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The Investigative Reach of Unexplained Wealth Orders: Exploring Derivative Use

Speed read: Unexplained Wealth Orders (“UWOs”) have the potential to play a large role in an investigation, without any qualifications on the use of the explanation beyond the self-incrimination privilege. Anita Clifford explores the potential for derivative use of the explanation provided in compliance with a UWO and prompts thought on whether further caveats beyond the self-incrimination privilege are required where a person has been compelled by the State to provide information.

Introduction

Appearing in Part 1 of the Criminal Finances Bill 2016, the UK’s proposed Unexplained Wealth Order (“UWO”) regime has been lauded as an important new tool for enforcement authorities charged with dismantling the UK’s image as an illicit wealth haven. Although tweaks to the regime are inevitable as the Bill moves through Parliament, alteration of the critical elements is unlikely. In brief, it is envisaged that an enforcement authority could apply to a High Court judge for an order that a non-EEA politically exposed person (“PEP”), their associate or relative, or person suspected of serious crime or their connection explain the legitimate provenance of their specified property where its value exceeds £100,000.[1] The making of the order would be subject to a low evidential threshold, namely the Court’s satisfaction that there are ‘reasonable grounds to suspect’ a person’s known sources of lawful income are disproportionate to the specified property.[2] Once made, a UWO would serve as a lever to property freezing as well as non-conviction based (“NCB”) confiscation proceedings under Part 5 of the Proceeds of Crime Act 2002 (“POCA"), if the person’s explanation of their wealth was considered inadequate by the enforcement authority.[3]

The proposed regime which, if the person is a PEP or indeed ‘associated’ with a PEP, does not require any information at all about criminal activity for a UWO to be made against them has been hailed as a major improvement to the UK’s capability to recover illicit proceeds[4] and a new bar to stolen wealth flowing into the country. At first glance, therefore, one might think that the single purpose of a UWO is its severe consequences for an individual and their property. After all, in addition to the deprivation of property, it is envisaged that the failure to respond to a UWO would trigger a recoverability presumption[5] along with contempt of court proceedings. Providing false or misleading information would also attract criminal prosecution.[6] These features, however, are deserving of reflection in their own right as they point to a distinct dual purpose of UWOs – to radically enhance the process of investigating illicit wealth and, in so doing, reduce the investigative burden for enforcement authorities. The use of the UWO as an investigative tool and the implications of this are the focus of this piece. Following a discussion of its potential reach, it concludes that in its present form, the UWO regime has the potential to deliver something far greater than perhaps initially appreciated by those who would fall within its scope as well as Parliamentarians and the wider public. In these circumstances, before the proposal is enacted, there should be careful consideration of the need for further legislative safeguards and published guidance on the use to which a person’s explanation of their wealth can be put.

The UWO as a distinct investigative tool

The Explanatory Notes to the Criminal Finance Bill 2016 mention rather than address in any detail the investigative purpose of the proposed UWO regime. A problem faced by enforcement authorities, referred to at page 5, is that it is often difficult to obtain evidence sufficient to ground asset freezing and NCB proceedings under POCA. This is particularly so where information which could support a property’s dubious origins would require the cooperation of sources outside of the UK. Despite its brevity, the UWO Impact Assessment Report, published in November 2016 by the Home Office, expands upon this problem with clarity, setting out that the UWO regime creates “a new investigative power”, such that “if evidence is provided, it could be used by the investigative agency to further develop their case against the individual in a civil recovery investigation.” Accordingly, it is squarely envisaged that any information or documents that a person provides in response to a UWO would be used against them in eventual NCB confiscation proceedings.

A close examination of the Bill, however, reveals that the UWO regime, as presently configured, does not limit the use of the information to NCB proceedings or contain any detailed restrictions on how it can used, the period for any use and by whom it can be used. Instead, the Bill permits an enforcement authority to take copies of and retain any documents or information produced by the UWO respondent and does not prevent dissemination.[7] Where the property specified in the UWO has been frozen, it is proposed that an enforcement authority would have 60 days to consider a respondent’s explanation and determine whether it will commence future POCA proceedings against the property specified in the UWO.[8] The regime, however, would permit the enforcement authority to change its mind.[9] Other than this, there is no ‘use-by’ date or limitation period attached to any information provided. Indeed, if the property specified by a UWO is not frozen, it is open to an enforcement authority to consider future investigatory or enforcement proceedings “at any time”.[10] Accordingly, a UWO respondent’s explanation could remain on file and be revisited again and again. Although it is axiomatic that coercing a person to provide information squarely engages their right to privacy, the Bill’s Privacy Impact Assessment Report, published by the Home Office in December 2016, surprisingly fails to shed light on the limitations that would apply to the use of information in response to a UWO beyond the preservation of the self-incrimination privilege.

The single caveat?

The single legislative caveat applicable to information provided by a person in response to a UWO would appear to be that it cannot be used “in evidence against that person in criminal proceedings.”[11] This is an important qualification as permitting an enforcement authority to use information that a person has been coerced by the State into providing only to prosecute them with it is deeply unpalatable in a country espousing the Rule of Law. But the preservation of the self-incrimination privilege in the manner envisaged is not to say that a person could refuse to provide certain information about their property and its origins in reliance upon it. The stick, after all, is that severe sanctions await those who provide false or misleading information or refuse to offer any explanation at all. In reality, it is highly questionable how many UWO respondents who, for example, have invested the proceeds of tax evasion and bribery in specific property would choose to be frank about their conduct. Theoretically, however, the regime compels them to be transparent about their wealth, including its dubious origins. The only slight comfort is that the information provided could not be used to prosecute him or her.

Potential implications of the response

When this important but sole caveat is put to one side, a critical question arises. Although the information provided pursuant to a UWO could not be used to charge the respondent with a criminal offence, to what extent could it be used? In the absence of any dissemination prohibition imposed by the Court, as the Bill presently stands, there appears to be few parameters and a variety of possibilities. 

Draft guidance is yet to be published on the type of information that an enforcement authority would expect in answer to a UWO. Although the Bill makes clear that a person is not required to provide information that would be protected by legal privilege,[12] the level of detail required of a respondent is uncertain. This includes, for example, how far back should a person go in explaining the source(s) of the funds put towards property specified by a UWO or the kind of records or financial evidence that should be produced to satisfy an enforcement authority of its legitimate provenance.

Whether in due course there will be any clarity over what is required to satisfy an enforcement authority of a property’s legitimacy remains to be seen. Recently, on 9 March 2017 the House of Lords noted that it understood that a statutory Code of Practice would be applicable to UWOs. Potentially, however, a person could respond to a UWO in a vacuum. Arguably, if no guidance is forthcoming, the decision may be an intentional one directed at assisting enforcement authorities. In the absence of guidance, a UWO respondent may disclose a considerable volume of information and personal and financial data not otherwise known to enforcement authorities in a bid to demonstrate their lawful ability to afford the property and avoid further POCA proceedings. But this, of course, cuts two ways. In disclosing a raft of information, such as details of bank accounts, business partners, income-generating investments and beneficial interests, a UWO respondent is effectively handing over information and potential evidence to enforcement authorities on a platter. They are offering up new leads on money flows, detailing persons of interest, business structures and identifying other property for scrutiny. Effectively, they are dishing out breadcrumbs on the money trail and enabling enforcement authorities to widen or, indeed, tighten the net as the case may be.

It follows that the strength of the UWO as an investigative tool is immense. Against a background of strained enforcement resources and increased concern over illicit wealth, this is good news. However, it is perhaps cause for a little discomfort that a regime is about to be introduced in the UK which is directed at compelling a person to provide information (potentially without any guidance on what is required) with a view to it being used against them in property deprivation proceedings and, indeed, potentially other matters of gravity.

To what use?

The Bill expressly permits an enforcement authority to copy documents and retain information provided by a UWO respondent “for the purposes of any legal proceedings” (emphasis added).[13] This, in turn, suggests that the door is open to the information provided being used beyond NCB confiscation proceedings affecting the respondent. Indeed, the single caveat status ascribed to the self-incrimination privilege and absence of a legislative bar to dissemination suggests that information or documents could be shared with other authorities. This could extend to the sharing of information with domestic as well as international bodies, to assist in their use of non-criminal but still wide investigative and enforcement powers against the person in question or, indeed, any type of investigation into anyone referred to in the respondent’s UWO response.

Accordingly, there would also seem to be nothing to prevent the information or a document provided by the respondent being passed to, for example, a police force to develop a criminal investigation into persons other than the respondent, including corporate entities, which they have identified. The likelihood of this is enhanced by the proposed ability to obtain a UWO against a person who is not a PEP, but rather a person who is associated with a PEP, or a person who is not a criminal suspect but is instead connected to a criminal suspect. Against this backdrop, it is conceivable that so long as there were ‘reasonable grounds to suspect’ a disparity between a person’s lawful wealth and their property – a low evidential burden[14]  –  an enforcement authority could obtain a UWO against an associate to glean financial information and, in so doing, develop or strengthen a criminal case against a more significant person for money laundering or tax evasion. The self-incrimination privilege, as preserved in the Bill, would not operate to prevent this occurrence.

In a similar vein, there would also appear to be scope for information or documents that a UWO respondent provides on say, their commercial interests and investment structures, to be used to commence or further a criminal investigation by UK or international authorities into companies in which they hold a beneficial stake. Although the question arises as to whether the self-incrimination privilege could serve to shield a respondent’s companies from criminal investigation or prosecution, there is a strong argument that the privilege would not apply to the company or its office holders owing to the distinction between the company and the individual.  Fundamentally, the privilege against self-incrimination is restricted to the person claiming it (Rio Tinto Zinc Corporation v Westinghouse Electric Corporation [1978] AC 547).

Final thoughts – longer reach than anticipated?

The UWO proposal has the potential to be far more than a new lever to NCB proceedings under Part 5 of POCA. There is ample scope for information that a UWO respondent provides under compulsion to be used to further other ends, including certain criminal investigations which would not engage the self-incrimination privilege and other legal proceedings in the UK and elsewhere. Certainly, this would seem to be in keeping with the Bill’s broad emphasis of enhancing cooperation between enforcement authorities and assisting investigations. For many, this will be welcome – arguably, the public interest in eliminating illicit wealth and its underlying wrongdoing justifies the interference with a person’s privacy and an innovative use of UWOs, beyond simply being a new property deprivation device. However, the coercion of a person – including those not themselves suspected of serious criminal activity or holders of political office – to provide information which can be used against them in non-criminal but still serious proceedings, and potentially as a means to target others is a mechanism which should be used cautiously and subject to clear processes. Rather fittingly, there is a case for explaining the kind of information that an enforcement authority would require to be satisfied that property has been legitimately obtained and for enforcement authorities to be transparent about the use to which a respondent’s explanation can be put.

[1] Criminal Finances Bill 2016, s 362B(4).

[2] Ibid, s 362B(2).

[3] Ibid, s 362A(7) defines an “enforcement authority” as the NCA, HMRC, FCA, DPP and Director of the SFO.

[4] Explanatory Notes, Criminal Finances Bill 2016, at 4.

[5] Above n 21, s 362C(2).

[6] Ibid, s 362E.

[7] Ibid, s 362G.

[8] Ibid, s 362D.

[9] Ibid, s 362D(6).

[10] Ibid, s 362D(5).

[11] Ibid, s 362F – except in a criminal prosecution for providing false or misleading information in response to a UWO.

[12] Ibid, s 362G which would preserve s 361.

[13] Ibid, s 362G(5).

[14] As to what evidence would need to be produced by the enforcement authority to satisfy the threshold, and how comprehensive it would need to be, is also presently unclear.  

The Investigative Reach of UWOs
The New Corporate Offence & Associated Persons

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