Policy paper

Fact sheet: unexplained wealth order reforms (web accessible)

Updated 26 October 2023

This was published under the 2019 to 2022 Johnson Conservative government

Context

This Bill is designed to reform and strengthen the UK’s Unexplained Wealth Order (UWO) regime to enable law enforcement to investigate the origin of property and recover the proceeds of crime. The measures in the Bill aim to strengthen the UK’s fight against serious economic crime; to clarify the scope of UWO powers; and to increase and reinforce operational confidence in using UWO powers.

Key reforms

The reforms will enable UWOs to be sought against property held in trust and other complex ownership structures such as opaque foundations.

They will also remove key barriers to the use of UWOs by increasing time available to law enforcement to review material provided in response to a UWO and reforming cost rules to protect law enforcement incurring substantial legal costs following an adverse ruling.

Background

An unexplained wealth order (UWO) is an investigatory order placed on a respondent whose assets appear disproportionate to their income to explain the origins of their wealth.

An Unexplained Wealth Order (UWO) requires a person who is a Politically Exposed Person (PEP) or reasonably suspected of involvement in, or of being connected to a person involved in, serious crime to explain the origin of assets (minimum combined value of £50,000) that appear to be disproportionate to their known lawfully obtained income.

As noted in the joint Home Office and HM Treasury National Risk Assessment of money laundering and terrorist financing 2020, property in the UK is attractive to both foreign and domestic criminals seeking to conceal large amounts of illicit funds, disguise their ownership, and realise the proceeds of their criminal activities.

A UWO is not (by itself) a power to recover assets. However, any response from a UWO can be used in subsequent civil recovery proceedings.

A failure to respond will mean that the assets can be made subject to civil recovery action under the Proceeds of Crime Act 2002.

A person can also be found guilty of an offence if they provide false or misleading information in response to an UWO.

The desired outcome of these amendments is to strengthen the UWO regimes to enable law enforcement to take more effective action against kleptocrats, corrupt elites and serious and organised criminals who launder their funds in the UK. In turn, this will lead to greater prospects of the recovery of assets bought with the proceeds of serious and organised crime, particularly corruption.

Key Facts

1. Serious and organised crimes (SOC), for example, corruption, money laundering, ransomware attacks and terrorism-financing, are estimated to cost the UK economy £37 billion per year.

2. The Proceeds of Crime Act 2002 (POCA 2002) provides the statutory framework and broad powers to trace, investigate and recover illicit finance gained through unlawful conduct. In 2020/21, just under £219 million of the proceeds of crime were recovered within England, Wales, and Northern Ireland. This continues the general trend of improved performance since 2016 to 2017. Overall, just under £1.3 billion has been recovered from criminals using these powers, significantly curtailing corrupt actors’ ability to further criminality.

3. The Financial Action Task Force found that the UK has one of the strongest systems in the world for combatting money laundering.

4. UWOs have been granted in 4 cases since their introduction in relation to assets with a combined value of £143 million. In October 2020, property worth an estimated £10 million was recovered following the use of an UWO.

Quotes

• Priti Patel, the Home Secretary, said: “Time is up for Putin’s cronies hiding dirty money in the UK and this new legislation will help to crack down on economic crime, including removing key barriers to using unexplained wealth orders.”

Questions

Why are these changes necessary?

• legislative reform is required to strengthen and reinforce the UWO regime to ensure the powers can be used to maximum effect, particularly to ensure property held via complex ownership structures and trusts is within the scope of the regime. The reforms are also intended to mitigate the significant operational risks to an enforcement authority

UWOs have always been vastly underused, why haven’t they been fixed previously?

• unexplained Wealth Orders are one tool among many that can be used to tackle illicit finance
• it was necessary to understand how the legislation worked in practice, we continually evaluate and improve the way our powers interact. Additionally, the Proceeds of Crime Act 2002 is a complex and technical Act and reform require careful consideration and consultation
• this government is committed to tackling illicit financial flows and the threat posed from kleptocrats and corrupt elites and enforcement agencies must be equipped with the appropriate powers to investigate

Will these reforms increase the number of UWOs?

• it is difficult to estimate the likely increase in recovery following the use of a UWO, as a result of the proposed changes
• there are a number of variables which may impact an operational decision to seek a UWO including, the ease with which evidence can be obtained from overseas; whether it would be proportionate to go to the High Court; and suitability of other investigatory powers
• even a single UWO will have a high impact. The average value of assets per UWO investigation is estimated in the range of £5 million to £20 million, on average leading to the recovery of £10 million

When will these new powers come into force?

• the reforms will be commenced as soon as is practicable after Royal Assent
• the new powers will have an immediate dissuasive effect on the targets of their intended use. Also, the clarification of law will immediately help law enforcement agencies in the UK

Unexplained Wealth Order reforms are one part of the economic crime (transparency and enforcement) bill, how will it work together with the other measures on sanctions and registration of overseas entities?

• the measures in the Bill will prevent foreign owners from laundering their money in UK property and ensure more corrupt elites can be handed an unexplained wealth order (UWO)
• a new register will require overseas companies owning or buying property in the UK to provide information about their true owners to Companies House
• this will provide more information for law enforcement to help them to track down those using UK property as a money laundering vehicle
• in conjunction, the UWO reforms will improve law enforcement’s ability to investigate the origin of property and recover the proceeds of crime