What are Unexplained Wealth Orders?
Introduced in the United Kingdom in 2018, unexplained wealth orders (UWO) have become a powerful tool in the fight against money laundering. UWOs are court orders, issued by the UK High Court, that compel their targets to reveal the source of unexplained wealth to financial authorities. If the authorities are not satisfied with the target’s explanation for their wealth, they have the power to seize the relevant assets or funds.
Intended to combat a trend of dirty money flowing into the UK to be laundered on the property market, UWOs are used primarily in money laundering investigations against foreign politically exposed persons (PEP). Given that they confer asset seizure powers on financial authorities, UWOs have significant legal consequences for the individuals that they target.
UWOs are implemented when a UK law enforcement agency suspects that an individual is attempting to launder money via the property market.
Under legislation set out in the Criminal Finances Act 2017, when an enforcement agency finds that an individual has acquired property that does not match their income level, it may apply for a UWO from the High Court. If the application is successful, the UWO freezes the asset (to prevent its sale or disposal) and imposes an obligation on the owner to explain how they acquired it. If that explanation is unsatisfactory or not forthcoming, the enforcement agency can then apply for a civil order to seize the property in order to recover the proceeds of crime.
It is important to note that a UWO reverses the normal burden of proof by making it necessary for the subject of the investigation to demonstrate to the authorities that they are not involved in criminal activity. The enforcement agency does not need to notify the target of their investigation when they make an application for a UWO.
The UK agencies able to apply for UWOs are the National Crime Agency, the Financial Conduct Authority, the Serious Fraud Office, the Crown Prosecution Service and HMRC. The High Court will grant UWO applications if the enforcement agency shows that the following criteria have been met:
- The individual targeted in the investigation owns property with a value over £50,000.
- There are reasonable grounds to suspect that the value of the property is disproportionately higher than the target’s income.
- The target of the investigation is a PEP from outside the EEA or is reasonably suspected to be involved in serious criminal activities or, similarly, is connected to persons that fall into either of those categories.
The High Court can issue UWOs without any preexisting criminal conviction or civil judgment against the target of the investigation. When it issues a UWO, the High Court also sets a compliance deadline for the target individual.
The UK’s first unexplained wealth order was issued in 2018 against Zamira Hajiyeva, wife of Jahangir Hajiyev, former chairman of the International Bank of Azerbaijan. Jahangir Hajiyev was found guilty of financial crimes in 2015, including defrauding his bank of up to £2.2 billion. While her husband was committing those crimes, Zamira Hajiyev was found to have spent around £16 million in London department stores over a period of 10 years and purchased a £11.5 million property in the city and a golf course in Berkshire.
In pursuing its money laundering investigation, the NCA argued that Zamira Hajiyev had used proceeds from her husband’s crimes to purchase her UK properties via an offshore company in the British Virgin Islands. The NCA was able to obtain a UWO against Zamira Hajiyeva when she was unable to explain the source of her finances: after her appeal was unsuccessful in February 2020, the NCA confiscated her property in London.
The impact of unexplained wealth orders on AML enforcement has been significant. Since the Zamira Hajiyeva case, two more UWOs have been issued against PEPs who own property in London.
While a targeted individual must comply with a UWO in order to retain ownership of their property, their response may be used to inform further investigations, which could lead to further asset seizures and criminal charges. While statements that targeted individuals make in response to UWOs cannot be used against them, evidence that they disclose can. Similarly, authorities can use statements made in response to a UWO to pursue investigations against other individuals.
Accordingly, responses to UWOs should be carefully considered. Some individuals may be able to demonstrate that they were not involved in the serious criminal activities that the UWO alleges or, alternatively, demonstrate that foreign allegations against them are politically motivated or spurious. Targeted individuals may also cite human rights protections: Article 1 of the Human Rights Act confers a right to protection of property while Article 2 confers a right to private and family life.
As a relatively new addition to the AML landscape, the legal effectiveness of UWOs is yet to be determined. The UWO’s reverse burden of proof dynamic has attracted criticism from legal observers, but the Zamira Hajiyeva case has demonstrated their usefulness and impact in money laundering investigations. As use of UWOs becomes more widespread, the involvement of banks and financial institutions is also likely to fall under closer scrutiny: accordingly, those institutions should ensure their PEPs screening mechanisms continue to deliver the level of AML compliance they expect.
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