The war against money-laundering intensifies in courts, but the transparency initiative is far more speculative than it is evidence-based, argues Jonathan Neumann
The first Unexplained Wealth Order (UWO) has reached the courts, and it is as salacious as the tabloids hoped. An Azerbaijani national reportedly spent £16 million at Harrods using 35 different credit cards over ten years, and can boast two dedicated bays at the luxury department store’s car park, a £35 million private jet, a property in Knightsbridge and a country club in Ascot.
The problem for Mrs Zamira Hajiyeva, however, is that the National Crime Agency doesn’t know where she could lawfully have acquired the funds to pay for, in particular, the property in Knightsbridge, and may be speculating that those funds came from the £2.2 billion her husband, Jahangir Hajiyev, apparently defrauded from the International Bank of Azerbaijan, of which he was chairman, before he was sentenced to prison for 15 years in 2016.
What is a UWO? Introduced by the Criminal Finances Act 2017, UWOs are meant to address the difficulties that law enforcement apparently faces when trying to gather evidence on the wealth of serious criminals and corrupt officials from other jurisdictions who bring that wealth to the UK. UWOs are also part of a wider transparency drive in the UK that also includes enhanced anti-money laundering regulations and various new beneficial ownership registers.
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But the UWO is a bit different. Unlike those other transparency provisions, which generally apply to everyone, the UWO is a specific order made by the court that requires a specific individual to set out the nature and extent of their interest in a specific asset and to explain how they obtained that asset in cases where their known income doesn’t explain how they obtained it. In other words, the individual’s lawful income is too low to explain how they could afford to buy something, leading to suspicion that they might have bought it with illicit monies. The UWO is made against an asset, not a person, and is not in itself a judgment of criminality.
The authorities that are able to apply to the court for a UWO are the National Crime Agency, Her Majesty’s Revenue and Customs, the Financial Conduct Authority, the Director of the Serious Fraud Office, and the Director of Public Prosecutions. The authority must satisfy the court that there are reasonable grounds to suspect that the known sources of the individual’s lawfully obtained income would be insufficient to obtain the asset in question, and in addition the individual must be a politically exposed person (commonly known a “PEP”) or there must be reasonable grounds to suspect the individual has been involved in serious crime or is connected to such a person.
The individual can appeal against the UWO, as Mrs Hajiyeva has unsuccessfully done. The court determined that her husband is a PEP and therefore that she, as his wife, is herself a PEP, and that other requirements for the UWO had also been satisfied. Once the UWO has been made, Mrs Hajiyeva would have to explain to the National Crime Agency how she acquired the Knightsbridge property.
Mrs Hajiyeva also attempted to keep her identity anonymous on the basis that the UWO could prejudice her legal position in Azerbaijan, but the court eventually decided that the public interest outweighed such a concern, much to the delight of the press.
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So what does the introduction and use of the UWO mean for the attractiveness of the UK to HNWs? On the one hand, the intention is to use it selectively as a tool to investigate more dubious individuals without making it routine, and the idea is that if someone has nothing to hide, they have nothing to fear. Moreover, there are safeguards in place: the UWO has to be made by the court and the individual has a right to try to challenge it. Finally, it is merely a requirement to explain how an asset was obtained: it is not an accusation of criminal behaviour.
On the other hand, UWOs are a further investment in the UK’s transparency infrastructure which may be broadcasting to foreign HNWs that they are not trusted. Indeed many of these transparency initiatives risk making the UK comparatively unattractive to HNWs if other countries are not also implementing them. Even more unattractive, however, is the prospect of the irreversible naming and shaming that accompanies the UWO and any legal challenge against it. As Mrs Hajiyeva has found, the court has not felt a need to keep deliberations anonymous.
Beneath all this, though, is the question that underlies all transparency initiatives. How much should public authorities be empowered to uncover about someone’s personal finances? In the case of a UWO, although it is only seeking an explanation for how an asset was acquired, a legitimate explanation may well exist. And if there is such an explanation, is it appropriate for the authorities to have forced someone to reveal it?
Picture credit: larsen9236 @Pixabay
Jonathan Neumann works at boutique private wealth law firm Maurice Turnor Gardner LLP
