First win over UK's new wealth orders will embolden corruption prosecutors

9 October 2018 9:26am

4 October 2018. By Martin Coyle.

A court win yesterday will embolden UK prosecutors still feeling their way around the UK’s new enforcement tool — unexplained wealth orders, or UWOs — designed to help them claw back criminals’ ill-gotten gains.

The ruling frees the National Crime Agency to go ahead with action against two luxury homes in southeastern England belonging to the wife of a man currently jailed abroad and described as having been “a fat-cat international banker.”

In February, the High Court granted the NCA two orders to require the woman to explain the source of the funds used to buy the properties, valued at 22 million pounds ($29 million), as it suspects they were bought with the proceeds of crime.

The woman, known as Mrs A due to an anonymity order, had fought the orders at the court, but judges yesterday threw out her challenge.

The significance of the case is that these two orders were the very first sought under the UK’s new UWO regime — it only came into effect on Jan. 31 — and the first to be contested.

The NCA’s win here, in a case that focused on the complex definition of whom can be targeted by the orders, gives all agencies eligible to apply for UWOs the first precedents and guidance from judges on the limits of the new investigatory tool.

— UWOs explained —

UWOs can be sought by certain UK agencies — the NCA, the Serious Fraud Office, the HMRC tax agency, the Financial Conduct Authority and the Crown Prosecution Service — to probe the provenance of assets in the UK of more than 50,000 pounds.

The orders are primarily intended for those suspected of being involved with or linked to serious crime where their known legal income wouldn’t be enough to obtain the assets.

But an order can also be sought over UK-linked assets of politicians or officials, or those associated with them, from outside the European Economic Area — so-called politically exposed persons, or PEPs.

UWOs reverse the burden of proof in suspected money-laundering and corruption cases, forcing individuals to prove their wealth came from legitimate sources, rather than investigators having to prove wrongdoing.

— A PEP or not? —

The case of Mrs A was characterized by claims of her lavish spending – with millions of pounds lavished on goods from Harrods department store, on luxury jewelry and fine wines. The NCA said the spending couldn’t be accounted for by Mrs A’s lawful income.

Aside from this, however, the case largely turned on Mr A’s legal status. Judge Michael Supperstone had to determine whether Mr A could be classed as a PEP, and whether the couple had been involved in serious crime in the UK or elsewhere.

PEPs are defined as individuals with prominent positions in public life, by virtue of which they can present a high risk of being involved in corruption. Banks and other financial institutions are obliged to treat PEPs with enhanced due diligence.

Lawyers for Mrs A contended that her husband wasn’t a PEP, arguing that the bank he worked for wasn’t a state-owned enterprise and that he hadn’t been entrusted with a “prominent public function.” Both form key parts of the definition of a PEP under the EU’s fourth money-laundering directive.

The judge disagreed, ruling that the NCA had proved the bank was state-owned, and that the banker had been entrusted with a prominent public function.

— Insufficient income —

The court also had to look at Mr A’s income as well as his conviction for fraud and embezzlement overseas. In 2016 he was jailed for 15 years in a non-EEA country for large-scale fraud and embezzlement.

The judge noted that the banker’s job as a state employee between 1993 and 2015 was “very unlikely” to have generated “sufficient income” to fund a multimillion-pound property purchase. Letters from his employer showed that between 2001 and 2008, Mr A earned between $29,000 and $70,648 each year.

Supperstone also looked into the man’s conviction. While acknowledging that the country in question — its identity is also under reporting restriction — has “serious deficiencies” in its legal system, the NCA wasn’t wrong to rely on the man’s conviction as a reason to be suspicious.

Mrs A’s spending of more than 16 million pounds on Harrods store cards and 35 credit cards issued by Mr A’s bank between 2006 and 2016 demonstrated abuse of position by the banker, the judge said

— Looking ahead —

The anonymity Mr and Mrs A have enjoyed may also soon be withdrawn. Naming them is part of “a clear public interest in understanding how UWOs are applied for in practice,” Supperstone told the court yesterday.

The identities of the couple and the property in question will remain undisclosed for at least another week, however, pending Mrs A’s application to appeal the ruling at a higher court.

Mrs A’s properties also remain frozen pending this appeal, but for the moment the NCA will take heart from the judge’s robust ruling in its favor, with the message it sends that the courts back the advancing crime-fighting effort to tackle the billions of pounds of dirty money flowing through London every year.

In the wake of the ruling, Donald Toon, who heads the NCA’s economic crime unit, said it would now “quickly move” other UWOs to the High Court, adding that “we are determined to use the powers available to us to their fullest extent.”

The eye-watering sums involved in cases of suspected corruption mean that similar challenges will be brought by individuals subject to UWOs, and law enforcement will continue to have to prove their cases in court. But this week’s ruling is an encouraging clearance of the first hurdle for them under the UWO regime.

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