New powers in the Criminal Finances Act 2017

August 2019 | EXPERT BRIEFING | FRAUD & CORRUPTION

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By adopting the approach taken to tackle money laundering and corruption by enforcement authorities in some jurisdictions, the UK government’s 2016 plan, which included consultation with big businesses, law enforcement agencies (LEAs) and non-governmental organisations (NGOs), paved the way for the introduction of the Criminal Finances Act 2017, which marks a further step in the latest attempt to clean up ‘UK PLC’.

The Act has introduced significant and long-awaited changes to the Proceeds of Crime Act 2002, to recoup criminal assets, and ring-fence financial crime, particularly with the introduction of unexplained wealth orders (UWOs).

Anti-money laundering (AML) powers that were previously, and remain, available to LEAs include: (i) the confiscation regime, which applies to those who have benefitted from their criminal offending; (ii) the use of restraint orders to freeze the assets of those suspected of criminal offending and are subject to a criminal investigation; and (iii) civil recovery orders, which are attached to property which represents or is obtained through unlawful conduct.

Yet there was a concern among LEAs, and legislators, that the push to clean up the UK, which was seen by some sectors as an easy target for money laundering, was being hampered by the fact that existing AML powers were dependent on the identification of a predicate criminal offence.

UWOs allow law enforcement authorities to overcome hurdles they previously encountered during investigations that yielded assets which they suspected were the proceeds of crime but which they were not able to gather sufficient evidence to prove or take action against, particularly where overseas support was required.

UWOs seek to reverse the burden of proof and place it squarely on the shoulders of a respondent by requiring the respondent to provide a statement: (i) setting out the nature and extent of his or her interest in the property; (ii) explaining how the respondent obtained the property; (iii) where the property is held by the trustees of a settlement, setting out such details of the settlement as may be specified; and (iv) setting out such other information in connection with the property as may be specified. Failure to comply, without a reasonable excuse, could result in a rebuttable presumption arising that the property has been obtained by unlawful conduct, and is therefore subject to recovery. The Act goes further, and where a false or misleading statement has been made knowingly, a term of imprisonment of up to two years could be passed upon conviction.

That said, there are a number of hurdles that an LEA must overcome when making a relevant application to the High Court. The applying LEA must satisfy the court that: (i) there is reasonable cause to believe that the respondent holds the property; (ii) there is reasonable cause to believe that the value of the property is greater than £50,000; (iii) there are reasonable grounds for suspecting that the known sources of the respondent’s lawfully obtained income would have been insufficient for the proposes of enabling the respondent to obtain the property; and (iv) the respondent is a politically exposed person (PEP) or there are reasonable grounds for suspecting that the respondent, or a person connected with the respondent, is or has been involved in serious crime in the UK or elsewhere.

UWOs have had some success, with recent media headlines focusing on the case of Zamira Hajiyeva. Labelled as the ‘woman who spent £16m in Harrods’, Ms Hajiyeva was the first subject of a UWO. In upholding the National Crime Agency’s (NCA’s) application to seize two properties belonging to Ms Hajiyeva, which were valued at £22m, the High Court recently heard arguments that she should be classed as a PEP for the purpose of the Act because her husband was the former chairman of a state-owned bank in Azerbaijan. Ms Hajiyeva’s husband was previously jailed for corruption; a conviction that centred on his role at that bank. In addition, by failing to demonstrate that Miss Hajiyeva had sources of income independent from her husband that would have allowed her to purchase the properties, the High Court upheld the NCA’s application.

Further publicised successes, albeit scant in facts, have emerged from the NCA. Three UWOs were recently secured in relation to residential properties in London that exceeded £80m in value, which are ultimately held by a PEP, who is said to be involved in serious crime. Although details are currently vague, it is a further example of how UWOs have caught the attention of LEAs in the UK and the empowerment of LEAs when it comes to recovering corrupt assets.

With Transparency International noting in March 2016 that the UK’s asset-recovery regime was not fit for purpose, it appears that the UK has turned a corner in this regard. The NCA signalled that it is considering UWOs in hundreds of cases, with the Serious Fraud Office taking a more cautious approach, noting that it would only use this new tool in the ‘right case’. Of course, these are early days, and the full extent of how useful UWOs will be in the UK’s anti-corruption fight will be determined not only by the number of successful challenges each application is met with, but also whether there are sufficient financial resources available to LEAs.

Iskander Fernandez is a partner at BLM. He can be contacted on +44 (0)20 7865 3431 or by email: iskander.fernandez@blmlaw.com.

Iskander Fernandez

BLM