The UK has upheld the use of a recently introduced power to crack down on forms of wealth deemed to be suspicious.
(An earlier version of this news item appeared in Compliance Matters, a sister news service to this one, and is written by Chris Hamblin, CM editor.)
The UK's National Crime Agency has been able to obtain unexplained wealth orders from the courts in accordance with the Criminal Finances Act 2017 since the end of January. The first one to be issued under s362A(1) has been upheld in the High Court. (To see an article explaining how these powers work, including potential problems, see here.)
A UWO requires the person it mentions to explain his or her wealth. In this case, Mrs Zamira Hajiyeva, 55, the wife of a jailed banker and the owner of Mill Ride Golf Club in Ascot, went to the High Court to keep her identity a secret and failed.
A UWO obliges the respondent to provide a statement: (a) setting out the nature and extent of his interest in the property in question; (b) explaining how he obtained it; (c) if it is held by the trustees of a settlement, setting out such details of the settlement as the order may specify; and (d) setting out other information about it, if asked. If the respondent fails "without reasonable excuse" to comply with the UWO on time, the property is presumed to be recoverable. In England and Wales, only the National Crime Agency, HM Revenue & Customs, the Financial Conduct Authority, the Serious Fraud Office and the Crown Prosecution Service can ask a court to issue such an order.
The property in question was purchased in 2009 by (and still belongs to) Vicksburg Global Inc, a company incorporated in the British Virgin Islands, for £11.5 million ($14.8 million). In 2015 Mrs Hajiyeva informed the Home Office in her application for "indefinite leave to remain" that she was the beneficial owner of Vicksburg Global, which the BVI police later confirmed.
My husband, the oligarch
Mr Hajiyev, 57, the wealthy lady's husband, was the chairman of the International Bank of Azerbaijan (on a salary of £54,000) between 2001 and the time he resigned his post in March 2015, claiming to be in bad health. In December of that year he was arrested in his country and subsequently charged with various offences including misappropriation, abuse of office, large-scale fraud and embezzlement in connection with the bank. He was sentenced to 15 years' imprisonment in 2016 and ordered to pay the Bank a sum of approximately US$39 million.
When obtaining the order, the NCA convinced the courts in February that Hajiyev (and, by extension, his wife) was a politically exposed person or PEP. Article 3(9) of the European Union's fourth Money Laundering Directive, to which the UK is subject, says that PEPs are, among other things, members of the administrative, management or supervisory bodies of state-owned enterprises. The bank is owned mainly by the Government of Azerbaijan.
Arguments against the UWO
Mrs Hajiyeva contended that the UWO should be discharged on eight grounds: that her husband was not a PEP; that the NCA had seriously mischaracterised his role when persuading the court that the "income requirement" was met (section 362B(3) requires the court to be satisfied that there are reasonable grounds for suspecting that the known sources of the respondent's lawfully obtained income would have been insufficient for the purpose of enabling the respondent to obtain the property); that the NCA was wrong to place reliance on his conviction in support of the statutory "income requirement" test; that the NCA had not established the "income requirement" to the relevant standard; that the UWO ought to be discharged by virtue of the penal warning (wrongly) attached to it; that the UWO offended her rights according to article 1, protocol 1 of the European Convention of Human Rights; that the UWO offended the privilege against self-incrimination and spousal privilege; and that, given all the circumstances of the case, the court ought not to have exercised its discretion to make the order. Mr Justice Supperstone rejected all arguments.
The judge was satisfied that the bank was a "state-owned enterprise" even though the Azerbaijani state was gradually cutting down its shareholding of it. At all material times the Government of Azerbaijan had a majority shareholding in the bank and therefore had ultimate control of it. The judge therefore had no need to determine whether the bank would have been a "state-owned enterprise" if the Government had only owned a minority of shares.
Fun at Harrod's, determination at the NCA
The anonymity order which shielded Mrs Hajiyeva's identity from public view has lapsed. The NCA also suspects that suspect cash funded the £10.5-million purchase of Mill Ride through a company based in Guernsey. Judge Supperstone said that Mrs Hajiyeva's spending habits provided some corroboration for the allegations made against her husband relating to the misuse of bank funds, pointing to £16.3 million that she spent between September 2006 and June 2016 at Harrods alone, with the use of her customer loyalty reward cards.
The NCA believes that it has identified £4.4 billions' worth of suspicious wealth in the UK, which it now wants to target more rigorously with UWOs after this vital baptism of fire. Donald Toon, its director of economic crime, wants especially to target the problem of money-laundering through prime real estate in London and reduce the appeal of the UK as a destination for illicit income.
A victim's first port of call
Alan Sheeley, a partner at the City law firm of Pinsent Masons who has written articles for Compliance Matters, has warned: "It is important to realise that although UWOs are a civil remedy, only law enforcement agencies can apply for these orders. With continuing government cutbacks, only time will tell whether these orders will become a common tool in the fight against fraudsters more generally.
"At present, the proceeds of any unexplained wealth will be confiscated under the Proceeds of Crime Act. What is not clear, however, is how hard law enforcement agencies will fight to determine where the stolen money has come from in the first place or whether they will fight to return the proceeds to the true victims of the crime. With the Serious Fraud Office not seeking a single compensation order last year, down from ten in 2016-17, the NCA will have to strive to demonstrate to the world that it is fighting crime and returning the money to the victims.
"Furthermore, this remedy is an 'after the horse has bolted' remedy – therefore, there is a fear that law enforcement agencies may reduce the speed of response once a fraud has been reported in respect of restraining or freezing the direct proceeds of a fraud, thinking they can use this type of order to repatriate the assets back after the conviction. Despite the UWO, it is still critically important to move as quickly as possible to freeze assets. Therefore, the self-help remedies available to victims of fraud, such as freezing orders, search and seize orders and disclosure orders, that do not require law enforcement intervention and can be obtained immediately by the victim of a fraud, should still be a victim's first port of call if they want to maximise their chances of recovering the stolen money."