Enthusiasts for the UK’s still relatively new system of Unexplained Wealth Orders (UWOs) are cheering the recent victory of the National Crime Agency (NCA) against Zamira Hajiyeva in the Court of Appeal. Certainly, the decision has implications for the use of UWOs, which until now have remained relatively rare. By all accounts, the NCA and other law enforcement authorities have been stacking up potential UWO applications while awaiting Hajiyeva’s appeal, which was granted permission precisely because it was felt useful to have a steer from the Court of Appeal on some of the knottier questions posed by the legislation.
There are, however, at least two reasons why the rest of us should be a little more circumspect about cheering this particular result. The first is that, in the scheme of potential targets of the UWO scheme, Hajiyeva, who famously managed to spend £16m at Harrods, and to buy an expensive mansion nearby, despite her husband’s job as head of the Azerbaijan State Bank, is one of the more obvious, and the Court of Appeal was not therefore engaging with particularly difficult questions.
On Politically Exposed Persons (PEPs), for instance, we now know that the question of whether an enterprise is state-owned is to be decided without reference to local (in this case Azeri) law, and the inference from a stake of over 50% being that the state had ultimate control over it. We also know that where an individual such as Hajiyeva’s husband is shown to have had prominent public functions, there is no need to prove specifically that he was entrusted with them by a state. We also have clear confirmation that the UWO provisions are intended to abrogate spousal privilege, though a real risk to a spouse could be taken into account by a court exercising its discretion.
It might reasonably be said, however, that these answers were obvious anyway. The whole point of the concept of PEPs in EU money laundering directives, and the use of an adapted version of it in the UWO system, is to address the risks of public sector corruption: it would have been absurd to have excluded the head of a state-owned bank from that definition on a technicality. On the spousal privilege point, it is abundantly clear from the legislation that the only privilege preserved is that against self-incrimination in criminal cases.
The judgment was rather less clear in answering another question, raised by Hajiyeva’s predicament; namely, whether the process of Azeri justice can be trusted. In the extradition context the answer, pending a separate appeal, was clearly no as she would suffer a ‘flagrant denial of justice’ if sent there to stand trial. In the UWO context, however, her attempt to have her husband’s conviction discounted for the purposes of assessing his “lawfully obtained income” ran aground. This was not because the court decided there were no problems with Azeri justice - though, frustratingly, it seems they had no independent expert evidence on this subject - but because there were other signs that the income was not legitimate.
These included “the process by which the acquisition was made,” in this case, the purchase of an £11.5 million Knightsbridge home via a British Virgin Islands (BVI) company with only a £7.5 million mortgage, repaid 5 years later, and a due diligence report aimed at showing that Hajiyeva’s husband was a high net worth individual, but which the court said “posed more questions than it answered.”
This brings us to the second reason to look sceptically at the prospect of more UWOs in future, which is that a lot still rests on the concept of “lawfully obtained income,” which remains worryingly ill-defined. The concept is crucial to the scheme because, in order to obtain a UWO, the authorities must satisfy the court that there is a reasonable suspicion that the respondent’s known sources of lawfully obtained income are insufficient to be able to explain their interest in the property.
From the perspective of the NCA, though clearly it would have been preferable for the court to rule that the Azeri conviction was sufficient in itself, the broad nature of its reasoning is certainly welcome. From the perspective of those potential targets of UWOs, whose wealth may be legitimate albeit hidden in various ways to protect their financial privacy, the risks are obvious. What, exactly, did the Court of Appeal mean by “the process by which the acquisition [was] made”? Would it be enough for a purchase to be effected via an offshore company, or for the price to be paid in full within a short time?
With respect to the Azeri conviction, the precedent Hajiyeva was seeking - that the Azeri justice system could not be trusted sufficiently for it to be taken into account at all - was in fact a very reasonable one. A wealthy individual PEP, about whom malicious allegations are made and who is made the victim of a justice system unworthy of the name, should absolutely not see that injustice compounded by a UK system that encourages them to fuel the authorities’ suspicions. The risks are made worse by the expanded definition of a PEP in this context, which includes innocent family members and others “connected” with the primary PEP in potentially quite tenuous ways.
In other words, the boldness that the NCA and others have shown following this result is both unwarranted, because the result was not as strong a victory as it may appear. It is also dangerous because of the risk that they may now pursue potentially innocent targets. Unfortunately, such is the impact of a system that allows idiosyncratic cases to set such far-reaching precedents.
John Binns and Michael Drury are partners in the business crime and corportate regulatory department of London-based legal firm, BCL Solicitors LLP.
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