Russian oligarchs will head the priority targets for a new ‘unexplained wealth’ weapon introduced to combat money laundering through Britain. But a side-effect could be another disincentive for bona fide non-domiciled either to come or stay in the UK.
Law firm Fieldfisher reckons that money washing through the UK each year is estimated to be in the region of £50 billion annually, although other guesstimates put it as high as £70 billion. Much of this total is funnelled into residential real estate.
The new law for Unexplained Wealth Orders (UWOs), introduced at the start of this month, will give the authorities powers to force those owning property to explain the origin of the assets. UWOs will be available to HM Revenue and Customs, the Financial Conduct Authority, National Crime Agency, the Serious Fraud Office and the Director of Public Prosecutions.
The orders can apply to any property worth more than £50,000.
UWOs will require targets to provide a statement which sets out the nature and extent of their interest in a property, explain how the property was obtained, and clarify how funds were obtained to pay for the assets. UWOs will apply not just to individuals but also to other structures that can hold property such as trusts.
The High Court will have the power to make UWOs as long as there are reasonable grounds for suspecting that the known sources of the respondent's lawfully obtained income would have been insufficient for the purposes of enabling the respondent to obtain the property. The authorities will have the power to seize the property is wrongdoing is involved.
UWOs are to be targeted at politically exposed persons and those suspected of involvement in serious crime whether in the UK or elsewhere.
Security minister Ben Wallace has told The Times that those using Britain as a haven for ill-gotten gains would be the target of UWOs, including shady Russian billionaires. The role of Russians in British business and property has been highlight by a current TV series McMafia. The minister said he hoped that the success of McMafia would help raise awareness of the issue.
He said: "So far it's very close to the truth.”
In reactions, Jeremy Summers of law firm Osborne Clarke cautioned that UWOs are a civil power, which if successfully challenged could see enforcement authorities left with substantial legal bills to pay.
He added, “Perhaps mindful of that, David Green QC, the outgoing Director of the SFO has struck a more cautionary note, saying that his agency would wait for the right case to come along for the first UWO.”
Mr Summers added, “We do, though, expect to see UWO being deployed in the relatively near future and while initially they may be targeted against individuals, their potential use against companies should not be overlooked.”
At Rahman Ravelli Solicitors, Azizur Rahman observed that while the UWO is a new concept in UK law, it is based on the age-old desire of the authorities to take the assets of those it believes have done wrong – often without the need to prove any guilt.
“And that is a concept that can be challenged successfully,” he stressed.
Questions are also being asked whether UWOs may largely prove be a PR exercise to demonstrate the government is serious about tackling the issue of money laundering through the UK and its offshore possessions, as recently highlighted by the Paradise Papers leak. For the new law comes as non-domiciled residents are being impacted by an increasingly aggressive tax regime in the UK.
Four times as many high net worth individuals left the UK in 2017 than arrived, according to research from New World Wealth (NWW). While some 1,000 high net worth individuals came into the UK during the year, this was more than cancelled out by the 5,000 who left.
NWW suggested that new taxes on non-doms and foreigners with homes in the UK made it more expensive and more complicated for migrating HNWIs to buy homes in the UK.
“It remains to be seen whether the introduction of UWOs will assist in the fight against money laundering or in fact is nothing more than an unwelcome interference by the State to elicit personal financial information from individuals,” says Fieldfisher’s Tony Fisher.