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The UWO – How Far Can It Go?


By Ceris Gardner and Jonathan Neumann, Maurice Turnor Gardner LLP, London (01/05/2019)

In 2018, an English court issued the first Unexplained Wealth Order (UWO), following its introduction by the Criminal Finance Act 2017. The National Crime Agency (NCA) questioned how Mrs Zamira Hajiyeva, an Azerbaijani national, could afford to purchase two properties, including one in London’s exclusive Knightsbridge, in addition to reportedly spending £16 million at the Harrods department store (where she apparently also maintained two dedicated car bays) and owning a private jet. Perhaps suspecting that Mrs Hajiyeva was funding this lifestyle with proceeds from the billions of dollars her husband was convicted of embezzling as chairman of the International Bank of Azerbaijan, the NCA applied to the court for a UWO, which was granted.

A UWO is a specific order that requires an individual to set out the nature and extent of their interest in an asset and explain how they acquired the funds to obtain that asset. Introduced in January 2018, it empowers select agencies, including the NCA and HM Revenue and Customs, to seek an explanation where a person’s lawful income or known wealth are too low to justify a specific acquisition. The UWO is not in itself a judgment of criminality, but it indicates that the agency applying for the UWO has serious suspicions. In the case of Mrs Hajiyeva, the explanation she was ordered to provide proved insufficient and she was arrested in October 2018.

Although this case is not particularly controversial, as it is the first time this new instrument has been used it merits some consideration.

The advantage of the UWO is its precision. It is meant to be used selectively as a tool to investigate dubious individuals, with safeguards to prevent it becoming routine: only a handful of agencies are eligible to apply for the order, the order must be made by a court, and the owner of the asset in question has a right to challenge the order in court before it is made.

The flipside, however, is that UWOs might become less targeted and more widespread. In the days after the Hajiyeva case, commentators assumed that initially the relevant agencies would seek UWOs in connection with the specific assets (and persons) they had in mind when they pushed for this power. However, the possibility of a more aggressive approach on the part of the government cannot be discounted. For example, Ben Wallace MP, Minister of State for Security in the UK, recently announced a crackdown on money laundering through law firms, estate agencies and private schools, and in that statement revealed that the government anticipated more legal battles over UWOs. “This is a new tool,” he noted. “We have to test the courts and get used to it. Some of the people we are interested in have very deep pockets and will challenge it at every stage.” He warned that more UWOs were on the way, and that “we will send the message that if we can’t get you, we’ll get your assets”. Time will tell how broad the use of UWOs will become.

However, while ostensibly about criminality, the Hajiyeva case also raises broader questions about confidentiality for private citizens and residents, especially high net worth individuals (HNWs). Mrs Hajiyeva attempted to keep her identity anonymous during her appeal against the order, an indulgence the courts allowed for a time but eventually withdrew, much to the delight of the press. The court’s rationale that her identity was in the public interest meant she was tried in the media for her extravagance before she was formally accused of a crime. It is not a stretch to suggest that the sensation surrounding the case originated in part from a growing and unhealthy sentiment that wealth alone is somehow evidence of wrongdoing.

This points to the wider issue. UWOs are simply another offensive in a transparency campaign being waged in the UK and (to varying degrees) elsewhere. Other measures include the Register of People with Significant Control (introduced in 2016), which discloses to the public the beneficial ownership of UK companies; the Common Reporting Standard, first implemented in 2017, whereby public authorities in participating countries worldwide automatically exchange private bank account information with one another; a UK trust register (introduced in 2017), which records beneficiaries of UK trusts (and may become public under the EU’s Fifth Anti-Money Laundering Directive); a proposed Register of Beneficial Owners of Overseas Entities, which would disclose to the public the beneficial ownership of overseas bodies that own land in the UK (and is likely to come into force in 2021); enhanced anti-money laundering and criminal and terrorist finance measures; crackdowns on non-disclosure agreements; attempts to force Crown Dependencies to introduce transparency regimes in their jurisdictions (partly in response to cyber hacks of offshore law firms); and a ’requirement to correct’ provision that threatens taxpayers with penalties of at least 100% of outstanding tax owed on undeclared offshore income or gains if they fail to correct their tax position.

These numerous measures have varied specific purposes, of course. However, they share a common premise and objective: that a significant proportion of privately-held wealth in the world represents proceeds from crime, and that wider legal powers are needed to make the possession and laundering of such proceeds more difficult and riskier for the criminal money launderer.

In all this, is the government motivated by reasonable suspicions or is it acting in a frenzy? There have been indications that the ’requirement to correct’ provision, for example, has yielded far less in newly disclosed taxable income and gains in 2018 than had been anticipated, because the original estimates made by the government were deliberately inflated. It may be politically convenient to imagine that there are troves of dirty, laundered or untaxed money out there, but the truth may well be otherwise.

There can be no doubt that financial crimes are committed and there is no question that the rule of law must be brought to bear with full force. But should combating crime mean having to create a hostile environment for wealth?

Private citizens have a right to expect a degree of confidentiality in their financial affairs. With the imposition of punitive regulatory requirements, public and indiscriminate transparency regimes, and a guilty-before-proven-innocent approach to HNWs, there may be a danger that we are going too far.

 

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