14 Apr 2022

Changes to the Unexplained Wealth Orders regime


The Economic Crime (Transparency and Enforcement) Act 2022 (the "Act") received Royal Assent on 15 March 2022. Part II of the Act makes significant amendments to the Unexplained Wealth Order ("UWO") provisions in Part VIII of the Proceeds of Crime Act 2002 ("POCA").

The changes to the UWO regime appear to have been designed with a mind to the limited use of UWOs since their creation in 2018 (there have been four reported UWO cases in four years), and also to National Crime Agency v Baker [2020] EWHC 822 (Admin), in which UWOs were discharged by the High Court and a substantial (reportedly, seven-figure) costs order made against National Crime Agency ("NCA").

The changes introduced by the Act are intended by the Government to make UWOs both easier for the Enforcement Authorities to obtain and more efficacious as a means of obtaining information about specified property.

In summary, the key changes are:

  1. A "specified responsible officer" of the Respondent to a UWO – defined to include inter alia directors, officers and managers – can be required to provide a statement, and / or provide documents in response to a UWO;
  2. A UWO can be granted where the High Court is satisfied that there are reasonable grounds for suspecting that property has been obtained through unlawful conduct whether or not the "Income Requirement" is met;
  3. Where an Interim Freezing Order ("IFO") is granted alongside a UWO, in cases where the Respondent complies with the terms of the UWO, the Enforcement Authority will be able to apply to extend the period of time it has to determine what further investigatory or enforcement steps to take, to a maximum of 186 days;
  4. A Respondent who is successful in discharging a UWO will only be awarded costs where the Enforcement Agency has acted unreasonably in seeking the UWO, or has acted dishonestly or improperly in the conduct of the UWO proceedings; and
  5. The Secretary of State will be required by statute to publish an annual report, detailing the number of UWOs applied for and granted by the High Court.

This short article examines each of these five key changes, the likely practical impact of each change, and the likely overall impact of the changes as a whole.

"Specified responsible officer"

Under s.362A POCA, as enacted, a UWO can require the Respondent to (a) provide a statement in respect of specified property (s.362A(3)); and / or (b) produce documents (s.362A(5)).

The amendments made by the Act will extend subsections 362A (3) and (5) to allow those requirements of a UWO to be directed at a "specified responsible officer" of the Respondent, where the Respondent is not an individual.

Specified responsible officer is defined broadly, to include:

(a)  any director of the respondent, including any person occupying the position of a director, by whatever name called;

(b)  any member of a body of the respondent equivalent to a board of directors;

(c)  any other manager, secretary or similar officer of the respondent;

(d)  where the respondent is a partnership, a partner or a member of the partnership;

(e)  any person in accordance with whose directions or instructions the board of directors or equivalent body of the respondent are accustomed to act. (s.362A(8)).

The possibility of being able to require a specified responsible officer of a Respondent to comply with the terms of a UWO represents a significant change to the UWO regime.

The Enforcement Authorities will, once the amendments take effect, be able to use a UWO to require information and documents from a wide range of named individuals associated with the Respondent, regardless of whether any such individual "holds" the property that is the subject of the UWO. At present, a Respondent must "hold" the property in question, and only a Respondent can be required to comply with the terms of the UWO. In this regard, one of the difficulties encountered by the NCA in the Baker case (Mr Baker was found not to "hold" the property in question in that case) may not arise in the future. 

Additionally, the possibility of holding a named, natural person (i.e. the specified responsible officer) liable for any failure to comply with a UWO will likely be attractive to the Enforcement Authorities. In National Crime Agency v A [2018] EWHC 2534 (Admin), the Administrative Court endorsed the attachment of a penal notice to a UWO, with a view to enforcing non-compliance through committal proceedings under CPR Part 81.

No longer necessary to satisfy "Income Requirement" to obtain an UWO

When describing UWOs, in the course of giving judgment in NCA v Baker, Mrs Justice Lang observed that "UWOs … require a person who is suspected of involvement in or association with serious criminality to explain the origin of assets that appear to be disproportionate to their known income."

That notion of disproportionality was fundamental to the character, nature and purpose of UWOs, as legislated for in 2018.

The Act retains the Income Requirement but creates an alternative gateway to the grant of a UWO. When the amendments in the Act take effect, s.362B(3) POCA will read as follows:

362B Requirements for making of unexplained wealth order

(3) The High Court must 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 enabling the respondent to obtain the property; or

that the property has been obtained through unlawful conduct (within the meaning given by section 242).

The creation of an alternative gateway to the grant of a UWO will, in certain cases, solve a significant problem with the UWO regime, identified by the Court in Baker, namely: where the Respondent "holds" the property as a trustee, how can the "Income Requirement" be satisfied?

This amendment has the potential significantly to increase the confidence of the Enforcement Agencies in seeking UWOs against trustees and other asset-holding vehicles, by allowing an application for a UWO to avoid difficult questions (as in Baker) of law and fact in relation to the extent of legal or other interests in property.  

Extension of time for Interim Freezing Order to remain in place

At present, following compliance (or purported compliance) by a Respondent with the terms of a UWO, in a case in which an IFO has been granted alongside the UWO, the Enforcement Agency must determine, within 60 days of the date of compliance, whether or not to commence "enforcement or investigatory proceedings".

Under the amendments in the Act (new sections 362DA and 362DB of POCA) the Enforcement Authority will be able to seek two extensions of the "determination period" of a up to 63 days on each occasion (to a maximum of 186 days).

To grant an extension, the Court must be satisfied that the Enforcement Agency is "working diligently and expeditiously"; further time is needed; and it is reasonable in all the circumstances for the period to be extended.

In cases in which the Enforcement Agencies receive large amounts of information and / or documentation in response to a UWO, and in cases in which that information prompts numerous or difficult new lines of inquiry, it is possible to imagine a Court being sympathetic to an application for an extension of time. The requirement for the Enforcement Agency to satisfy the Court that it is working "diligently and expeditiously" is novel, and it remains to be seen what standard the Enforcement Agencies will be held to in this regard, and what weight will be attached to submissions as to scarcity of enforcement recourses. 

Limitation on costs awards against Enforcement Agencies

In the course of the Second Reading of the Economic Crime Bill in the House of Lords on 9 March 2022, it was suggested that a costs award of £1.5 million was made against the NCA at the conclusion of the Baker case.

In response to concerns that the potential for adverse costs awards had created a significant disincentive for Enforcement Agencies to apply for UWOs, which in turn has led to UWOs being under-utilised, the Economic Crime Bill was amended in the House of Lords to include provision limiting the liability to pay the costs of a Respondent to cases in which the Enforcement Agency has acted "unreasonably" or conducted the UWO proceedings "dishonestly or improperly". The new test for the award of costs will appear at s.362U of POCA.

At a time when public and political concern about the wealth of oligarchs is heightened, this provision, and the potential for unfairness to wholly innocent Respondents to UWOs who incur costs challenging a mistaken or meritless UWO, has perhaps not received the attention which, in ordinary times, it might. The approach of the Courts to the "unreasonableness" test created by the Act will be important and will in turn be determinative as to whether the intention that lies behind this provision is met.

Annual report

In response to demands made in Parliament during the passage of the Economic Crime Bill for greater transparency as to the extent to which UWOs are being used, provision is to be added to POCA (at new section 362IA) requiring the Secretary of State to publish an annual report, detailing the number of UWOs sought and granted in England and Wales.

Clarity as to the extent to which the UWO powers are being utilised is to be welcomed, and it is possible to imagine greater transparency creating an added pressure on the Enforcement Authorities to make greater use of UWOs. Whether such pressure is applied or felt, and whether we will see an increase in the use of UWOs, will be apparent on publication of the first Report, due 12 months after the relevant provisions in the Act, and corresponding amendment to POCA, come into effect.

Initial conclusions on effect and impact of changes

The changes to the UWO provisions in POCA are clearly designed to meet the obvious challenges experienced by Enforcement Agencies since 2018 in seeking UWOs. In particular, the ability of Enforcement Agencies to sidestep the Income Requirement to obtaining a UWO is significant and will lead to UWOs being available in complex cases where a UWO would not be likely to be granted based on the UWO provisions, as originally enacted.

It has been suggested, including by respected NGOs, that it is in truth a relative paucity of enforcement resources that lies behind the limited use of UWOs by the UK Enforcement Agencies. If that hypothesis is correct, so long as enforcement resourcing remains at present levels, the number of UWOs sought and granted may be unlikely to increase, and the aims of the changes may not be met.