Rohit Ralleigh

Among a number of measures introduced in the United Kingdom by the Criminal Finances Act 2017, (the Act) two interesting measures recently came into force, both born out of a commitment to target international corruption. Unexplained Wealth Orders and the so-called Magnitsky Clause enhance existing powers of UK authorities to obtain information about, freeze or forfeit suspicious or illicit wealth.

Unexplained Wealth Orders

The introduction of Unexplained Wealth Orders follows similar non-conviction based measures in Australia, Ireland and other countries, targeting criminals or politically exposed persons, and those connected with them, whose assets appear to be disproportionate to their income.

Prominent figures that have been suggested as possible targets of unexplained wealth orders include Dawood Ibrahim, (reportedly the inspiration for the character of the Mumbai gangster in the popular BBC serial McMafia), former Pakistan PM Nawaz Sharif, the First Family of Azerbaijan, and the Russian deputy Prime Minister Igor Shulalov, all of whom are alleged to have accrued valuable London property portfolios.

In light of the difficulties in investigating overseas in secrecy jurisdictions or where the respondent is in a position of power it has proved in practice difficult for agencies to act upon suspicions about sources of wealth. The unexplained wealth order is designed to shortcut the investigation process by forcing the respondent to provide information that would otherwise have been difficult to obtain.

Unexplained wealth orders are orders requiring a respondent to state the nature and extent of his interest in specific property and to explain how the property was obtained and paid for. The order may also require the provision of other information and documents. The unexplained wealth order is a civil investigatory measure available to the National Crime Agency, Her Majesty’s Revenue and Customs, the Financial Conduct Authority, the Serious Fraud Office and the Crown Prosecution Service. Although a civil law measure, a failure to comply with the order can lead to civil recovery proceedings under the Proceeds of Crime Act 2002, contempt of court or the new criminal offence of giving false or misleading information in response to an unexplained wealth order.

Upon the application of one of those authorities, the High Court will have to be satisfied that:

– there are reasonable grounds for suspecting that the known sources of the respondent’s lawfully obtained income would have been insufficient for the purposes of obtaining the property;

– that the respondent is, or is connected with, a politically exposed person or there are reasonable grounds for suspecting that the respondent or a person connected with him, has been involved in serious crime; and

– The value of the subject property is greater than £50,000.

The failure to comply with an unexplained wealth order creates a presumption that the property is recoverable under civil recovery proceedings under the Proceeds of Crime Act 2002.

The Act creates a new criminal offence of recklessly or knowingly making a false or misleading statement in purported compliance with an UWO. Offenders are liable on conviction to imprisonment for up to 2 years.

It is clear that foreign sources of money are the target and the Act and associated legislation have significant extra-territorial reach. “Property” is defined broadly and includes all forms of assets including cash whether situated in the UK or abroad. The persons against whom an unexplained wealth order can be made need not be resident or located in the UK. Politically exposed persons are those only from outside the UK and EEA. And while the “serious crime” must also be an offence in the UK, it need not have occurred there.

The Act also provides for unexplained wealth orders to be combined with interim freezing orders to prevent dissipation of the subject property.

There are concerns with the coercive nature of the unexplained wealth order regime and the broad definitions of the conduct to which and persons to whom it applies.

To be involved in serious crime for the purpose of the unexplained wealth order you need not have committed the offence, as the definition includes conduct which facilitates, or is likely to facilitate the commission of a serious offence as set out in s.2 the Serious Crime Act 2007.

The unexplained wealth order extends to persons connected as defined broadly by reference to s. 1122 of the Corporation Tax Act 2010, including relatives, spouses, or companies controlled by the person in question.

Accordingly individuals or companies, including those based overseas, may be made subject to these onerous orders despite having only tenuous connections to any criminal behaviour.

Many commentators have expressed concern that the unexplained wealth order reverses the burden of proof onto the respondent, requiring him to prove that the sources of his wealth are legitimate. However supporters would argue that it is merely an investigative tool requiring the disclosure of information. Assuming the respondent provides a statement that is not false or misleading, the burden of proving any offence remains with the applicant authority. It is only where there is non-compliance that the burden of proof is reversed in respect of civil recovery proceedings, or in the case of false or misleading statements, but then again penalties for non-compliance with a court order have always existed in the law of contempt of court.

At David Cameron’s 2016 Anti-Corruption Summit in London, India made a commitment to introduce unexplained wealth orders. The Central Vigilance Commissioner K. V. Chowdary said that “India is committed to strengthen asset recovery legislations, including through non-conviction based confiscation powers and the introduction of unexplained wealth orders”. However India is yet to introduce such a measure.

The Magnitsky Amendment

Introduced late in the passage of the bill in Parliament, s. 13 of the Act, dubbed “the Magnitsky amendment”, is named for Sergei Magnitsky who died in a Russian prison after investigating corruption. Magnitsky was reportedly denied medical treatment and beaten in prison. In response, the US introduced a Magnitsky Act, essentially a sanctions regime, to target the Russian officials alleged to have been involved in corruption. More recently the US introduced a Global Magnitsky Act more generally targeting human rights abusers by the denial of travel permits and freezing of their assets.

The UK version is currently limited to asset freezing, and targets those who torture or mistreat whistleblowers, journalists or human rights activists seeking to expose corruption. Arguably, the amendment to the bill adds little by way of additional powers, although it does introduce the concept of conduct connected with the commission of a gross human rights offence or violation. It may be that the amendment is more a display of political solidarity, but that in itself may have a political advantage. In a recent speech[3] at the Transparency International Annual Lecture, David Cameron lamented the failure of the UK to introduce a Magnitsky Act during his time as Prime Minister and acknowledged the “extra clout” a law may have when countries act under “a common heading”.

The introduction of these and similar measures and commitments from national governments the world over indicates a global shift in thinking in the battle against corruption. No longer is it merely a national problem, confined to infamous regimes such as the “fantastically corrupt” countries famously referenced by Mr. Cameron in conversation with the Queen. It is nowadays a matter for global cooperation and coordination. As Mr. Cameron has put it, “Corruption is one big, tangled web – and all countries are caught up in it”.