UWOs and the Fight Against Corruption
In 2020, the courts in Kenya, after lengthy litigation, upheld an unexplained wealth order (UWO) against former public servant Stanley Mombo Amuti. The courts observed that the “scourge of money laundering, economic crimes and corruption” were threatening the moral and social fabric of Kenya. Amuti had accumulated significant assets, even though he was modestly paid as the former National Water Conservation and Pipeline Corporation Finance Manager. He challenged the order to pay a sum equal to the value of his “unexplained assets.” [i] Amuti’s case opened up anti-corruption possibilities for Kenya, resulting in numerous successful UWO cases. [ii] There are over 100 jurisdictions that use UWOs, frequently in the fight against bribery and corruption. [iii] This post addresses two questions: What are UWOs? and How are they working in practice in Canadian cases before the courts?
UWOs operate, generally, as part of the non-conviction based (NCB) forfeiture process that allows states to seek, in civil court, the forfeiture of property that is the proceeds or instruments of crime including bribery and corruption. A UWO is a court-order to obtain information from a respondent about the provenance of their property. In 2022, following an extraordinary series of hearings, a judicial inquiry into money laundering recommended that the Province of British Columbia enact a UWO process. [iv] Following consultations and study, [v] the government amended their civil forfeiture legislation to include a UWO process. [vi] To obtain an order, the Director (who brings civil forfeiture proceedings on behalf of the government) must prove to the court that they have reasonable grounds to suspect that the respondent is involved in unlawful activity or is a politically exposed person (PEP), the property must be in British Columbia and must be worth more than $75k. The Director must also show to the court that the property is a proceed or instrument or that the known sources of lawfully obtained income would have been insufficient for the respondent to acquire the property. If the grounds are satisfied, the court will require the respondent to explain how they purchased and maintained the property in question. If the respondent does not comply with the order, a rebuttable presumption arises: the property is presumed to be a proceed of unlawful activity for the purposes of forfeiture. The first three Canadian UWO orders are being actively litigated. [vii]
Baker, the United Kingdom, and Discouraging Case Law
Anti-corruption activists in the United Kingdom were hopeful that UWOs might be the solution to all of the corrupt money and kleptocratic wealth washing around London. The Proceeds of Crime Act was amended to enable UWOs [viii] but the courts subsequently dampened hopes. In a case known as Baker [ix] a UWO was sought against the complex property holdings of a wife and a son. Properties were held through various offshore entities, companies in the British Virgin Islands, and Private Interest Foundations in Panama and Curacao. The mother’s ex-husband had died in prison following charges and the mother was the daughter of the former President of Kazakhstan. The court ruled that the National Crime Agency’s (NCA) presentation of a complex and opaque holding structure was not enough to ground a UWO. The court found that the government was unable to displace the wife’s claim that the assets came from a divorce settlement. Wealthy people, the court found, used complex structures for tax and estate planning all the time. To add insult to injury, the court issued a significant cost award against the NCA (the legislation was later amended to reduce potential costs awards). The Baker decision appears to have had a chilling effect on the use of UWOs as an anti-bribery and corruption measure in the UK.
Canada’s Developing Case Law
British Columbia is one of two Canadian civil forfeiture jurisdictions (Manitoba is the other) that use a UWO process. The first two Canadian UWO cases can be traced to a pre-UWO civil forfeiture case in 2020. The U.S. Securities and Exchange Commission (SEC) investigated a $165 million securities fraud known as the Silverton Exchange. The fraudster, Mr. Roger Knox, set up platforms designed to evade securities laws by hiding beneficial ownership positions. Insiders could run “pump and dump” fraud schemes from the shadows. Knox pled guilty and the SEC provided disclosures to Canadian authorities. One disclosure traced funds into luxury properties in Kelowna, owned by a Hong Kong shell company run by a Mexican national with no other connections to British Columbia. The court froze the properties in a civil forfeiture action with some reticence: the money had been carefully laundered and the Director had information gaps. That case later settled with the forfeiture of one of the two properties. [x] In 2023, BC’s British Columbia’s Civil Forfeiture Act was amended to create a UWO process and their first two UWO cases relate to the Silverton Exchange.
In 2015, the SEC brought a complaint against Kevin Miller respecting a Silverton Exchange pump and dump scam involving the securities of the Jammin’s Java Corp. Miller settled with the SEC, paying around US$900,000 as disgorged profit, but he didn’t admit the allegations. Miller, a UK national believed to reside in Malta, wired money in 2016 into the account of his Vancouver lawyer. Canadians love irony: his lawyer was later disbarred for money laundering. A UWO was obtained against the trust account, and Miller is litigating, claiming that his money is legitimate, and, in any event, the SEC settlement absolves him in Canada. [xi]
The second Silverton Exchange case involves a beautiful property on Salt Spring Island. Four wire transfers, purporting to be loans, went to a Vancouver lawyer which enabled the purchase of a $1 million home in 2017. British Columbia alleges the money was the proceeds of a Silverton Exchange securities fraud committed by Skye Lee. He put the house in the name of his (now) ex-wife. She is challenging the order in court, disavowing any knowledge of the fraud, saying the house purchase settled her divorce and claiming it would be unjust to dispossess her and her children of their home. [xii]
The third UWO relates to Quadriga CX, once one of Canada’s largest crypto exchanges which, like FTX in America (Sam Bankman-Fried), turned out to be a massive fraud ($169 million in losses). The founder, Gerald Cotten, allegedly died at the age of 30 in 2018 while vacationing in India. Investigations by a bankruptcy trustee and the Ontario Securities Commission have yielded limited recoveries. [xiii] In British Columbia, a UWO was issued for a safety deposit box holding cash, gold bars, jewels and other valuables (worth about $600,000). The box belongs to Quadriga’s co-founder, Michael Dhanani, last seen in Thailand. Dhanani has changed his name several times since being deported to Canada following his 18-month sentence served in the US for fraud and trafficking in stolen credit cards. Dhanani faded into the background when Quadriga, at its height, contemplated raising funds in the capital markets (the co-founders figured his priors for fraud might be looked down upon by investors). The safety deposit box is frozen and the UWO is being challenged. [xiv]
What’s Next?
The Financial Action Task Force amended their 40 recommendations in November 2023 to push all jurisdictions towards the use of non-conviction based forfeiture to recover tainted assets. [xv] UWOs are a complimentary tool, particularly in the context of bribery or corruption. Stolen assets are often secreted away using professional money laundering techniques. If such a tainted asset found its way into British Columbia, for example, in the right case the Director would have the tools to start an NCB proceeding, seek a UWO, forfeit the asset and return the property to the victimized country. In other words, UWOs are a tool that can help jurisdictions recover stolen assets.
Barrister and Solicitor in Toronto and expert for the Vancouver Anti-Corruption Institute
[ii] See for example: Case study: Upholding an unexplained wealth judgement in Kenya’s Anglo Leasing affair: https://baselgovernance.org/news/case-study-upholding-unexplained-wealth-judgement-kenyas-anglo-leasing-affair
[iii] Dornbierer, A Illicit Enrichment: A Guide to Laws Targeting Unexplained Wealth (2021) https://baselgovernance.org/publications/illicit-enrichment-guide-laws-targeting-unexplained-wealth
[v] Dornbierer, A; Simser, J Working Paper 41: Targeting unexplained wealth in British Columbia (2022) https://baselgovernance.org/publications/wp-41
[vi] Division 1.2 of the Civil Forfeiture Act, SBC 2005, c 29
[vii] Simser, J Civil Asset Forfeiture in Canada (Canada Law Book) 2011-2024 §4:30.30
[viii] Proceeds of Crime Act, 2002, s. 362A
[ix] National Crime Agency v. Baker [2020] EWHC 822 leave to appeal denied.
[x] British Columbia (Director Civil Forfeiture) v. Cuatro Cienagas Inversiones Ltd. 2020 BCSC 2177
[xi] Director of Civil Forfeiture v. The Miller Funds (2023) BCSC File No. S238940
[xii] Director of Civil Forfeiture v. 435 Stewart Road, Salt Spring Island (2023) BCSC File No. S235937
[xiv] Director of Civil Forfeiture v. $250,200 and other property (2024) BCSC File No. S-S-234364
very thoughtful piece, Jeffrey - thanks