New regulations requiring individuals to explain how they obtained property or assets have come into force, but concerns have been raised about the scope and definition of the powers.
An unexplained wealth order (UWO) allows agencies such as HMRC to investigate the source of funds used to acquire an asset where its owner does not appear to have sufficient income to have made the purchase.
Drawn up in part to combat foreign oligarchs suspected of corruption, UK agencies including HMRC will be able to apply to freeze and forfeit funds in bank accounts of individuals suspected of being involved in serious crime.
The powers are contained in the Criminal Finances Act 2017 and can be used by HMRC as well as the Serious Fraud Office, the National Crime Agency and other designated agencies.
To obtain a UWO, HMRC must apply to the High Court and show “reasonable cause” that the suspected person holds property or assets worth more than £50,000, and there are “reasonable grounds” for suspecting that the individual’s known income would not explain the ownership of the property.
While the £50,000 asset value seems relatively small, according to Jason Collins, head of tax, litigation and regulatory at law firm Pinsent Masons, the low bar may be to ensure that the agency isn’t handicapped in the way they run their investigations.
“If they have only one investigative link, a small lead on one particular asset where they suspect there are more assets in play but can’t yet prove it, they don’t want their investigations to be hampered,” Collins told AccountingWEB.
To issue a UWO the judge must then be satisfied that the individual is ‘politically exposed’, or there are reasonable grounds for suspecting that they (or a person connected with them) have been involved in serious crime, including tax evasion.
Those familiar with the recent anti-money laundering (AML) regulations will be familiar with the term ‘politically exposed’, but as with the AML rules concerns remain about the vagueness of the term, along with how connected a suspect needs to be with an individual involved in serious crime.
“As always with these things, it’s very broad,” said Collins. “If it’s anything like obtaining a warrant for a raid it should be fairly straightforward for HMRC to persuade a court to make an order.
“Such applications are ex parte, so are entirely in the hands of the agency officer and the judge. There is a duty on the officer to bring doubts in the evidential case to the attention of the court, and the court should challenge them fairly hard, but the system doesn’t always work perfectly as can be seen in the recent Newcastle United raids.”
According to Pinsent Masons, an individual who receives an unexplained wealth order must explain the source of the asset within the time period set by the court. If they are unable or refuse to do so, the property is presumed to be recoverable property through the civil recovery regime under the Proceeds of Crime Act.
From 16 April 2018, the regulations also increase HMRC’s powers around the search, seizure and detention of cash. The definition of ‘cash’ will be expanded to include gaming vouchers, fixed-value casino tokens and betting receipts.
Another new power involves the issue of ‘administrative forfeiture notices’ to forfeit cash, including money in bank and building society accounts, without a court order.
HMRC officers and other 'relevant officers' will also be granted powers to seize specified items of valuable property, such as precious metals and stones, watches, works of art, face-value vouchers and postage stamps.
Potential domestic application?
Another unanticipated aspect of the powers may be their application to more domestic inquiries.
“These UWOs are supposed to cove McMafia situations featuring foreign criminals,” said Collins, “but the worry is that HMRC may start to use them to support everyday tax investigations on business people who haven’t declared their proper income.
“If HMRC is profiling a business and think the takings have been suppressed they may just slap you with one of those orders. If you can’t explain the Ferrari in the front drive with disclosed profits for the business they may come after you for tax evasion.”