Unexplained wealth orders explained

What’s an “unexplained wealth order”?

An “unexplained wealth order” (UWO) and its “twin” the “interim freezing order” were introduced in January 2018 to clamp down on the suspicion that property in the UK is being used as a vehicle to launder money obtained illegally by foreign nationals. An UWO gives new powers to HMRC to investigate the source of funds used to purchase assets when the owner of them does not appear (i.e. from bank statements, accounts, tax returns, etc.) to own sufficient wealth to afford them.

Under the Investigatory Powers Act 2000, in addition to a number of powers already available to them under the Proceeds of Crime Act 2002 (POCA), HMRC can issue UWOs against individuals and other structures that hold property, such as companies and trusts, whose sources of income seem insufficient to have financed purchasing them.

For some years now HMRC along with some other agencies has had the power to delve into the bank accounts, land registry records, online and card transactions, correspondence, etc. of anyone suspected of money laundering, fraud, tax evasion or organised crime. In addition evidently HRMC put its extra funding to good use, caught up rapidly technologically and hired an army of specialists and investigators. HMRC’s use of big data to catch out fraudsters and tax dodgers is sophisticated and is now being extended to focus on foreign nationals.

The new powers of “unexplained wealth orders” (UWO) and its supporting “interim freezing orders” represent both a civil power and an investigation tool according to HMRC. A UWO requires the suspected person (or entity or persons) to provide information on certain matters (i.e. lawful ownership of a property, and the means by which it was obtained). As an investigation power, a UWO is not (by itself) a power to recover assets.

High Court Order sought

HMRC must first seek an order from the High Court. To be granted an order HMRC would then have to demonstrate that:

1. The respondent (suspect) holds the property;
2. That the property is worth more than £50,000;
3. Show reasonable grounds for suspecting that the respondent’s known sources of income would be insufficient for them to obtain the property (e.g. a tax return, business accounts, inheritance, etc.);
4. Demonstrate that the person is a non-EEA politically exposed person (PEP) and anyone “connected with” the respondent is, or has been, involved in serious crime in the UK or elsewhere (including family members or business partners).

This list helps to illustrate why some people have voiced concern at the wide-reaching nature of UWOs, but there is more ...

Interim Freezing order kicks in

Once a UWO has been granted by the High Court then HMRC has the power to order an “interim freezing order” while its investigators look more closely at the suspect, searching for evidence of corruption or involvement in serious crime and seeking an explanation for the source of the wealth. Now the burden of proof shifts from the investigators (demonstrating that suspects have unexplained assets) to the suspect, who is now required to explain the extent of their interest in the specified property and how it was obtained.

Some call it the “McMafia law”

Some have dubbed UWOs the “McMafia law” due to the fact that, first, the authorities may apply for a UWO based only on a suspicion, second, the burden of proof shifts, and, thirdly, that UWOs require no criminal conviction. After the UWO is granted, the system has the potential to act like a great big trawler with a huge net:

The UWO requires anyone suspected of involvement in:

“or of being connected to a person involved in, serious crime to explain the nature and extent of their interest in particular property, and to explain how the property was obtained, where there are reasonable grounds to suspect that the respondent’s known lawfully obtained income would be insufficient to allow the respondent to obtain the property.”

No Immunity

Note that diplomatic immunity does not apply either:

“A UWO can also be applied to politicians or officials from outside the European Economic Area (EEA), or those associated with them i.e. Politically Exposed Persons (PEPs). A UWO made in relation to a non-EEA PEP would not require suspicion of serious criminality.”

Seizure of assets

And failure to comply can lead to seizure of property and assets under civil proceedings, on the assumption it has been obtained through unlawful conduct.And also, custodial sentences can result if anyone under investigation who provides false or misleading information could be jailed for up to two years.

To others it’s “a landmark moment”

Some are wide-eyed in disbelief at the harshness of UWOs and voice understandable concern that HMRC may abuse its powers and start using the measures in “domestic” cases where it suspects a business or individual of not declaring all of their income. However, the research group Campaigners from Transparency International (which uncovered £4.4bn of suspicious property across the UK) hailed the new measures a “landmark moment” that “sends a clear message to those seeking to launder corrupt wealth through the UK that their assets will no longer be safe here.”

What about the innocent, foreign nationals or otherwise?

I and any accountant would be well versed in immediately spotting patterns in people’s personal and business financial paperwork and accounts. In the end all of one’s wealth and assets should add up. If you own property of £50,000 it shouldn’t take long to prove how you came by it along with any other assets. I agree that the new measures do seem punitive, particularly the way the burden of proof shifts from the accuser (i.e. HMRC) to the suspect (who is required to provide a statement setting out exactly the nature and extent of their interest in a property and to explain how they came by it). But assets honestly acquired? In my experience it’s not too difficult to follow the trail, as accountants we do it all the time.

One thing that does concern me is that UWOs have been introduced with the aim of making it easier for assets suspected of representing criminal property to be seized. However, with these far-reaching powers comes a responsibility to ensure officers acting within the order treat people fairly—to the letter of the laws under which they have authority to carry out the order—because, while UWOs can be seen as a very useful tool to combat money laundering in the UK, at the same time their wide scope and potentially punitive outcomes need very careful handling by officers and then legal scrutiny by the courts if necessary. Meanwhile, everyone, wherever they pay tax, operate a business or own property or other assets, should ensure that their accounts and their transactions are up-to-date, transparent and that they’re compliant. Providing you do that then you can’t go wrong and there’s nothing to fear from UWOs.

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