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Unexplained Wealth: A Global Perspective

Event Recap

Watch the event playlist here.

Download the session documents here.

Introduction

The Global South Dialogue on Economic Crime  (GSDEC) held a webinar, themed “Unexplained Wealth: A Global Perspective” on Wednesday, 29th June, 2022 (11.00PM BST). This theme was informed by the dearth in literature, research, and strategy in the context of ‘unexplained wealth’ prior to the tide-turning ruling of the UK Supreme Court (UKSC) in Hajiyeva, where the UKSC issued an unexplained wealth order, giving UK enforcement authorities certain investigative powers over assets suspected to be purchased by proceeds of financial crime.

Panellists and speakers at the webinar were leading experts and scholars on financial crimes from across the globe. The keynote speech at the webinar was delivered by Professor Nicholas Ryder, a Professor of Law at the University of the West of England on the topic “Does the Economic Crime (Transparency and Enforcement) Act 2022 go far enough?”. The speakers examined the regulatory and legal frameworks on unexplained wealth in African and non-African countries and considered practical measures which can be instrumental to stamping down on corruption and tackling the larger issue of financial and economic crime.

Discussions at the webinar took a multi-jurisdictional approach as they centred on problems emerging from the use of UWOs in the property sector; compatibility of illicit enrichment laws with established legal rights; the strengthening of legal architecture for confronting financial crimes; benefits to criminal justice systems from the use of UWOs and other matters as they relate to Unexplained Wealth Orders.

Session One

Professor Nicholas Ryder

The conference was opened by Professor Ryder who delivered the keynote speech. In his speech, Professor Ryder examined the UK’s approach to tackling financial crimes as well as the effectiveness of the Economic Crime (Transparency and Enforcement) Act [“ECA”] 2022. With regards to the UK’s money laundering  and financial crimes regime, he notes that these areas have been significantly strengthened and more robust, as a result of the impacts of legislative reforms since 2007 and more recently with the passage of the ECA 2022 but acknowledged that some issues currently exist with the regime.

According to Professor Ryder, the UK does not have a fraud strategy in comparison with its strategy on counterterrorism which has been hailed by the FATF as the best in the world, and question whether but for Russia’s invasion of Ukraine, the ECA would have been introduced. Nevertheless, while describing the ECA as a welcome addition the UK’s armoury of legislations to tackle illicit financial crime as it creates a register of overseas entities containing information on the ownership of properties in the UK by overseas entities and their beneficiaries; the use of unexplained wealth orders; and the introduction of a sanctions regime, he argued that the ECA 2022 does not go far enough.

According to him, a lot of the enforcement mechanisms to tackle financial crimes prior to the coming into force of ECA exist but called into question the frequency of their use; blaming the infrequent use of these mechanisms on leadership. He argued that having a clear strategy with clear goals and adequate funding are vital for enforcement of these legislations. In his words “the effectiveness of the legislation will depend on what financial support the government will provide”.

This keynote speech laid a solid foundation for the discussions that followed.

Aine Clancy

Following Professor Ryder’s keynote speech, Aine Clancy explored the issue of unexplained wealth orders (UWOs) in the UK, which allows law enforcement authorities in the UK in circumstances where someone holds wealth or assets that is incommensurate with their lawful income, to apply to the High Court to have the owners of those assets explain how they gained ownership of those assets. In the event that they are unable to credible explanations or evidence, the Court could rule that the assets are the proceeds of a crime, thereby paving the way for a civil recovery process.

UWOs as discussed by Clancy, were introduced in the UK at a time where there was a lot of discussion about the proceeds of global political corruption being funnelled into the city of London and use to purchase high value properties. In most cases UWOs are often issued against politically exposed persons where there are reasonable grounds to suspect that their UK assets are proceeds of crime. Thus, UWOs was introduced firstly, to deter the laundering of proceeds of corruption from overseas through the UK property market. Secondly, it was aimed to the extent that that property was recovered half the battle of unexplained wealth orders to repatriate those assets to the countries from which those resources had been stolen or embezzled from. More so, the introduction unexplained wealth orders were really important in terms of making a statement that the UK was against corruption more generally, and that it would not be open to admitting the proceeds of corruption into the UK.

According to Clancy, from a practical perspective, the purpose of unexplained wealth orders was to essentially shift the requirements to explain whether assets were criminally or legally acquired. Thus, UWOs are considered an investigative tool to say the least, reducing the investigative burden of enforcement authorities in trying to prove that a crime was committed overseas.
While UWOs may be an investigative tool, Clancy highlights the reservations held by the Courts with regards to the fact that, asking an individual to explain how they managed to acquire an asset could be no more than a modest intrusion into the individual’s privacy. As such, there is a risk of damaging the reputation of such individuals where it is proved that the assets in question were legally obtained and no action is brought against them by law enforcement.

Furthermore, she points out that PEPs have been broadly defined under the legislation establishing UWOs since it includes persons such as, heads of state, heads of governments, ministers, those on the board of publicly owned company, members of parliament, the judiciary as well as close family members and associates. Finally, Clancy argues that for UWOs to be effective in practice, massive structural change across board, corporate transparency in terms of better regulation, funding, and leadership are needed.

Dr Illara Zavioli

Dr Illara Zavioli examined the use of unexplained wealth orders in the UK real estate or property market. She points out that money laundering in real estate isn’t peculiar to the UK rather, it is a global problem given its lucrative nature. As a result, the real property sector is of particular interest to criminals.

According to Zavioli, recent reports suggests that about £6.7 billion suspected to be proceeds of crime, are laundered through the UK real estate market due to the lack of capacity to curb the inflow of ‘dirty money’ into the sector. This lack of capacity is mainly due to increased resource constraints limiting the ability of law enforcement agencies to tackle the problem. More so, the multifaceted nature of these inflows – from corrupt elites as well as organised crime, service providers such as letting agents and the use of cryptocurrencies creates additional challenges to address the problem, thus, inhibiting the capacity of law enforcement agencies tasked to tackle the problem. She further explains that poor reporting of suspicious activity by real estate agents as compared with those from credit and banking institutions, also adds to the problem of enforcement.

Finally, she argues that when viewed as a tool to change society, UWOs can be effective in tackling money laundering in the UK real estate market as well as economic crimes broadly, including organised crimes.

Andrew Dornbierer

Andrew Dornbierer, from the Basel Institute on Governance examined whether illicit enrichment conflicts with established legal rights. Illicit enrichment laws according to Andrew empowers a Court to impose sanctions against a person when it is satisfied that the person has enjoyed an amount of wealth that isn’t justified by that person’s income. By these laws, the State does not have the need to show proof that there was any underlying criminal activity in connection to that wealth. In other words, there’s no need for a state to actually prove any sort of criminal offence.

In addressing the question whether criminal illicit enrichment laws violate established legal rights, he notes that it is commonly claimed that they do. Mainly as an excuse by legislators, so as not to introduce these laws into their jurisdictions; and even when introduced, they are often challenged in Courts on the grounds of presumption of innocence, principles against self-incrimination, retroactive application, and a host of other basis. However, when challenged on these grounds, the Courts have often found that these illicit enrichment laws are compatible with established legal rights.

Using an example with the principle of the presumption of innocence, Dornbierer points that where illicit enrichment laws are challenged on that ground, a vast majority of Courts have held that these laws are acceptable legal mechanisms. The basis for this viewpoint by the Courts is predicated on the ground that the presumption of innocence principle is not actually absolute in nature, and that it’s actually acceptable to have exceptions in certain special circumstances. Some of these ‘special circumstances’ would include situations where these laws are in the public interest – especially in the context of corruption as these laws would help combat corruption.

Also, the Courts would deviate from the presumption of innocence principle on the basis that the facts required by a person to rebut the presumption in a proceeding of this kind, are facts that are specifically within the knowledge of that person. Finally, the Courts have also sidestepped this principle in other cases on the grounds that illicit enrichment proceedings as a whole still require the state to prove the fundamental facts of an accusation, regardless of whether or not a presumption is made and opposed and a burden is switched on to a person to justify their assets. That is to say that whatever the nature of the allegation, the state is still required to actually prove its case. Therefore, the Courts could apply a combination of these factors to hold against the presumption of innocence principle. Nevertheless, its application differs among jurisdictions.

According to Dornbierer, this is the case where other principles such as the principle of self-incrimination and retroactive application have been used to challenge illicit enrichment laws. The former is yet to see challenges like the latter. There’s also been a lot of challenges made on an illicit enrichment laws in some jurisdictions on the basis that they violate the principle against retroactive application, in cases involving asset acquisitions for instance. In this particular instance, Andrew points out that where a person illicitly enriches themselves before law came into place, by using unjustifiable funds to purchase a house, and still have possession of that house after an illicit enrichment law came into place, in some jurisdictions, it is still possible for the state to find that person guilty of illicit enrichment, even if the initial acquisition happened before prior to the law coming into force. This view is favoured by Bolivia for example, where the Courts have opined that that illicit enrichment should actually be considered as a continuous action that materialises even after the initial acquisition itself. Basically, because by being in possession of the property, the enrichment is still ongoing. Nevertheless, other jurisdictions like Moldova for example apply a different viewpoint where illicit enrichment laws only apply to asset acquisition after the law is in effect.

Dr Rita Julien

To conclude the first session, Dr Rita Julien discussed the role of tax laws and tax authorities in detecting, investigating, and recovering unexplained wealth from an inter-agency perspective. She first examined the role of tax laws in addressing the problem and the recent developments in that regard. According to her, in pursuing unexplained wealth, one of the most critical questions government agencies have to consider is, what are the scope of tax laws? Particularly, what types of income or assets are taxable or reported in a given jurisdiction? This according to Julien is key because not defining the scope of tax laws leaves room for manoeuvring. As a result, sophisticated criminals, or even tax avoiders who are aware of loopholes or gaps in the tax laws, can adapt accordingly by shifting assets to fall into those gaps and if possible, reduce or avoid paying taxes on those assets. Thus, under unexplained wealth loss, it is not hard to imagine a comparable behavioural response by criminals to shift taxable income to non-taxable income.

She points out that where the scope of taxes are not clearly defined criminals may for example offer explanations that exonerate them. For example, where gambling winning are non-taxable or non-reportable, a respondent may claim that his wealth was the proceeds of gambling in a foreign jurisdiction where there might not be any agreement for mutual legal assistance or exchange of information. For instance, countries like Mauritius and Australia where such claims so gambling or gifts from overseas family have been made.

Thus, this is something policymakers would have to proactively think about when enacting tax laws so that the scope is clearly defined to close potential escape routes and ensure that tax laws and unexplained wealth laws mutually reinforce each other. On recent developments, she points out that there have been efforts at the international legal space to develop laws and agreements allowing for example, exchange of information and financial account information, in the last decade. As a result, tax administrations of many jurisdictions now have access to much more information about taxpayers income and assets around the globe. And the relevance of this potentially on unexplained wealth is that many tax authorities may be even more well positioned than before, to compile an even more comprehensive and traceable picture of wealth globally. However, she stresses that this very much depends on continued progress in efforts to develop technical assistance, toolkits, technologies, for countries, not only to best utilise or mined the data received, but also crucially to protect the confidentiality of information exchanged.

On the role of tax authorities, Julien points out that, various government officials and international organisations have emphasised that interagency cooperation as an indispensable factor in successfully targeting financial crimes. This is predicated on the fact that the complex web-like multi-layered global nature of financial crime often calls for coordinated response. Ideally, this would involve various agencies to work together such as the police, the financial intelligence units, the tax administration, and so on.

According to her, by adopting a whole government approach, the tax authorities are rather uniquely positioned to be among the most strategically effective party providers for unexplained wealth orders, considering in particular one the type of information that tax authorities collect and to the type of investigative methods that tax authorities may specialise in. Thus, information on annual or quarterly tax declarations, withholding taxes, record of wages, tips, interest, dividends, pensions, social security benefits, charitable contributions, inheritance tax, gift taxation, consumption tax, customs declarations, excise tax, property tax and business income, for example, maybe obtained by tax authorities. Such information is undeniably useful in piecing together a more complete picture of a person’s wealth.

Second, as regards the investigative methods, the focus of law enforcement after obtaining the information stated above and in particular for unexplained wealth cases, will be on discrepancies between the income and assets of a person, where the assets held incompatible with the income. According to her, this is where tax authorities could really help law enforcement agencies. Other investigative methods like a ‘follow the money’ approach as used in the United States can be particularly useful to investigate unexplained wealth. In this case, some form of joint or cross border training could be of utmost importance to learn the various investigative strategies that exists in different jurisdictions.

Finally, she notes that some key prerequisite will be needed to have an effective investigative approach. Firstly, to design the appropriate legal framework, most jurisdictions will need to balance protecting the confidentiality of taxpayer information with the societal interest to effectively combat financial crime and illicit financial flows. Secondly, designing an effective institutional framework for recovering unexplained wealth or the proceeds of crime more broadly, will be required.

Session Two

To start off the second session, Amina Al Wehaib discussed the effectiveness of laws dealing with corruption and unexplained wealth in the State of Kuwait as well as the legal instruments which can be used to deal with assets obtained from unexplained wealth.

Amina first notes the point that Kuwait’s dependence on oil might be the likely cause of the abuse and misuse of funds in the public sector. More so, given the suggestions by some that there is an imbalance of power in Kuwait where the Royal Family wield a level of control not akin to a democracy. This control she opines causes an unfair system under which public funds may be abused by those in power.

According to Al Wehaib, there are several laws that have been enacted over the years to tackle corruption in Kuwait, covering corruption by public, public officials, politicians and their spouses. Addressing questions of corruption and unexplained wealth in Kuwait, Amina posits that due to the burden of proof in criminal cases, where the prosecution has to prove beyond reasonable doubt, it takes a longer time and often onerous procedure to convict and recover assets. However, it is much easier to recover stolen assets in a civil action due to the low threshold of proof. She further argues that once stolen funds have been transferred abroad, it very difficult or impossible to pursue such cases. Mainly due to the procedures involved and the requirement for cross border cooperation. In such circumstances, she argues that the relevant Kuwaiti law enforcement authorities do not have the powers to take any sort of criminal action against such persons. In view of this she recommends that civil action is the best instrument in such cases, especially where final judgements can be enforced in such foreign jurisdictions.

Strengthening this argument, she states that by initiating civil proceedings, victim States would be able to request compensation for damages occasioned by acts of corruption as well as compensation for cost associated with the resolution of such cases, in addition to recovery of stolen assets. Compensation according to her should also reflect the loss of opportunities and/or proceeds of investment on those assets, interests, and the length of time it took the victim State to recover such assets.

In conclusion, she calls for Kuwait to adopt as mechanism for the confiscation of properties through civil powers instead of criminal ones, which requires a person to state the nature and extent of their interest in property and where they cannot, the property is confiscated. It has been argued that this provides an effective means to address the issue of corruption. In addition, civil actions should enable victims States to initiate actions known as other jurisdictions, such as the Mareva injunction and the Norwich Pharmacal injunctions. This it is submitted will fill the void of the lack of provisions for civil forfeiture and unexplained wealth orders in Kuwait.

Dr Stelios Andreadakis, and Theo Nyreröd, discussed the issue of tax havens and unexplained wealth – focusing on the conduct of business in offshore jurisdictions. At the heart of their discussion, they examined how these jurisdictions operate and whether it is ethical or unethical to use tax havens. According to Dr Stelios, companies operate out of tax havens in other to avoid certain regulations and pay less tax. Beyond that, tax havens provide a working or business environment that are attractive for those who patronise them and not necessarily because it is illegal.

Furthermore, companies and high net worth individuals according to Andreadakis, operate from tax havens because they neither pay capital gains tax or corporate tax nor are they accountable to authorities since they lack physical presence. But the question whether the wealth coming out from these jurisdictions are explained or unexplained, requires careful consideration since it is not a fact that what goes on in these jurisdictions are illegal, despite the fact that some of the countries offering these protections have been blacklisted. Nevertheless, he explains that some countries like the Cayman Islands and Bermuda levy these companies certain amount of taxes for imported goods, and some form of transportation tax. For instance, Cayman Island charges 7 percent for all goods imported by these companies; Bermuda places a 25 percent tax for individuals arriving the country through any means of transportation. Thus, these jurisdictions use indirect ways to raise revenue from corporations, as a result the wealth derived are not really unexplained.

Discussing why tax haven exists and why governments have been largely unsuccessful in either getting rid of them or regulating them, Nyreröd explains that the reason for the public outcry regarding the idea of tax havens is because there is a lot more access to information today as a result of leaks, for example the Panama papers. It is against this backdrop that a lot of people are calling for a change. Moreover, the required change or action on the use of tax havens are meant to come from politicians, but most politicians use tax havens as evidenced by the leaks. of the leaks. So, the secrecy the use of tax havens affords politicians as well as economic viability and beneficial tax structures makes it difficult to get rid of them or make their use illegal. Thus, decision makers are averse to demand for more transparency which is key to why these structures are beneficial. In concluding, Nyreröd states that it will take political change for any sort of action against tax havens to be effected.

Concluding this second session, Dr Andre Cons Matata discussed the problem of unexplained wealth from the perspective of declaration of assets by public office holders. According to him, corruption has been one of the main drivers of unexplained wealth globally, especially in Africa. This corruption is most seen within the public administration sector in Africa, where public officers haemorrhage accounts and finances meant for their citizens and for use in public service.  Hence the need or requirement for the declaration of assets by public officers prior to and post occupation of public office. Notwithstanding, this disclosure is often disregarded, and even when they are complied with, they are assessed by known associates other than by independent third parties, leading to breaches.

To address the problems associated with unexplained wealth through corruption in public offices, he points out that asset recovery is often sought as a medium to recover looted funds. Nevertheless, this has oftentimes proved to be difficult due to several bottlenecks embedded in the process, mainly due to expectations of kickbacks and/or bribes from those meant to oversee the recovery of assets. In other scenarios, there is an issue of selective indication, where a select few corrupt individuals or those suspected to have committed a crime are identified for investigations because other culprits occupy high profile positions in government. This further exacerbate the problem since the government itself is involved in these corrupt schemes. He also cites instances where some corrupt public officers are even rewarded with ambassadorial roles just to shield them from prosecution, and where others are prosecuted, the judiciary is often compromised to enable these individuals walk free.

In concluding, he notes that civil action might be the best way to hold individuals accountable in unexplained wealth cases, citing examples with countries like China and Malaysia where civil claims are often instituted for recovery of assets and funds in unexplained wealth cases, unlike Romania and other jurisdictions where criminal action is preferred.

Session Three

Starting off the third session, Mercy Buku examined the topic ‘following the money and corruption trends in East Africa.’ Citing a report by Transparency International, she states that corruption erodes trust and weakens democracy, hampers economic development, exacerbate inequality, poverty, social division, and environmental crisis. To this end, it is state that in order to expose corruption and hold corrupt individuals to account, we first have to understand how corruption works and the systems that enables it.

She begins by highlighting the fact corruption as defined by legislations in most East African countries covers issues like fraud, fraudulent conduct, abuse of trust and power for private gain, bribery, and embezzlement. According to her corruption is rife both in the public and private sector in East Africa and is often complex as it also involves money laundering, especially through the property market. However, corruption in this region is mainly centred around procurement fraud, which covers broader issues such as election offenses, employment issues (i.e., job placements, promotions and transfers), for instance, in order to avoid compliance with the law.

According to Buku, the lack of political will, knowledge, poor public service, unemployment, competition for services and contracts, makes corruption deeply entrenched in the culture of public service in East African countries. This is also seen in law enforcement agencies, where bribery is rife, making the reporting of corruption untenable. These issues, she argues, is due to the lack of adequate legislative frameworks to combat corruption and other crimes, which has led to the vulnerabilities of law enforcement to corruption, the lack of political will and international cooperation. More so, the absence of a legislative framework also resulted in the lack of prosecution capacity, lack of modern investigative tools, lack of training for law enforcement on unexplained wealth, and unrealistically high standard of proof. Besides these legislative deficiencies, corruption of the judiciary also impacts the fight against corruption negatively.

To solve this problem, she argues that there is a need to be the necessary regulatory regime to make enforcement easier, synergy between law enforcement agencies and prosecutors to ensure effectiveness and efficiency in the conduct of investigations as well as keeping abreast with relevant laws from other jurisdictions to build institutional capacity. In addition, governments should address the lack of capacity, resource and invest in modern investigative tools and have an effective witness protection to aid in the prosecution of corruption cases.

Francis Kofi Koranke-Sakyi discussed the challenges of the legal framework for unexplained wealth in Africa, with a focus on Ghana. They argue that the issue of unexplained wealth in Africa is relatively new from a developing country perspective, it is quite challenging in terms of institutional and legal accountability. With regards to Ghana, they note that there is a myriad of laws in Ghana to tackle financial crimes such as money laundering and proceeds of crime, but the question is whether these laws are adequate and effective enough, and the judicial framework is set up to tackle the problem of unexplained wealth.

According to them, there are requirements under the law for public officers to declare their assets on assumption of power or after leaving public office, but unfortunately there is an abuse of this provision due to lack of public transparency since the public are unaware of such declarations. Thus, this fuels corruption. There also point out the lack of investigative powers by some of the Commissions setup to tackle corruption in public offices. They conclude that despite all these challenges, Ghana can make headway by strengthening the laws on financial crimes by criminalising these crimes

Dr Uchechukwu Nwoke, examined the implementation of unexplained wealth orders in the Nigerian criminal justice system. They explain that unexplained wealth laws are designed to further strengthen the fight against organised crime by enhancing the powers of the State in depriving criminal enterprise of the illicit wealth, particularly those individuals against whom sufficient evidence exists for a criminal conviction. The objective according to them is to deprive criminals from acquiring or benefiting from unlawful activities without the State having to first prove that the property in question is the instrument of proceeds of crime as is the case in assets forfeiture cases.

According to them, despite the efforts of many administrations to fight corruption, Nigeria is consistently ranked among the worst in the global corruption perception index. This is notwithstanding the presence various legislations aimed at tackling financial crimes. The recent passage of the Proceeds of Crime Recovery and Management Act 2022 was regarded as a boon for the fight against unexplained wealth. The Act makes provision for the confiscation, forfeiture, and management of properties derived from unlawful activity. This legislation provides an effective legal and institutional framework for the recovery and management of the proceeds of crime and unclaimed properties reasonably suspected to be proceeds of crime or unlawful activity. It is contended that the Act offers a whole package as it applied to detection, identification, investigation, and recovery of assets.

In conclusion, the emphasize the capacity of the State to recover assets of unlawful activities without the need for a conviction through civil proceedings as well as low standard of proof required in such proceedings – which is on the balance of probabilities. Therefore, with the enactment of the Proceeds of Crime Recovery and Management Act, the Nigerian state is now able to use unexplained wealth orders to recover wealth suspected to be acquired by questionable means, and this will help reduce, if not eliminate criminal activities.

To conclude this session, Dr Benjamin Mukoro discussed the issue of corruption in Nigeria’s public procurement system. According to him, sixty percent of current unexplained wealth emanates from procurement crime and this can be seen from the cost of contract projects in Nigeria, which is about five percent higher than what is obtainable in other West African countries. As a result, there are a lot of Court cases bordering on procurement crimes in Nigeria. More so, proceeds from procurement crimes are largely found in real estate and overseas investments.

However, to tackle procurement crimes in Nigeria, the Public Procurement Act 2007 was enacted into law. The law provides for the establishment of the Bureau of Public Procurement, a regulatory body, to regulate the procurement process in Nigeria in order to prevent procurement crimes. Nevertheless, some structures in law gives room for abuse. According to Dr Benjamin, there are loopholes in the public procurement landscape especially within the executive and legislative arms of government and the various structures within government agencies aimed at providing oversight on procurement activities. Thus, there is some sort of relationship between the executive arm of government and the regulatory agency – the Bureau of Public Procurement, which does not provide evidence of separation of functions.

He also points to the issue of membership overlap between these structures, particularly where members of the executive arm of government are also on the boards of some of the regulatory agencies; while these regulatory agencies are meant to regulate and supervise contracts awarded by ministries, departments and agencies, directly under that executive arm of government. Thus, it raises an issue of independence – the independence of regulatory bodies in the procurement process.

To solve, this problem, he proposes a restructuring within these institutions to create a truly independent regulatory body. He also advocates for the implementation of the different legislations on financial crimes as well as the implementation of unexplained wealth orders. This according to him, will limit or reduce procurement crimes in Nigeria.