level in money laundering terms i.e. £100k, in practice it’s safe to assume that the Crown Prosecution Service and other regulatory authorities will only seek this course of action when the stakes are much greater, given the expense that will be incurred in taking these cases through the courts.
As a safeguard, Transparency International has suggested that the orders be limited to PEPs as defined by the Financial Action Task Force and therefore specifically aimed at corruption matters. However, for UWO’s to succeed they surely must be far more wide ranging than that, and consider all types of criminal activity, including people trafficking and tax evasion, both of which produce significant profits for the launderer.
One of the major arguments against focusing only on the corruption element alone is the obtaining of supporting evidence from overseas under mutual assistance requests, which as things currently stand can be extremely time consuming and not always achievable for various reasons. Given the fact that the respondent in these cases might be a foreign PEP, and evidence is likely to be sought from an overseas authority which potentially has weak AML controls, then this is a significant hurdle to overcome. A country might be reluctant to support legal action taken against one of its own citizens if the government of the country might consider itself “party” to the unlawful action in the first place especially if it concerns corruption.
Any action taken against a foreign PEP is sure to be robustly defended, and therefore one should be prepared for long drawn out and costly legal proceedings. One could argue that this a valid reason for not acting, but nevertheless might be a consideration. There might be one or two lawyers licking their lips at the prospect of UWO cases working their way through the legal system….
Taking aside the issues relating to the obtaining of an UWO in the first instance then comes the small matter of enforcement. The UK is still trying to overcome the confiscation order problem, and might the UWO regime place yet more pressure on a system that is struggling to cope. Only last summer MPs warned that the system for enforcing confiscation orders imposed by the courts is not working. The Home Affairs Select Committee in its Proceeds of Crime Report in 2016, despite recognising the achievements of ‘Regional Asset Recovery Teams’ to undertake and pursue confiscation Orders also expressed concerns that huge amounts of funds subject to confiscation were not being “collected” and this seems to be borne out by the figures.
The amount of money collected through confiscation orders has risen by £42 million (32%) from £133 million in 2012–13 to £175m in 2015–16. However, these figures only tell part of the story as confiscation order debt has risen by £450 million (30%) since the previous Committee’s hearing in January 2014 to £1.9 billion at the end of March 2016. HM Courts & Tribunals Service estimates that only 10% (£190 million) of the total debt is realistically collectable, down from 12% at the end of March 2013.
The Home Office have stated that much of the debt was old, with over 60% of the value relating to orders 5 years old or more and was based on unrealistic confiscation order values with little prospect of collection.
It is assumed that a large percentage of cases giving rise to UWO investigations will come about because of referrals from the private sector, and will this place even greater pressure on the regulated sector when it comes to suspicious activity reporting. This in turn will surely impact upon an already over stretched and under staffed NCA.
Clearly something needs to be done in light of the billions of pounds suspected of being laundered through the UK economy each year, but with law enforcement numbers dedicated to investigating financial crime across the country dropping, the practical application and use of UWO’s as a means of combatting financial crime might not be as straightforward as one would hope….