UWO-legal

UWOs raise the stakes for banks on anti-money laundering

The UK has a new weapon at its disposal in the battle against money laundering – and it is not afraid to use it. Unexplained wealth orders (UWOs) potentially enable the UK authorities to seize the assets of those suspected of money laundering, including politically exposed persons (PEPs), underlining the need for banks and other financial institutions to put robust compliance processes in place.

How UWOs work

The UK’s UWO regime came into force in 2018, following the Criminal Finances Act of 2017. The law was intended to support the UK’s authorities in cases where they suspected someone had amassed wealth through unlawful means but did not have the evidence to bring charges against the individual in question. UWOs can be used to pursue individuals suspected of a range of crimes but the authorities have so far focused on money laundering, since such cases are complex and often involve multi-national transactions and a range of different legal jurisdictions.

To apply for a UWO, the authorities must first have reasonable grounds to suspect that someone has been involved in criminal activity; in addition, they must be able to show that the individual has assets that are disproportionate to their income. In such circumstances, bodies including the National Crime Agency (NCA), the Financial Conduct Authority (FCA), the Serious Fraud Office, the Crown Prosecution Service, and HM Revenue & Customs may ask the High Court to grant them a UWO.

If successful, the authorities are entitled to freeze the assets of the individual under investigation until they provide an explanation of how they were acquired. If the individual cannot provide a satisfactory explanation – or refuses to co-operate – the authorities may apply for a civil order to seize the property as proceeds of crime.

The concept is not without controversy. UWOs are an unusual legal arrangement since the burden of proof falls on the individual under investigation to prove their innocence, rather than on the authorities to show they are guilty. That may not be straightforward.

Nevertheless, UWOs are regarded as an increasingly important tool by the UK’s authorities. They can be granted against both UK citizens and PEPs from outside the European Economic Area (EEA) – defined by the FCA as “individuals whose prominent position in public life may make them vulnerable to corruption”. This definition extends to PEPs’ immediate family members and close associates.

PEPs in the spotlight

Indeed, the first UWO involved a PEP, with an order issued in 2018 against Zamira Hajiyeva, the wife of Jahangir Hajiyev, former chairman of the International Bank of Azerbaijan. After her husband’s conviction for financial crimes, including a £2.2bn fraud against the bank, it was discovered that Ms Hajiyev had spent lavishly in the UK, making purchases worth £16m in London department stores, as well as buying property in London and Berkshire. The NCA told the High Court that her wealth had come from her husband’s crimes and succeeded in obtaining a UWO; Ms Hajiyeva was subsequently unable to explain where her finances had come from and her property was confiscated.

Since that case began, the NCA has obtained three further UWOs against PEPs, covering assets worth in excess of £80m. The agency has made it clear that it sees UWOs as a crucial tool in targeting high-net-worth individuals accused of corruption and money laundering.

UWOs do not have to target PEPs. In October, the NCA announced a £10m settlement with Mansoor Mahmood Hussain a Leeds-based businessman who it believed had laundered money on behalf of organised crime gangs in the North of England. The NCA had previously secured a UWO against Mr Hussain, who eventually handed over assets including 45 commercial and residential properties.

Equally, not all UWOs succeed. The High Court eventually struck down UWOs related to the assets of family members of Rakhat Aliyev, the former chief of the tax police of Kazakhstan and deputy chief of the country’s state security service; Mr Aliyev had died in prison while awaiting trial for multiple charges of money laundering, as well as for murder and kidnapping. The court ruled the links between the assets and Mr Aliyev were not clear enough for the UWO to be justified. It also said the authorities had not given sufficient weight to explanations of how the assets had been paid for.

For lawyers, the Aliyev case is an important landmark in that it effectively serves as a warning from the High Court that while complex and opaque financial arrangements can sometimes be used to hide illegality, this should not be assumed. Nor do general concerns about corruption and money laundering equate to proof of a link to criminal activities.

Why banks must act

Even so, the UK is likely to pursue UWOs with increasing frequency in the months and years ahead. While the Aliyev case is a setback, other successes give the authorities every reason to consider using this new legal tool.

Inevitably, this will add to greater scrutiny of banks and financial institutions that count individuals targeted by UWOs as clients. In particular, given the stringent additional rules regarding compliance with anti-money laundering (AML) regulation that apply to PEP accounts, there is potential for real damage for organisations whose screening mechanisms are revealed to have come up short.

In other words, UWOs increase the pressure – already substantial – on banks and other financial institutions to have the most robust AML systems and processes in place, especially around PEPs. Meeting the requirements is potentially onerous, requiring banks to track high volumes of data and to monitor complex international transactions.

New technologies can support this work. Tools powered by artificial intelligence and natural language processing will be increasingly important in an AML context; data analytics has a crucial role to play. Innovation and investment will be critical if banks are to stay on top of their AML responsibilities.

David Prosser

Freelance journalist and consultant, and a former business editor of The Independent.