These Orders raise a number of questions about the proper scope of the law in how they are enforced and why; they also force property investors in particular circumstances to review the risks. A lawyer gets to grips with the issues in this article.

Earlier this week it was reported that the UK authorities, in the form of the National Crime Agency, had wielded the newly-crafted weapon of the Unexplained Wealth Order to go after a wealthy figure whose sources of wealth seemed unexplained. While some of the regular media coverage may wax lyrical about “mansions”, high spending and colourful tales of how a person acquired a fortune, what is troubling is that UWOs do not appear to require concrete proof of criminal activity of the level that would pass the smell test in a court of law. UWOs came into force under the previous Conservative administration at a time of continued public focus on the behaviour of super-wealthy foreigners in London, such as Russian oligarchs, others from the former Soviet Union, as well as those from other regions. It tapped into disquiet about claims of London becoming a money launderers’ playground. Concerns about UWOs have been aired before in this news service.

How safe from a due process point of view are UWOs, however, and where do the exercise of such powers leave high net worth property investors from overseas? The UK has for decades cultivated the image of a stable legal and political jurisdiction, a quality that has helped the country, particularly London, attract inward investment and business for wealth managers. How will UWOs affect this? 

To discuss the topic is Lee Adams, partner, JMW Solicitors LLP. The editors of this news service are pleased to share these comments with readers. The usual editorial disclaimers apply. To respond, email tom.burroughes@wealthbriefing.com and jackie.bennion@clearviewpublishing.com

The BBC recently reported that a multi-million pound mansion on the London street known as ‘Billionaire’s Row’ is the subject of a High Court battle over the grant of an Unexplained Wealth Order. UWOs were introduced in 2018 under measures known as “McMafia laws” and have put investment strategies in the spotlight. The National Crime Agency (known as the UK’s FBI) use UWOs to target owners who do not openly have the resources to buy luxury homes. If a satisfactory explanation is not given, then the home may be confiscated.  Homes owned by offshore companies under a legitimate investment strategy may nevertheless be targeted, with the result that the home’s owner has to engage with the courts or risk losing the asset.

Unexplained wealth orders
You do not have to be a defendant in civil or criminal proceedings to be the recipient of a UWO. The NCA and a select few other authorities can apply for an order in respect of any property valued over £50,000 ($63,104), if they have reasonable grounds to suspect that the owner does not have a large enough legitimate income to have obtained the property. It is worth emphasising that there do not have to be any existing civil claims or criminal proceedings, which ordinarily would be the case for court orders involving property.  

If a judge is satisfied that there are reasonable grounds to believe that a person owns a home without having the legal income to have purchased it, the judge will order that person to provide details of the nature and extent of their interest in the property, including how they purchased it, the costs involved, and any other information that the judge specifies. This could be less than straightforward, depending on the ownership structure of the home in question.

The result of not satisfactorily complying with the court’s order is that the home will become recoverable property for the purposes of a civil recovery order. In other words, it can be confiscated. 

Dealing with UWOs
It will be obvious by now that ignoring a UWO is likely to result in the home in question being confiscated. To prevent this happening, UWOs must be responded to and/or challenged.

Responding to a UWO will involve preparing a satisfactory response in writing. What amounts to “satisfactory” will vary depending on the circumstances and that is where specialist legal advice can help. The response has to be right first time. As in so many situations, changing or “clarifying” details as the case goes on will only damage the person’s credibility and lead to a poor result.

Challenging a UWO involves looking at the legalities of the way in which the order was granted. There are many examples of different types of orders falling away due to the government agency not being completely open with the judge when making the application. Remember that UWOs are applied for without the owner of the home being present in court, so no one is present to represent just their interests. If it subsequently turns out that the government agency kept key facts from the judge, or misrepresented the available information, then the order will be vulnerable to challenge.

Existing cases
Since their introduction in January 2018, the NCA has been slowly warming up, with three UWOs in May 2019 for three residential homes in “prime locations”, originally bought for more than £80 million. All three properties were held by offshore properties. The NCA combines this with freezing orders which prevent the homes being sold, transferred, or otherwise being dealt with while the investigation continued. It appears that these homes have now been revealed by the BBC as being beneficially owned by “one of the members of Kazakhstan’s political elite” Mr Nurali Aliyev and his mother Dr Dariga Nazabayeva. It has been claimed on their behalf in the High Court proceedings that the UWOs were responded to properly and that detailed evidence has been provided of how Dr Nazabayeva organised their ownership of homes in a tax efficient manner and managed their wealth accordingly.

Since January 2018 the NCA has also reported that a businessman from the north of England with suspected links to serious organised criminals has had eight properties he owned made subject of UWOs. The businessman was ordered to reveal the source of funds used to start and develop a £10 million property “empire”.

In the same month a Northern Irish woman, again with suspected links to serious organised crime, was ordered to explain how she financed the purchased of six properties, worth around £3.2 million in total. The NCA said at the time that the value of the properties was not the only factor, and that they would act against those who they believed to be causing the most harm in the community.

More recently in February this year, Mrs Zamira Hajiyeva failed in her attempt to challenge the UK’s first UWO in the Court of Appeal, which had been obtained by the NCA against a property in Knightsbridge for £11.5 million.

Verifying an investment strategy
Tax advisors present strategies based on the best available information and guidance at the time. But investment structures and schemes are rarely tested until they become the subject of court battles or tax investigation letters. UWOs are civil court proceedings arising out of measures designed to tackle crime – they were enacted as a result of the Criminal Finances Act 2017 – and can result in the loss of a home if an ownership structure (and by extension an investment strategy) cannot be adequately explained. Lawyers who have experience of these kinds of orders – civil orders mixed with crime – are best placed to stress test investment strategies which may be vulnerable to UWOs.

About the author

Lee Adams is a business crime and regulation partner and head of the London office at JMW Solicitors. He represents individuals involved in serious and complex litigation, whether they are a defendant or complainant. He often provides second opinions on cases as a result of which judgments have been overturned on appeal. Lee is known for his committed approach and ability to win difficult cases.