News

Unexplained Wealth Orders by Samreen Akhtar

Tue 14th Apr 2020

Background

On 08 April 2020, Nurali Aliyev and his mother, Dariga Nazarbayeva, won a High Court challenge against Unexplained Wealth Orders (“UWOs”) that were obtained by the National Crime Agency (“NCA”). The UWOs centred on three properties based in London and valued in excess of £80m. Dr Nazarbayeva is a politician in Kazakhstan and the daughter of the former Kazakh president Nursultan Nazarbayev. The NCA, who suspected that the properties had been purchased using money embezzled by Mr Aliyev’s deceased father, have indicated that they will be appealing the High Court decision.

The first case concerning UWOs came to light when the NCA successfully secured an UWO against Zamira Hajiyeva, the wife of Jahangir Hajiyev, who was the former chairman of a state-owned bank in Azerbaijan. Mr Hajiyev was imprisoned on fraud charges in his native Azerbaijan. Mrs Hajiyeva appealed the High Court’s 2018 decision to the Court of Appeal. This appeal, which sought to discharge an UWO concentrated on properties in London valued at £22m, was dismissed on 05 February 2020 (see: Hajiyeva v National Crime Agency [2020] EWCA Civ 108).

What are UWOs?

UWOs were introduced in January 2018, when the Criminal Finances Act 2017 (“CFA”) came into force. Section 1 of the CFA amended the Proceeds of Crime Act 2002 (“POCA”) which deals with confiscation orders, cash forfeiture orders and civil recovery orders.

UWOs have been introduced by the government in an attempt to combat money laundering within the UK. In particular, the property market in London has been targeted by those seeking to “clean” large sums of money acquired illegally.

An individual made subject to an UWO requires them to explain how an asset was acquired. If the individual concerned provides an unsatisfactory explanation or that the evidence provided by them is inadequate, the asset will be considered “recoverable property” for the purposes of a civil recovery order under the POCA.

An UWO can be sought prior to any legal proceedings (civil or criminal). Interestingly, the individual made subject to an UWO does not need to have been convicted of an offence or had a judgment made against them in civil proceedings. Furthermore, evidence obtained under an UWO cannot normally be used against the individual who provided it in any subsequent criminal proceedings.

Who uses UWOs?

Whilst the NCA applied for the UWOs in Mrs Hajiyev, Dr Nazarbayeva and Mr Aliyev’s cases, they are also available to the following agencies:

  • Serious Fraud Office (“SFO”)
  • HM Revenue and Customs (“HMRC”)
  • Crown Prosecution Service (“CPS”), and;
  • Financial Conduct Authority (“FCA”)

How do UWOs work?

Under s.362B(2)(b) of the CFA, an application for an UWO can be made in the High Court for assets valued at more than £50,000. The above investigative authorities can make an application if there are “reasonable grounds for suspecting that the known sources of the respondent’s lawfully obtained income would have been insufficient for the purposes of enabling the respondent to obtain the property”(s.362B(3)).

In applying for UWOs, an investigative authority may rely upon evidence that meets the civil standard of proof, i.e. on the balance of probabilities.

Section 362I(1) of the CFA enables investigative authorities to apply for UWOs without notice. Essentially, this allows UWOs to be made without the individuals affected by it being notified.

Additionally, s.362B(4) requires a High Court judge to consider whether the individual being made subject to an UWO is either:

  • a politically exposed person (“PEP”), or;
  • someone who is, or has been, involved in serious crime (whether in a part of the United Kingdom or elsewhere), or;
  • a person connected with the respondent is, or has been, so involved.

Who is a PEP?

Section 362B(7) defines a PEP as “an individual who is, or has been, entrusted with prominent public functions by an international organisation or by a State other than the United Kingdom or another EEA State”. This definition is widened to the relatives or close associates of the PEP.

Can UWOs apply to companies?

A company can be made subject to an UWO if it is connected to anyone specified under s.362B(4) of the CFA. It is immaterial where the company is registered.

Does the property subject to an UWO have to be UK based?

Property outside of the UK can be made subject to an UWO as long as the individual concerned has “effective control” of the same (s.362H(2)(a) of the CFA).

What must an individual subject to an UWO do?

Once an UWO is granted, the individual subject to an UWO is given a “response period”. This is determined by the court. The individual subject to the UWO must provide a statement explaining how they legitimately acquired the assets.

Where a response isn’t provided or an unsatisfactory explanation is received, s.362C(2) of the CFA gives rise to a presumption that the property is recoverable under any subsequent civil proceedings. In particular, civil recovery proceedings can then be commenced under Part 5 of POCA.

Compliance with requirements imposed by UWOs

Under s.362E of the CFA, an individual who provides false or misleading statements can, on conviction, face up to two years’ imprisonment, a fine or both.

Freezing orders and UWOs

Where the High Court makes an UWO, it may at the same time make an interim freezing order (s.362J of the CFA). Furthermore, s.362N of the CFA enables the appointment of a receiver.

Freezing orders may be made “if the court considers it necessary to do so for the purposes of avoiding the risk of any recovery order that might subsequently be obtained being frustrated” (s.362J(2) of the CFA)).

Conclusion

When considering civil recovery orders, UWOs might not be regarded as revolutionary.

Whilst it is of concern that a civil order, in effect, reverses the onus of proof onto a “suspect”, Donald Toon, the Director for Economic Crime at the NCA, comments: “Unexplained wealth orders have the potential to significantly reduce the appeal of the UK as a destination for illicit income. They enable the UK to more effectively target the problem of money laundering through prime real estate in London and elsewhere. We are determined to use all of the powers available to us to combat the flow of illicit monies into, or through, the UK.”

Despite the lengthy, costly and often complicated nature of UWOs, it is apparent from cases such as Mr Aliyev’s and Dr Nazarbayeva’s that the NCA will not be deterred from using them.

Samreen Akhtar

 

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