Successes, Setbacks In UK's Battle Vs Dirty Money

Tom Burroughes Group Editor London 11 June 2020

Successes, Setbacks In UK's Battle Vs Dirty Money

This publication continues to examine new UK powers to investigate and, if need be, seize assets obtained by questionable means. The instruments have been controversial and raise questions about how the UK balances its appeal as a financial hub with a need to fight illicit money.

Whenever the UK fully emerges from the lockdowns the government will no doubt be eager to encourage overseas capital into the country. But it is also certain that HM Revenue & Customs will be as fierce as ever in trying to replenish empty coffers by targeting questionable money. 

And that brings in the world of Unexplained Wealth Orders, a new set of powers which became law in 2018. UWOs - the system is explained here - have had successes and defeats. Separately, Account Freezing Orders (AFOs), which haven’t received so much media attention thus far, are nevertheless also important powers. (See a recent commentary here.)

According to one measure, as much as £5.0 billion ($6.38 billion) of assets in the UK have been bought with dodgy money.

The UK will want to encourage foreign investors to pump money into the economy, and be welcoming to international capital, but it will need to balance a friendly stance with not being seen as a soft touch for dirty money, lawyers and anti-corruption campaigners say. If the UK - now on the way out of the European Union - thinks of becoming “Singapore on the Thames" - this is a delicate position to hold. 

“The UK, and London in particular, has been for many years a major global centre for individuals outside the UK to deposit cash, which in some cases may not have derived from legitimate sources,” Nick Cherryman, a barrister at Kobre & Kim, the law firm, told this publication. “As a result, the UK is a massive depository of wealth created from outside of these shores.”

There are certain issues and tensions in how such orders are used, he said, given how invasive they are, with the ultimate potential consequence of property being seized. Cherryman said that there is a clear tension between the public interest in identifying and stopping fraud, and the rights enshrined in Article 8 of the Human Rights Act (1998) which is clearly engaged here and which protects the right to respect privacy, family life, confidentiality and data protection. 

When a UWO is made, the respondent has to comply with it, unless it is discharged.

“They are an information-gathering tool,” Ben Cowdock, investigations lead at the anti-corruption tracking organisation, Transparency International UK, said. “Assets targeted by UWOs have so far been frozen but we are yet to see confiscations linked to these powers; that will be the true test of how effective they are at denying criminals their illicit wealth.”

According to their framers, these orders came into force from 2017 legislation because the UK had become a destination for illicit funds from around the world, such as the former Soviet Union, China and the Middle East. Even before the new orders came in, the UK had been cracking the whip. For instance, it made tax evasion a strict liability offence, tightened rules on non-domiciled residents in the UK, and sought to go after “abusive” forms of tax avoidance. A reason for all this activity is that the UK, like many other major developed nations, is short of money. It will be keen to fill public coffers after the pandemic. 

You win some, you lose some
The National Crime Agency, the UK body that uses these orders, has had a mixed record with them. 

Zamira Hajiyeva, infamous as the the woman who spent £16 million at Harrods, was the first subject of a UWO. This order was challenged but ultimately upheld by the High Court. The NCA later targeted Kazakh Nurali Aliyev and his mother Dariga Nazarbayeva, who were wealthy political individuals based in Kazakhstan. The NCA lost its case but valuable lessons were learned for the future, when, on 8 April this year, the High Court handed down a damming judgment stating that the NCA had proceeded on "unreliable evidence".

The civil and criminal authorities must not take the easy option of using UWOs because it is more convenient than making other checks about wealth first, lawyers said. It is clear, according to the statement in the 8 April case, that the judge was not happy.

“The NCA will probably be more cautious is seeking these orders, and the courts are going to be very careful granting these orders in the future, which are made ex parte, in light of Mrs Justice Lang’s comments in the recent case of NCA v Baker from April this year,” Kobre & Kim’s Cherryman said. “The courts will scrutinise carefully the information put in front of it by the NCA to determine if the statutory grounds exist for the granting of an order. For example, the use of offshore holding structures and alleged corporate opacity is not enough to secure an order, and it is relevant for the NCA to explain what other steps have been taken to check the origins of wealth.”

Cherryman continued: “A key issue is the quality of the information that is already available or is provided to the NCA. In the case of NCA v Baker, the family in question did give a full explanation about the sources of wealth, which had no connection with the father said to have been involved in unlawful dealings. The three UWOs were discharged.”

“The fact that the [NCA] got a bloody nose recently does not mean they [UWOs] are going away,” Cherryman continued. 

UWOs and asset freezing orders are not just being aimed at the ultra-rich. Neil Swift, a partner in the business crime team at law firm Peters & Peters, pointed to cases of Chinese-born individuals living in the UK who have used a long-standing money transfer protocol, similar to the Hawala system in the Muslim world. (The Chinese system is about buying on behalf of someone. It is used by Chinese residents to ask people in Europe to buy usually designer goods and ship them to China.) 

UK authorities have sought dozens of freezing orders, sweeping innocent people in their hunt for alleged criminals, and this use of the powers is controversial and could backfire, Swift said. “It is a vehicle of disruption,” he said of the powers. “It is about trying to put off people from using it.”

"In the fraught geopolitical atmosphere [between the West and Beijing], where Chinese people might feel under pressure, this is an issue that needs to be watched," Swift said.

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