Áine Clancy, PhD Candidate in the School of Law at Queen Mary University of London has written for The Conversation on the changes in law to prevent the spread of dirty money.
The British government has responded to criticisms of its lassitude in targeting “dirty money” laundered by foreign elites through UK property by introducing the Economic Crime (Transparency and Enforcement) Act. The act, passed on March 15, was pushed through parliament in response to the Russian invasion of Ukraine.
It aims to improve transparency about ownership of UK properties held through companies registered overseas and includes powers to issue new kinds of sanctions. There are also changes designed to strengthen unexplained wealth orders – the mechanism that enables UK law enforcement agencies to investigate the origins of property thought to have been obtained through illegal means with a view to ultimately being able to seize that property.
However, while these changes are broadly helpful, they are unlikely to be gamechanging.
The public and members of parliament have expressed disquiet about the lack of action taken against these people for some years now and that has only become more pronounced because of the conflict.
In truth, the government has had the power to take action via unexplained wealth orders since 2018. But it’s a power that has rarely been used.
An unexplained wealth order comes into play when someone owns a property worth more than £50,000 but does not appear to have the funds to have paid for such a property through their lawful income. If that person is also suspected of being involved in serious crime, or is a senior public official from outside the UK or the European Economic Area, then the High Court can order them to explain how they were able to acquire the property. The same applies to family members or associates of that person.
The significance of these orders is sometimes overstated. They do not give the authorities the right to automatically seize a property. Instead, they are a preliminary step that can help the authorities build evidence to make a further application to the court for the property’s seizure. For the court to grant a seizure application, it must be satisfied on the balance of probabilities that the property represents the proceeds of “unlawful conduct”.
Unexplained wealth orders are generally accompanied by an application to freeze the person’s assets so that they can’t offload them during an investigation. If the person can’t prove they obtained the property legally within a given timeframe, the authorities can use this fact in any subsequent legal case seeking the property’s seizure. It can show the court in that case that the property may represent the proceeds of crime.
In deciding whether the property should be seized, the court can take into account the fact that the property owner was not able to give a satisfactory explanation as to how he or she was able to afford the property.
The National Crime Agency has in fact only deployed unexplained wealth orders four times since they were introduced in 2018.
The first came quickly after the measure’s introduction – against the wife of an Azerbaijani state banker who had been jailed back home for fraud. Unable to explain how her husband’s public sector income could have paid for expensive London property, the wife’s assets were seized.
There have been only three further cases since then, however. And one ended up falling apart. The property owners in that case – the then-chairperson of Kazakhstan’s senate and her son, who between them, own three London mansions – subsequently sought £1.5m in costs.
With a record like this, it’s perhaps surprising that so much hope is now being placed in unexplained wealth orders as a mechanism for ending London’s reputation as a home for dodgy Russian money.
The latest changes mean that courts can go after the directors of companies that own properties rather than just private individuals – even if those companies are based outside the UK. This will be helpful where the identities of the people who own those companies (and by extension, the relevant properties) are unknown.
And instead of having to show that the purchase of the property is inconsistent with a person’s legal income, enforcement agencies will be able to apply for an order when there are reasonable grounds for suspecting that property has been obtained through “unlawful conduct”. This means that if there is a reasonably clear link between a property and crime, the authorities do not have the often-complicated task of showing the court a mismatch between someone’s “legal” income and the property.
The authorities will also have more time to investigate under the terms of an unexplained wealth order and will no longer be liable for costs if the case falls apart – unless the court is of the view that the authorities acted dishonestly, unreasonably, or improperly.
This amendment may not prove especially useful in practice. As is clear from the tiny number of unexplained wealth orders actually put into action, enforcement agencies are already alive to the financial and reputational implications of failed applications. Unless they can feel absolutely certain that they can withstand accusations of not acting “reasonably” and “properly” in future cases, the authorities are likely to remain reluctant to act.
All these changes, while not unhelpful, may have limited impact in practice. It’s clear that the problem in the UK has largely been with enforcement rather than the law itself.
After years of cuts, unless extra resources are channelled into the agencies tasked with pursuing unexplained wealth, it’s unlikely much which change. Otherwise they will keep being outgunned by deep-pocketed kleptocrats capable of funding expensive litigation.
The Economic Crime Act allows the government to convey the impression that it is “doing something” about the proceeds of kleptocracy being laundered in the UK. As a response to corruption, focusing so heavily on unexplained wealth orders may well prove misdirected.
Far more fundamental and far-reaching reform is needed to meaningfully tackle the tide of dirty money washing through London. The City of London’s role in facilitating the UK’s use as a laundromat for corrupt foreign elites must be considered. The government’s laissez-faire approach to transparency (as demonstrated by loopholes already evident in amendments made under the new act) must be addressed.
The government’s own obstructive approach to anti-corruption reform and its relationships with kleptocrats from around the world must be reassessed. Pending any such developments, dirty money will continue to flood in.
This article first appeared in The Conversation on 17 March.