The UK National Crime Agency ("NCA") has successfully resisted a challenge to the issue of its first Unexplained Wealth Orders ("UWOs"). The victory comes shortly after the agency announced its intention to expand the use of its powers, although it has some way to go to show that UWOs will be a meaningful tool in the UK's anti-money laundering arsenal.
What are UWOs?
UWOs are court orders that require individuals to account for wealth and assets that appear not to be commensurate with their declared income. They require specified persons to explain what interest they hold in specified property and how they came to obtain it.1 Parliament introduced UWOs with the aim of reducing the appeal of the UK, particularly prime real estate, as a destination for ill-gotten gains.
The power to impose a UWO was inserted into Chapter 2 of Part 8 of the Proceeds of Crime Act 2002 by section 1 of the Criminal Finances Act 2017, which came into force on 31 January 2018.
Before it will issue a UWO, the court must be satisfied that there is reasonable cause to believe:
1. That the person has control over property worth over £50,000; and
2. That the known sources of the person's lawfully obtained income would have been insufficient to obtain the property.2
The court must also be satisfied that the specified person is either politically exposed or has been or continues to be involved in serious crime anywhere in the world.3 This condition may also be satisfied where the specified person is connected to someone who is or has been involved in serious crime.4
If the respondent fails to explain how they obtained the property, it will be deemed 'recoverable' property under Part 5 of the Proceeds of Crime Act 2002.5 It is then for the respondent to prove that the property is not recoverable.
These provisions are weighted heavily in favour of the investigating authority. The requirement that the authority demonstrate only 'a reasonable cause to believe' is a low bar, meaning the burden of proof is easily shifted to the respondent. However, the respondent's only obligation at this stage is 'purported compliance', following which the authority must determine whether to instigate civil proceedings against the respondent. The process to this point may be of limited benefit to the authority in that it will thereafter possess only the information received in purported compliance with the order, which in many cases will be a relatively minor advantage.
A Test Case
On 28 February 2018, the NCA secured the first UWOs under this scheme. The orders were issued against Jahangir Hajiyev, an Azerbaijani banker, and his wife Zamira Hajiyeva. The orders relate to two properties. One is a residential property in Knightsbridge, London, which was purchased in 2009 for £11.5 million by a British Virgin Islands registered company. The other is Mill Ride Golf Club in Ascot, Berkshire, which was bought by a Guernsey-based finance company in 2013. The combined value of the properties is around £22 million. In conjunction with these orders, the High Court issued interim freezing orders, preventing the properties from being sold, transferred or dissipated.6
In July 2018, the case came back before the High Court as Mrs Hajiyeva sought to demonstrate that the properties, and the wealth used to obtain them, are in proportion to Mr Hajiyev's earnings. Mr Hajiyev was a state employee in Azerbaijan from 1993 to 2015, rising to become the chairman of the International Bank of Azerbaijan. In 2008, his official salary was £54,000. Mr Hajiyev, who was described in court by his own counsel as a 'fat-cat international banker', is serving a 15-year sentence in Azerbaijan following a conviction for the embezzlement of over £100 million from his employers. This provided the court with reasonable grounds to suspect he had been involved in serious crime. The NCA is also treating the couple as politically exposed persons.
The High Court heard that Mr Hajiyev's application for a UK investment visa 10 years ago showed he had access to assets of over £55 million and that his wife had spent £16 million at Harrods in the intervening decade.
Lawyers for Mrs Hajiyeva said there was no evidence that the couple's wealth came from anywhere other than Mr Hajiyev' s employment and legitimate business background and that his imprisonment prevented him from being able to communicate the precise source of his wealth to the outside world. They argued further that his conviction in Azerbaijan was the result of a 'show trial'.
On 3 October 2018, the High Court dismissed Mrs Hajiyeva's challenge, meaning she will now be compelled to reveal the source of the wealth or risk losing the two properties. On 10 October 2018, the High Court lifted the anonymity orders that had concealed the couple's identities.
The NCA's victory is not as significant as it may appear. The ruling against Mrs Hajiyeva, who is set to appeal to the Court of Appeal, does not yet give the authorities the right to recover any property; it merely confers upon Mrs Hajiyeva an obligation to prove the source of her and her husband's wealth and thereafter to demonstrate that the property is not recoverable.
NCA to Expand Use of UWOs
In mid-September 2018, Donald Toon, Director of the NCA's economic crime unit announced that the agency was preparing to expand its use of UWOs.7 Toon noted that the NCA was targeting high-value Russian assets in the UK, as well as sources of wealth from Africa, Asia and the former Soviet republics.
There is clear political will behind this intention to clean up 'dirty money' in the UK, not least in the aftermath of the Salisbury Novichok poisonings in March 2018, following which members of the UK House of Commons called for the increased use of UWOs against Russian oligarchs.8 At the UN General Assembly in late September, Prime Minster Theresa May expressed her support for plans to expand the use of UWOs, praising the NCA for "taking strong action against any illicit financial activity they see".9
A Little Less Conversation, A Little More Action Please
The NCA has had the power to impose UWOs for over nine months. In that time, the agency has issued only three orders, all related to the same couple. The NCA has repeated its warnings, with prime ministerial support, that it will step up its crackdown on the estimated £90 billion of 'dirty money' that has flowed through London. If the NCA is to demonstrate that this is more than mere rhetoric, it will need to improve significantly upon enforcement figures to date.
The NCA has set itself a target of achieving double figures in UWOs imposed by this time next year. The agency's success in resisting the challenge brought by Mrs Hajiyeva could give the it the impetus required to achieve this aim, although it seems a low bar to have set when multiple orders can be issued against the same respondents.
Footnotes
1 Proceeds of Crime Act 2002, section 362A(3).
2 Proceeds of Crime Act 2002, section 362B(2)-(3).
3 Politically exposed people are those "entrusted with prominent public functions by an international organisation or by a State other than the United Kingdom or another EEA State" or their family or close associates (Proceeds of Crime Act 2002, section 362B(7). The definition only covers people outside the EEA because EU law prohibits discrimination of the application of laws as between UK and EEA citizens.
4 Proceeds of Crime Act 2002, section 362B(4).
5 Proceeds of Crime Act 2002, section 362C.
6 Orders granted pursuant to Proceeds of Crime Act 2002, section 362J.
7 www.ft.com/content/98ddb2a0-b767-11e8-b3ef-799c8613f4a1
9 www.ft.com/content/08af0644-c0da-11e8-95b1-d36dfef1b89a
This article first appeared on Law360 on October 15, 2018.
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