On 3 October 2018, the court handed down its decision in National Crime Agency v. Mrs A  EWHC 2534 (Admin). This is the first challenge to the court's new powers to order a respondent to explain their interests in property. The court upheld a decision it had made on 27 February 2018 to grant the National Crime Agency's ex parte application for a UWO against Mrs Zamira Hajiyeva (Mrs A). Mrs A is the wife of a former Azerbaijani state banker (Mr A) who was convicted of fraud and embezzlement (which he denies) in October 2016 and sentenced to 15 years in jail by a court in Azerbaijan. Mrs A is now required to explain the purchase of a property worth approximately £11.5 million in 2009.
Background to UWOs
UWOs were first introduced in the UK on 31 January 2018 by the Criminal Finances Act 2017, which amended the Proceeds of Crime Act 2002 (POCA). Enforcement authorities (Her Majesty's Revenue and Customs, the Financial Conduct Authority, the National Crime Agency (NCA), the Director of the Serious Fraud Office and the Director of Public Prosecutions) can apply to the court for a UWO.
The court will grant a UWO if it is satisfied that:
- there is reasonable cause to believe that the respondent holds the property and it is worth more than £50,000; and
- there are reasonable grounds for suspecting that the known source of the respondent's lawfully obtained income would have been insufficient for the purposes of enabling the respondent to obtain the property; and
- the respondent is a politically exposed person (PEP) or there are reasonable grounds for suspecting that the respondent, or a person connected to the respondent, is, or has been, involved in a serious crime (whether in the UK or elsewhere).
If a UWO is made, the respondent will be required to:
- provide a statement setting out the nature and extent of their interests in the property; and
- explain how they obtained the property (including how any related costs were met); and
- if required, provide further information in connection with the property.
The powers introduced by this new regime are very broad:
- the enforcement authority can make an application for a UWO without notice to the respondent (as in the case described below);
- there is no requirement that the respondent or the relevant property is situated in the UK;
- the respondent need not be the sole owner of the property;
- the provisions are retrospective – a UWO can be sought in respect of property obtained before 31 January 2018 (when the new rules were introduced);
- a UWO can apply to individuals and/or to any other structure that can hold property, e.g. a trust;
- a UWO can be accompanied by a freezing order preventing the respondent from dealing with the property; and
- if the respondent fails "without reasonable excuse" to comply (or purport to comply) with the requirements of the UWO, the respondent's interest in the property is presumed to be recoverable property for the purpose of civil recovery proceedings.
The court refused Mrs A's application to discharge the UWO made against her in February 2018. Mrs A contended that the UWO should be discharged on eight grounds. These grounds and the court's decision are summarised below.
Ground 1 – that Mr A is/was not a PEP
As set out above, the court must be satisfied that the respondent to an application for a UWO is a PEP or is suspected of being involved in a serious crime. It was common ground that (i) Mrs A was a "family member" of Mr A; (ii) between March 2001 and March 2015, Mr A was the chairman of the board of an Azerbaijani state-owned bank (the Bank); and (iii) Mr A was a member of the administrative and/or management body who was above the level of a middle-ranking official. It was also common ground that, between 2008 and 2013, the Ministry of Finance of Azerbaijan had a shareholding of between 50.2 per cent and 60.6 per cent in the Bank. POCA defines a PEP as "... a natural person who is or has been entrusted with prominent public functions and includes the following: ... (g) members of the administrative, management or supervisory bodies of State-owned enterprises (our emphasis added)".
The court found that the NCA had established that the Bank was a "state-owned enterprise", stating that "at all material times, the Government of Azerbaijan had a majority shareholding in the Bank and had ultimate control of the Bank". Mr A was found to be a PEP, as was Mrs A.
Grounds 2-4 – in relation to the income requirement
As set out above, in order to grant a UWO, the court must be satisfied that there are reasonable grounds for suspecting that the respondent's lawfully obtained income would have been insufficient to enable the respondent to obtain the property. In her evidence, Mrs A gave little detail as to the relevant sources of income that enabled the Property to be purchased. She explained that the purchase of the Property was her "husband's responsibility ... I had no knowledge of any of the payments made to purchase the property, our family home, their source or any other details". She went on to include in her witness statement documentary evidence that Mr A's income was between US$29,062 and US$70,648.70 between 2001 and 2008 and that he received a net dividend of US$88,911 in 2008 from his shareholding in the Bank. Accordingly, the court determined that there was no reason to depart from the original finding that "[a]s a state employee between 1993 and 2015, it is very unlikely that such a position would have generated sufficient income to fund the acquisition of the Property".
It was not in issue that Mr A had been convicted of fraud in Azerbaijan. Mrs A relied on expert evidence and supporting factual evidence that those criminal proceedings were "abusive, conducted without any regard to any defence rights, and ultimately amounted to a show trial". The court was unpersuaded by these arguments, finding that the NCA's investigative powers should not be hampered by issues (such as the fairness of Mr A's trial) that may arise at a later stage. Importantly, the judge found that, independent of Mr A's conviction, there was other corroboration for the allegations made against Mr A that he had misused the Bank funds, including more than £16 million that Mrs A spent in Harrods between September 2006 and September 2016 using credit cards issued by the Bank.
Ground 5 – that a penal notice should not have been attached to the UWO
The court was not prepared to remove the penal notice from the UWO finding that "there is a strong public interest (quite separate from investigating and recovering unlawfully obtained property) in ensuring that orders are not disobeyed at the option of a party".
Ground 6 – that the UWO offends Mrs A's Article 1, Protocol 1 ECHR rights
The court found that any interference with Mrs A's property rights are proportionate and that "Mrs A was being asked to provide information about one residential property in which she has lived for a number of years and in circumstances where she has informed the Home Office that she is the beneficial owner of the BVI company which is the registered proprietor of the property". In the court's view a "fair balance" was struck.
Ground 7 – that the UWO offends the privilege against self-incrimination and spousal privilege
The court did not accept that the UWO offends the privilege against self-incrimination and spousal privilege because, pursuant to section 14(1)(a) of the Civil Evidence Act 1968, those privileges apply only as regards criminal offences in the UK and the court considered that the evidence before it did not disclose a real and appreciable risk that Mrs A or her husband would be prosecuted for offences in the UK. Further, the court found that, in her evidence, Mrs A had not said which answers to which questions might incriminate her.
Ground 8 – given all the circumstances the court ought not to have exercised its discretion to make the UWO
Mrs A contended that, even if the statutory requirements of making a UWO were made out, the court ought to have exercised its discretion and not made a UWO in this case. The court determined that, notwithstanding some of the challenges faced by Mrs A (e.g. that Mr A was in custody abroad), the NCA should not be prevented from carrying out its investigation.
The reasoning by the court in this case is robust. This decision appears to show that the new UWO regime has real teeth in tackling (actual and potential) criminal activity and money laundering with a nexus to the UK. Throughout its reasoning, the court appears to have had close regard to the fact that a UWO is one of the tools available to the enforcement authorities in collecting information and otherwise investigating potential criminal activity connected with the UK and the proceeds of crime.
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