The first two Unexplained Wealth Orders (UWOs) were obtained earlier this year, on 28 February 2018. Gherson were instructed to handle the first ever challenge to this new legislation and are undisputedly at the forefront of this developing area of law.
The High Court may grant a UWO if the following conditions are met:
- The respondent “holds” the property (broadly “holds” means exercising, being able to exercise or being entitled to acquire direct or indirect control over the property);
- The property is worth over £50,000;
- There are reasonable grounds for suspecting that the known sources of the respondent’s lawfully obtained income would have been insufficient for the purposes of enabling the respondent to obtain the property; and
- Any one of the following:
- The respondent is a politically exposed person (“PEP”) or connected to a PEP; or
- There are reasonable grounds to suspect that the respondent is, or has been, involved in serious crime (whether in a part of the United Kingdom or elsewhere); or
- A person connected with the respondent is, or has been, involved in serious crime.
It is clear from our experience in defending the first UWOs that the authorities are adopting a broad interpretation of a PEP – and given the lack of any requirement for suspicion of involvement of criminal activity (still less proof) to obtain a UWO against a PEP this is a matter of some concern.
The UWO represents one of the most disruptive and intrusive devices available to the authorities in the UK and the impact that receiving an order will have on a family is dramatic. A UWO poses a direct threat to an individual’s privacy, security and reputation, which families of wealth understandably hold dearly.
UWOs are obtained in secret, without notice. The order will require an individual to respond to a detailed list of questions and to provide whatever documents are requested of them. The timescale for preparing this response is incredibly short.
A failure to comply will lead to a legal presumption that the property is the ‘proceeds of crime’. The authorities will then seek to confiscate the property. Providing false or misleading information constitutes a criminal offence punishable by imprisonment.
Just a few years ago it would have been utterly unthinkable to have a situation where – with no proof of criminal activity – an individual could be compelled to provide the authorities with detailed information as to their finances. This however, is now the reality.
UWOs can be issued against anyone believed to hold an interest in the property – perhaps a family member who had nothing to do with the original purchase. They are retrospective in nature – they can be issued in respect of property that was obtained many years ago – decades even. And – to underline the point – they are mandatory. The choice is stark – comply or accept that there will be a presumption that the property is the proceeds of crime.
You may want to consider the following hypothetical scenarios:
- A client’s child studies in the UK. The child doesn’t work but drives a Ferrari. Could they prove source of funds for that car? How do they fund their lifestyle in the UK?
- A house is purchased and held as part of a family trust structure and the beneficiary is a client’s spouse or child. If their spouse or child was served with an order, could they identify the source of funds used to purchase the property? Would they be able to provide documents? Would they be comfortable about disclosing the entire trust structure?
- A client receives a modest official salary. In actual fact they also have several other legitimate sources of income, which generate significant wealth. To what extent would they want to disclose all their financial affairs if required to do so? If they had to do so by next week would they be able to?
The timescales involved in responding to an order are incredibly short and the requests for information and documents are extensive. For families with complex financial arrangements simply assembling the documents in time can be challenging if not impossible.
The good news is there is a lot that can be done to prepare in advance. Families may want to consider a precautionary review of their assets and documentation to assess the level of risk they may face and to consider the potential work that could be done to improve their position. Similarly those who are contemplating purchasing assets in the UK may want to consider taking advice in advance with regards to any purchase.