Not dealing with unexplained wealth orders can have consequences

As Cayman and the U.K. are at odds over the extent of their information exchange in criminal investigations, not complying with U.K. unexplained wealth orders – the latest weapon in the fight against money laundering – can make enforcement proceedings for authorities back in Britain much easier, trust professionals heard last week.

Unexplained wealth orders are a type of U.K. High Court order that requires owners of properties or assets to explain how they were able to afford them.

The unexplained wealth orders are obtained by U.K. law enforcement and tax authorities to compel a receiver to provide information and documents on the nature and extent of a respondent’s interest in property, as well as details showing how the respondent obtained the property and paid for it.

Whereas, previously, law enforcement had to prove in court that an asset was purchased with laundered funds, unexplained wealth orders shift the burden of proof to the property’s owner.

Surprisingly, the threshold for obtaining unexplained wealth orders is much lower than in criminal or civil trials, explained Sara Chisholm-Batten, a partner at London law firm Michelmores during an information event for trustees and other financial services professionals at the Kimpton Seafire Resort on Sept. 20.

Under the Criminal Finances Act, authorities have to show that a respondent holds or controls the property, that the property is worth more than 50,000 pounds (CI$54,000) and that there are reasonable grounds to suspect that the respondent’s legal income is insufficient to afford the property.

Unexplained wealth orders are aimed at politically exposed people, such as politicians or public officials and their families and associates, or anyone who is suspected of being involved or is connected to people suspected of being involved in serious crime, including tax evasion.

To serve the order on any Cayman service providers and receive information on a specific client, U.K. authorities must obtain an injunction from the Cayman courts.

Cayman service providers “need to look quite carefully” at whether they received a valid Cayman order, Ms. Chisholm-Batten said.

Although an unexplained wealth order only requires the disclosure of information, it is closely tied to the recovery of the property named in the order.

If a respondent fails to comply with the order within the time set by the court, the property is deemed to be recoverable under the Proceeds of Crime Act and the respondent would have to prove in a civil trial that the property is not recoverable. This can be a significant hurdle. Cayman service providers need to take this into account when they receive an unexplained wealth order.

“What you do or don’t do could have an effect,” the Michelmores partner said.

“The practical effect of the order is that back in the U.K. if you don’t comply, it makes it much easier for the authorities to enforce [over any of the assets].” Another consideration is therefore whether the property is located in the U.K.

“There are relatively few unexplained wealth orders that we know of so far,” Ms. Chisholm-Batten said. This is, in part, due to media reporting restrictions with regard to certain orders.

In addition, authorities are going to exercise the orders with care, she said, especially with regard to the freezing of assets as part of an injunction, because they may become liable for compensation if there is no conviction.