(Not) Explaining the Unexplained: UK unexplained wealth orders revamped

April 20, 2022

2 min read

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What's going on here?

Although they were introduced to tackle the UK’s reputation for being a global hub for “dirty money”, unexplained wealth orders (UWOs) have been criticised as serving little purpose in achieving that goal.

What does this mean?

Unexplained wealth orders were introduced by the Criminal Finance Act 2017 to extend the powers of law enforcement agencies in identifying, investigating, and seizing property suspected of having been bought by laundered criminal funds. In their original form, they are a type of disclosure order targeted at people linked with serious crimes or those who hold public office outside the UK, requiring them to explain their interest in a property and the source of wealth used to purchase it. Therefore, UWOs put the burden of proof onto owners, who are to provide evidence that a purchase was made with lawfully obtained wealth. If the individual cannot prove they obtained the property with appropriate funds within a given timeframe, the enforcement authorities can use this fact in any subsequent legal proceedings seeking the property’s seizure.

What's the big picture effect?

The crux of the big picture effect is the original UWOs’ lack of effectiveness. Since being introduced, UWOs have only been deployed on four occasions, three of which were successfully challenged. Critics argued that UWOs did little in the way of tackling the issue at hand because underfunded enforcement agencies were unlikely to win a case against wealthy kleptocrats represented by specialist law firms and supported by their country’s ruling elite.

Legislation reforming these seemingly ineffective UWOs was brought forward following Russia’s invasion of Ukraine, with Parliament passing the Economic Crime (Transparency and Enforcement) Act on Tuesday 15 March to address the issue of unchecked Russian wealth invested in UK property. The Act is designed to strengthen UWOs by enabling enforcement agencies to avoid the crippling legal costs associated with unsuccessful orders, making it less financially risky and therefore encouraging increased future use. UWOs were also extended to target company directors rather than just private individuals, enabling enforcement agencies to go further by pursuing those who hide behind shell companies when putting their money into UK property.

The newly reformed UWOs have the potential to pave the way in addressing the estimated £100bn of “dirty money” that flows through the UK each year from abroad. For now, UWOs could play a significant role in targeting those with links to the Kremlin but the war in Ukraine may just prove to be the catalyst for greater use of UWOs. This may embolden enforcement agencies to act against others who, until now, were not seen as suitable candidates for these orders. Law firms may therefore find themselves increasingly busy having to defend the property rights of their clients against government scrutiny.

Report written by Manahil Farishta

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