New 'unexplained wealth orders' among UK anti-money laundering reforms

Out-Law News | 25 Apr 2016 | 12:47 pm | 3 min. read

Those suspected of money laundering could be required to explain the origins of any unexpected wealth or risk forfeiture as part of a package of measures put forward for consultation by the UK government.      

New powers to issue unexplained wealth orders (UWOs) with linked civil forfeiture powers; to designate a particular entity as being of 'money laundering concern'; and a new 'illicit enrichment' offence for use against public officials following a "significant and inexplicable" increase in their assets are included in the plans, which are open for public consultation until 2 June 2016.

UK home secretary Theresa May described the proposed reforms as the most significant changes to the UK's regulatory regimes in "over a decade".

"The laundering of proceeds of crime through UK institutions is not only a financial crime, it fuels political instability around the world, supports terrorists and extremism and poses a direct and immediate threat to our domestic security and our overseas interests," she said.

"This action plan sends a clear message that we will not tolerate this type of activity in our financial institutions. We will forge a new partnership with industry to improve suspicious activity reporting, deliver deeper information-sharing and take joint action on enforcement. And we will act vigorously against the criminals and terrorists responsible, to protect the security and prosperity of our citizens, and safeguard the integrity of Britain's financial economy," she said.

The proposals have been published ahead of next month's global anti-corruption summit, to be hosted by the UK prime minister in London, and are designed to enhance the effectiveness, consistency and international reach of law enforcement agencies and regulators. According to press reports, the government is due to announce new transparency measures requiring disclosure of the beneficial owners of UK property purchased by overseas companies at the summit.

Alan Sheeley, a civil fraud and asset recovery expert at Pinsent Masons, the law firm behind Out-Law.com, said that greater transparency over property ownership would be "a welcome step in the right direction to ensuring criminals do not benefit from the proceeds of their crimes".

"The strategy being proposed will illuminate the true owners of billions of pounds being illegitimately invested in high value property in the UK's capital," he said. "This was one of the issues raised during the Home Affairs Committee's recent inquiry into the confiscation regime. David Winnick MP said during oral evidence that properties were being bought in 'the poshest parts of London – Kensington, Chelsea and the rest of it – by those coming from abroad who clearly have acquired money by criminal means'."

"Pinsent Masons' specialist civil fraud and asset recovery team submitted written evidence in response to the inquiry. One of our suggestions was for the government to consider the use of UWOs in greater detail to assist in the enforcement of the confiscation regime. This suggestion is now being mirrored in the Home Office's action plan. UWOs are a valuable tool to deprive criminals from benefitting from unlawful activities, which have been implemented with success in other jurisdictions. It is pleasing, therefore, to see that the government's intentions are aligned with other stakeholders who all have the ultimate objective of ensuring criminals are unable to benefit from crimes," he said.

UWOs are already used in countries including Ireland and Australia. The subject of the order must explain the sources of their wealth to the court, which according to the government's consultation can "provide critical information on which law enforcement agencies can build their case". The government is also consulting on whether a new forfeiture power should be introduced, to be used "where the explanation is not satisfactory or no explanation is provided".

The government has also asked whether it should criminalise 'illicit enrichment', if "such an offence will be effective in the UK, and ... compatible with our legal system". The new offence would criminalise the possession of assets which "cannot be accounted for by way of lawful income", according to the consultation. It has also proposed "fundamental reform" of the suspicious activity reports regime, under which 'regulated' entities such as banks, accountants and law firms must report suspicions of money laundering to the National Crime Agency (NCA).

Civil fraud and asset recovery expert Alan Sheeley said that although the government's proposals "recognise that information sharing and working with the private sector is essential", the information-sharing aspects of the reforms "appear to be only a one-way street from the private sector to the authorities".

"Therefore, despite this being the 'most significant changes in over a decade', it does not make any real substantive proposals to assist victims to pursue fraudsters independently which would be at minimal cost to the authorities – which is a real shame," he said.

"The action plan recognises that the Proceeds of Crime Act offers 'a variety of different tools for asset recovery', and goes on to state that 'enforcement agencies are rightly focused on the highest value cases'. For society, this makes commercial sense - however, in the fight against fraud and money laundering, victims who may not have suffered the 'highest value' fraud should be assisted by enforcement agencies by them sharing information with victims. Such information would assist victims to pursue fraudsters and money launderers through civil fraud solicitors at no cost to the law enforcement agencies," he said.