Unexplained Wealth Orders: New Uncertainties

When introduced into UK law during 2018, Unexplained Wealth Orders (UWOs) were hailed as a potentially game-changing legal weapon for UK enforcement agencies’ pursuit of corruption and money laundering cases. After some initial success in the Hajiyeva[1] case, however, recent events have brought a degree of uncertainty.

What are UWOs?

Introduced to the Proceeds of Crime Act 2002 through amendment by the Criminal Finances Act 2017, UWOs compel respondents to explain how they acquired particular assets. UWOs are used where an individual is suspected of holding assets worth more than £50,000 which are believed to represent criminal property. 

Once granted by the court, a UWO compels the respondent to explain:

• the nature and extent of their interest in the property which is subject to the order;
• how they obtained the property, and the funds used to purchase it;
• the details of any settlement or trust if the property is held in trust; and
• any other information in connection with the property as may be specified by the court.

UWOs are available to the National Crime Agency (NCA), HMRC, the Financial Conduct Authority and the Serious Fraud Office.

NCA v Baker and others - the recent decision

In May 2019, the NCA obtained UWOs relating to three London properties worth approximately £80m, ultimately owned by Dariga Nazarbayeva, the ex-wife of Rakhat Aliyev, a former Kazak official, and Nurali Aliyev, their son. The NCA alleged that the properties had been acquired "as a means of laundering the proceeds of unlawful conduct" by Mr Aliyev.

On 9 August 2019, the respondents wrote to provide information regarding the purchase and transfer of the properties, their registered owners, and the ultimate beneficial owners. The letter also explained that the basis of the NCA’s application was "factually incorrect" as the purchase of the properties were unconnected with Mr Aliyev and the alleged "unlawful conduct". However, the NCA refused to withdraw the UWOs and insisted that the respondents comply with the orders.

In September 2019, the respondents applied to Court for discharge of the UWOs. In her judgment, handed down in April 2020, Mrs Justice Lang found that the NCA’s assumptions relating to the requirements which must be met in order to obtain a UWO were "unreliable". She held that the respondents had provided "cogent evidence" which "rebutted" those NCA assumptions. Notably, Lang J also found that the NCA's reasoning was in some instances "artificial and flawed" and that there had been an "inadequate investigation into some obvious lines of enquiry". The Court found against the NCA, and granted the applications to discharge the UWOs. The NCA sought to appeal that decision. However, on 19 June 2020, the Court of Appeal dismissed the NCA's application to appeal and held that the appeal had "no real prospect of success", there was "no other compelling reason why an appeal should be heard" and that there was "no real prospect of an appellate court interfering with the findings [of Mrs Justice Lang]".

This was the first public major setback for the NCA in relation to UWOs.

Comment

Since their introduction, UWOs have been criticised as being too wide in scope and draconian in nature. In particular, UWOs represent a change from the usual order of play in criminal proceedings, as the burden of proof is reversed and the respondent, rather than the prosecution, is required to prove that the property is not the proceeds of crime. In addition, the standard of proof is lower than the criminal standard, in that the prosecution must only prove that there are 'reasonable grounds' for suspicion. Commentators argue that the reverse burden and low evidential threshold could lead to manifest unfairness for UWO targets, especially where the prosecution has failed to explore obvious lines of investigation and properly assess the evidence, much like in the present case. These concerns are exacerbated due to the fact that UWO applications are made on an ex parte basis, meaning that the respondent is not able to make representations until the order has been granted, albeit the prosecution has a duty of full and frank disclosure. This decision, however, confirms that there are constraints to the orders and that they cannot be obtained unless all the requirements are met.

During evidence to the Intelligence and Security Committee of Parliament, the Director-General of the NCA acknowledged some of the difficulties in this area, perhaps reflecting the NCA’s experience in the Baker case. The Director-General stated that, "unexplained wealth does have to be unexplained and, unfortunately… Russians have been investing for a long period of time… you can track back and you can see how they will make a case in court that their wealth is not unexplained."[2] The Director-General has also warned about the effect of UWOs on the NCA's budget, as UWO defendants are typically well-resourced to challenge and defeat such orders, especially in circumstances where the NCA has limited resources to staff such cases.

This decision serves as a reminder that the conduct of prosecuting authorities is subject to scrutiny and caution must therefore be exercised before such orders are pursued.

It remains to be seen as to how or whether this case will impact on the NCA's approach to obtaining UWOs going forward. However, as the Court of Appeal duly noted, UWOs are a "relatively new tool" which would "benefit from further judicial analysis". That analysis, however, will have to wait for another case.

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[1] Hajiyeva v National Crime Agency [2020] EWCA Civ 108

[2] Intelligence and Security Committee of Parliament report on Russia, at paragraph 119 (http://isc.independent.gov.uk/news-archive/21july2020), accessed on 22 July 2020.

Prior results do not guarantee a similar outcome.
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