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29 May 2019

Article by: Akhtar Ahmad and Rohit Sharma.

The UK has taken a further step in its fight against alleged foreign criminals and Organised Crime Groups (OCG’s) who utilise the banking industry and property market to launder the proceeds of crime.

The High Court Judgement in the case of Mrs A and her £11.5m London property and £16m spending trips to Harrods, brings into sharp focus the challenges faced by those who are made subject to an Unexplained Wealth Order and the way in which the court approaches these matters.

In a 2016 report conducted by Transparency International UK research showed that;

1. £4.4bn worth of UK property is believed to have been bought using suspicious wealth.
2. 44,022 London land titles are owned by overseas companies;
3. 91% of which do so through secrecy jurisdictions/tax havens such as the British Virgin Islands, Caymans and Panama;
4. Over 75% of land titles identified as linked to ‘Politically Exposed Persons’ (PEPs) are owned by companies based in the tax haven islands;
5. Ownership information could only be found in about 50% of cases where a property was owned by a foreign company, and
6. 986 land titles were found to have links to PEPs.

What are Unexplained Wealth Orders (UWO’s)

Described as a “new investigative tool” designed to give law enforcement agencies new capabilities and powers to recover the proceeds of crime, UWO’s can be obtained by an enforcement authority, without notice, through the High Court in respect of any property valued over £50k for which there are reasonable grounds for suspecting that the known sources of the owners (Respondent) lawfully obtained income would have been insufficient to obtain the property.

The High Court must be satisfied that –
(a) the respondent is a politically exposed person or
(b) there are reasonable grounds for suspecting that –
(i) the respondent is or has been involved in serious crime in the UK or elsewhere or
(ii) a person connected with the respondent is or has been so involved.

Once the Order is made, the Respondent will be required to provide a statement setting out their interest in the property and how they were able to legitimately obtain that interest. They may also be required to furnish specific documents to establish the same.

Failure to comply with the Order within the time specified by the Order “without reasonable excuse”, may result in a presumption that it is property obtained through unlawful conduct and therefore recoverable through Civil Recovery Proceedings pursuant to Part 5 of the Proceeds of Crime Act 2002.

So how effective will Unexplained Wealth Orders (UWO) be?

The first court ruling publicised extensively by the UK media provides a valuable insight as to how the UK will approach Unexplained Wealth Orders. In National Crime Agency v Mrs A [2018] EWHC 2534 (Admin) the High Court made an Unexplained Wealth Order (UWO) against Mrs. A.

Mrs A was the wife of jailed Azerbaijani state banker. In 2016 her husband Mr A was imprisoned in Azerbaijan for 15 years after being convicted for his alleged role in fraud and embezzlement that saw tens of millions of pounds disappear from the Bank where he was the Chairman. Judge’s also ordered him to repay $39m.

Seven years earlier, a company based in the British Virgin Islands paid £11.5m for a London property. The beneficial owner of the company was, according to the National Crime Agency (NCA), Mr A the husband, although in an application for indefinite leave to remain in the UK, Mrs A claimed she was the beneficial owner.

On 27 February 2018 the High Court made an Unexplained Wealth Order against Mrs A in respect of the 1 property purchased for £11,500,000 in London.

Mrs A raised 8 grounds in her Application to Discharge the UWO including but not limited to the following;
• Her husband Mr A was not a “politically exposed person (PEP)
• Reliance should not have been placed on Mr A’s conviction in Azerbaijan.
• The NCA has not established the “income requirement” to the relevant standard
• The order offended against Mrs A’s Privilege Against Self Incrimination and Spousal Privilege

Politically Exposed Person (PEP)

It was argued that Mrs A was not a PEP on two grounds. Firstly, that during her husband’s tenure as Chairman of the bank it was not a “State Owned Enterprise” (SOE) within the meaning of Article 3(9) of the 2015 Directive which defines a PEP. Secondly it was argued that her husband was not entrusted with prominent public functions “by an international organisation or by a State” as is required under s.362B(7)(a) of POCA 2002.

In respect of the first argument Mr Justice Supperstone rejected the submission suggesting that the test for determining whether an enterprise is a SOE is one of ownership and control, not legal status or powers. At all material times the Government had a majority shareholding in the Bank and had ultimate control of it.

Mr Justice Supperstone rejected the second argument that members of the administrative, management or supervisory bodies of SOE’s (who fall within the definition in Article 3(9)(g) of the 2015 Directive) have been entrusted with prominent public functions in the same way that heads of State and heads of government are. He therefore concluded that Mr A was a PEP and therefore Mrs A was herself a PEP.

Reliance on Conviction or Judgement obtained following “Flagrant denial of Justice”

Despite significant evidence suggesting that Mr A may not have had a fair trial according to the standards that we would accept in the UK, the High Court took into account Mr A’s convictions in Azerbaijan. His lawyers had given evidence that they were unable to cross-examine a number of witnesses or submit written evidence on his behalf. They described themselves as being the fifth wheel on a car during the proceedings. Mr A subsequently went on hunger strike due to the injustice he felt had been meted out to him. The suggestion was clear, Mr A did not have a fair Trial in Azerbaijan and therefore the conviction should not be taken into account.

The Judgement considered the proposition that there is no exclusionary rule which prevents a court from relying on the fact of a conviction even if obtained flagrantly unfairly or in breach of Article 6 rights to a fair trial. It was pointed out that this was not a case where the conviction resulted from a confession or torture.

Whilst acknowledging that there was evidence from experts to suggest that there were deficiencies in the criminal justice system in which Mr A was convicted, Mr Justice Supperstone concluded that at this investigative stage he did not accept the evidence that there had been a flagrant denial of Mr A’s Article 6 rights to a fair trial, such as would require him or the NCA to ignore the conviction.

The Income Requirement

Mr A claimed that any money withdrawn from the bank was for legitimate projects. It was argued that having been involved in finance all his working life, and having been the Chairman of a major international bank for 14 years, Mr A would have had sufficient lawful sources of income available to him to put down the deposit on the property which he did in 2009 and then meet the mortgage payments thereafter.

The grounds submitted by his wife Mrs A relating to this argument were rejected on the basis that the court was satisfied that irrespective of any reliance on the conviction there was evidence which provides some corroboration for the allegations made against him relating to misuse of the Banks funds and the allegations that he abused his position in the bank by reportedly issuing Credit Cards to his family members through which large debts were run up against the Bank. The High Court referenced the lavish spending of Mrs A. It pointed out that she spent a total of £16,309,077.87 between September 2006 and June 2016 in Harrods through credit cards issued by the Bank of Azerbaijan. The Court were also informed that it was reasonable to suspect that she had no income independent of her husband and there is no evidence to suggest that she received significant capital or income from any other source independent from her husband.

Privilege Against Self Incrimination and Spousal Privilege

It was argued that the UWO offends against Mrs A’s privilege against self-incrimination and spousal privilege given that she is subject to criminal proceedings in Azerbaijan.

Mr Justice Supperstone ruled that the Privileges only applied to criminal offences subject to UK law and penalties and not in respect of the risk of prosecution abroad. He did not find a real or appreciable risk that either Mrs A or her husband would be prosecuted for offences in the UK. Furthermore, he asserted that Mrs A had not said which answers to which questions might incriminate her. In any event he believed that these provisions abrogated these privileges and did not justify exercising his discretion to not make the Order.

Gathering Evidence to contest a UWO

A further hurdle for persons subject to UWO’s to overcome is the complete reversal of the burden of proof. A person will be required to provide that the property is not the proceeds of crime, rather than requiring the state to prove that it is. In this case Mrs A claimed her husband had a successful financial career in the 1990s however she was not able to provide proof of the same due to the passage of time and the fact she was seeking refuge in the UK and had no way to access paperwork relating to her husband.

The court recognised the difficulties which Mrs A would face in complying with the requirements of the UWO, however Mr Justice Supperstone ruled that the statutory criteria had been met for the order to be imposed and at this investigative stage there are others who may be well placed to explain Mr A’s sources of wealth and how the charge on the property was paid off. Should civil recovery proceedings be instituted consideration will have to be given to ensure a fair trial at that stage.

Conclusion

Both Mrs A and her Husband strongly deny any wrongdoing and we await confirmation of the outcome of any appeals which may be lodged. Criminal practitioners are aware of the difficulties for the defendants where cases are brought under the Proceeds of Crime Act 2002. It remains to be seen how the Court will approach cases where Defendants have fled jurisdictions and are no longer in possession of supporting evidence. Further in cases where countries do not abide by the rule of law the danger is the Court will effectively apply those abuses in the UK when making judgements on UWO’s.

This ruling is significant, it remains to be seen how often UWO’s will be implemented by agencies such as the Serious Fraud Office, National Crime Agency, and Her Majesty’s Revenue and Customers considering they are more familiar with the use of Restraint and Freezing orders. https://www.transparency.org.uk/publications/london-property-tr-ti-uk/

It will also be interesting to see what approach financial institutions take when they are placed on notice that their investor is subject to a UWO. These institutions will no longer be able to turn a blind eye to foreign money filtering into the UK banking industry.

The law in this area is still in its early phases and no doubt it will continue to evolve with changes anticipated to widen its scope.