Unexplained Wealth Orders (UWOs) were introduced into the UK legal system in January 2018 as part of the Criminal Financing Act 2017 to complement the UK's criminal regime. According to the 2017 Impact Assessment, the UK was vulnerable to crime due to its large financial services industry and the appeal of the London real estate market to overseas investors.
UWOs require individuals to explain the source of their wealth. If a person fails to provide a sufficient explanation, their property can be designated as "recoverable property" under the Proceeds of Crime Act (POCA) with a civil recovery order.
The UWO was enacted as a government response to individuals whose source of wealth is unclear. It places the responsibility on judicial authorities to reveal the source of assets that appear disproportionate to the known lawful income of the defendants. The High Court can request a UWO for any property.
UWOs utilize the principle of reverse liability to fight against money laundering. An order becomes invalid if the defendant provides a satisfactory explanation of their wealth. However, if no evidence or counter explanation is presented, the defendant prevails. Note that information obtained through a UWO cannot be used in criminal proceedings.
Why Are UWOs Necessary?
The UK has faced increasing concern over the issue of corruption and money laundering activities. These illicit practices pose a major challenge to UK law enforcement as it becomes more difficult to seize corrupt property without a legal conviction.
To tackle this issue, the UK government introduced UWOs as a response to unexplained wealth, money laundering, and bribery. The concept behind UWOs is simple: in order to detect money laundering, one must first be able to explain the source of their wealth. Any wealth of unknown origin is considered illegal and subject to investigation under UWO regulations.
UWOs are an important tool in the fight against money laundering and corruption. They place the responsibility on individuals to explain the source of their wealth, and help to ensure that the UK remains a safe and secure environment for both businesses and individuals. With the power of UWOs, UK law enforcement can take action against individuals and organizations suspected of illegal activities, even if no formal criminal conviction has been made.
Process of UWO
The process starts when the Crown Prosecution Service (CPS), the Serious Fraud Office (SFO), or the National Economic Crime Centre (NECC) suspects that an individual or entity has more than £50,000 worth of assets that may be the proceeds of unlawful conduct. The investigating authority then applies for a UWO in the High Court, and the process begins. The Unexplained Wealth Order (UWO) process works as follows:
- Explanation of Wealth: The individual or entity subject to the UWO must explain the source of their wealth to the investigating authority.
- Insufficient Explanation: If the individual or entity cannot provide a sufficient explanation, their assets may be deemed "recoverable property" under the Proceeds of Crime Act 2002.
- Civil Recovery Order: In such a case, the assets may be subject to a civil recovery order.Criteria for Issuing a UWO: The criteria for issuing a UWO include being a politically exposed person (PEP), being a suspect in a serious crime, or having assets that appear disproportionate to the individual's known lawful income.
- UWO Issued for Any Property: UWOs can be issued for any property, whether located in the UK or abroad, as long as the defendant has control over it.
- Information Cannot be Used as Evidence: It's worth noting that any information obtained through a UWO cannot be used as evidence in criminal proceedings.
Understanding UWO for Combating Money Laundering
Under a UWO, individuals or entities must explain the source of their wealth to the investigating authority. If they cannot provide a sufficient explanation, their assets may be deemed "recoverable property" under the Proceeds of Crime Act 2002 and be subject to a civil recovery order.
In the UK, the Crown Prosecution Service (CPS), the Serious Fraud Office (SFO), and the National Economic Crime Centre (NECC) are the authorities responsible for applying for UWOs in the High Court. The UWO application process can be initiated if the investigating authority suspects that an individual or entity has more than £50,000 worth of assets that are the proceeds of unlawful conduct.
The criteria for issuing a UWO include being a Politically Exposed Person (PEP), being a suspect in a serious crime, or having assets that appear disproportionate to the individual's known lawful income. Serious crimes that may lead to a UWO include drug trafficking, child abuse, bribery, money laundering, human trafficking, fraud, and tax evasion. It is worth noting that being a PEP or a non-European Economic Area citizen is not the only factor considered for issuing a UWO and other factors may also be taken into account.
It's worth mentioning that UWOs can be issued for any property, whether located in the UK or abroad, as long as the defendant has control over it. However, any information obtained through a UWO cannot be used as evidence in criminal proceedings.
What Should Companies Do For UWO and AML?
To prepare for and comply with Unexplained Wealth Orders (UWOs) and Anti-Money Laundering (AML) regulations, companies should take the following steps:
- Conduct a risk assessment: Evaluate the risks posed by your business activities and customers. This will help you identify high-risk areas and develop measures to mitigate these risks.
- Establish AML policies and procedures: Create internal policies and procedures to comply with AML regulations, including customer due diligence, suspicious activity reporting, and employee training.
- Conduct customer due diligence: Verify the identity of your customers and assess their risk profile. This should include a review of the source of funds and wealth of the individual or entity.
- Report suspicious activity: Train employees to recognize and report suspicious activity and ensure that the reporting process is efficient and effective.
- Keep records: Keep records of all AML-related activities, including customer due diligence, suspicious activity reports, and employee training.
- Regularly update AML policies and procedures: Stay up-to-date with changes in AML regulations and best practices, and update your policies and procedures accordingly.
- Train employees: Regularly train employees on AML policies and procedures and ensure they understand the importance of compliance.
By implementing these steps, companies can effectively mitigate their risk of exposure to UWOs and money laundering. It is important to seek legal and compliance advice to ensure that your AML measures are in line with the latest regulations and best practices.