In January, new powers designed to help UK law enforcement act on corrupt assets came into force. Jonathan Fisher QC, a barrister specialising in financial crime and founder of Bright Line Law firm, lays out Unexplained Wealth Orders and how family office investors can avoid getting caught in the crossfire.
Investors must be careful not to get caught in the crossfire between Government enforcement authorities and criminals investing the fruits of their criminal activities.
The fanfare which has heralded the introduction of unexplained wealth orders (UWOs) is likely to encourage suspected criminals to liquidate their assets and move them abroad to sunnier climates, away from the prying attention of the UK authorities.
If an enforcement authority, most likely to be the National Crime Agency (NCA), obtains an unexplained wealth order from the High Court, the person named in the order will be required to explain the source of funds which enabled him to purchase the asset. Typically, the asset will be residential or commercial property or high value items such as jewellery, antiques, or luxury cars.
If, after the person has given his response to the order, the NCA can satisfy the High Court on a balance of probabilities that the asset was obtained with the proceeds of criminal activity, the property will be confiscated and sold, with the liquidated value paid to the state.
The Home Office anticipates that around 20 UWOs will be made each year. In the coming years this number is bound to increase since it is not only politically exposed persons (PEPs) like foreign government officials and their family who can be made subject to the order if the asset represents the proceeds of their corrupt activities. An order can also be obtained against a serious criminal who is holding an asset which is valued more than £50,000.
What is more, the asset does not have to legally held by the PEP or serious criminal at the time when the order for confiscation is made. The criminal’s interest may be traced through different assets where the property initially purchased with criminally obtained monies has been sold and the proceeds reinvested in another asset either of the same or a different type.
From the perspective of law enforcement, the ability to trace funds through different items of property is sensible. After all, the hallmark of money laundering is the swift movement of monies through different forms of property to conceal its criminal origin.
But for the investor or purchaser who acquires the asset from the criminal or one of his associates, the bargain is potentially perilous.
The law is careful to protect investors and purchasers where they acquire the asset by paying a fair price, acting in good faith and without notice that the property had been purchased by the seller with criminal monies.
The problem comes where the investor or purchaser suspects that this might not be the case. Where, for example, an asset is sold at an undervalue, the question arises as to why. There are many possible explanations, ranging from a seller who needs to sell quickly for financial reasons, to a criminal or his associate who wishes to distance himself from the asset at the earliest opportunity. But on its face, the sale of an asset at an undervalue raises a concern, if not a suspicion, that something is wrong. The possibility that the property was acquired with criminal monies cannot be discounted.
There are many other circumstances which may give rise to a suspicion. The seller may wish to be paid in cash, or he may require payment to be made to an overseas bank account, or to a party who is different from the name of the person or company in which the property has been sold.
The lesson is clear. When acquiring an asset from a PEP or in suspicious circumstances, there are additional risks. If there are suspicious circumstances surrounding the seller’s behaviour, the investor or purchaser should not touch the asset without a full appraisal of the risk of enforcement action.