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Unexplained wealth orders: what advisers must be aware of

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Scrutiny of the gate­keep­ers of off­shore enti­ties is key to the National Crime Agency’s strat­e­gy

A finan­cial ser­vices advis­er recent­ly found him­self on the receiv­ing end of one of the UK’s newest tools in its fight against mon­ey laun­der­ing: unex­plained wealth orders (UWOs).

These orders have the pow­er to com­pel an indi­vid­ual – either a polit­i­cal­ly exposed per­son (PEP) or a per­son who is sus­pect­ed of involve­ment in, or asso­ci­a­tion with, seri­ous crim­i­nal­i­ty – to explain the ori­gin of assets that appear to be dis­pro­por­tion­ate to their known income.

They are a pow­er­ful weapon in the National Crime Agency’s (NCA) inves­ti­ga­to­ry arse­nal, writes Rachel Cook, senior asso­ciate at Peters & Peters Solicitors.

London, Liechtenstein and Panama

Andrew Baker, a British finan­cial advis­er and solic­i­tor based in Liechtenstein, is the pres­i­dent of Panamanian foun­da­tions that own rel­e­vant prop­er­ties in London.

In its appli­ca­tion to the court for a UWO, the NCA had said that there were rea­son­able grounds to sus­pect that Mr Baker con­duct­ed him­self in a way that was like­ly to facil­i­tate the com­mis­sion of seri­ous crim­i­nal offences in England and Wales, and that he was sus­pect­ed of assist­ing in the laun­der­ing of over £10m ($12.4m, €11.4m).

The NCA’s sus­pi­cions were based on its assump­tion of who the ulti­mate ben­e­fi­cial own­er was, with ref­er­ence to the com­plex­i­ty of the cor­po­rate struc­ture hold­ing the London prop­er­ties.

UWOs so far

To date, the NCA has tar­get­ed just four indi­vid­u­als with UWOs, with each sub­ject ini­tial­ly remain­ing anony­mous.

The first known sub­ject was Mrs Hajiyeva, a PEP and wife of an Azerbaijani banker con­vict­ed of var­i­ous offences, includ­ing fraud – she famous­ly spent £16m in Harrods.

In February 2020, we learnt the iden­ti­ty of a sec­ond tar­get, Mansour Hussain, who is accused of laun­der­ing mon­ey for gang­sters based in the Leeds/Bradford area.

In March 2020, we not only found out the iden­ti­ty of the third indi­vid­ual, the late Rakhat Aliyev, but also the details and alleged crit­i­cisms of his finan­cial advis­er and solic­i­tor, Baker.

This third set of UWO lit­i­ga­tion is marked­ly dif­fer­ent.

While the first two erders were suc­cess­ful, the High Court over­turned the Aliyev/Baker UWOs in a com­pre­hen­sive judg­ment in April 2020.

These UWOs were ini­tial­ly issued in May 2019, against a then unnamed PEP, relat­ing to London prop­er­ties (pur­chased for a total of £80m) – sev­er­al of which were owned by Baker’s Panamanian foun­da­tions.

Aliyev was a high-pro­file Kazakhstani nation­al who was part of the rul­ing elite before his fall from grace.

In 2015, he was found dead in an Austrian prison cell await­ing tri­al for the alleged mur­der of two bankers.

A look at Aliyev’s fam­i­ly tree gives some insight into the broad­er impli­ca­tions of this lit­i­ga­tion.

He was the estranged for­mer son-in-law of Nursultan Nazarbayev – pres­i­dent of Kazakhstan for over 30 years – who remains a very pow­er­ful fig­ure in the coun­try.

Aliyev’s ex-wife, Dariga Nazarbayeva, is a senior Kazakhstani politi­cian, cur­rent chair of the Kazakhstan sen­ate and a sug­gest­ed future pres­i­dent.

Aliyev and Nazarbayeva’s son, Nurali Aliyev, now lives in one of the three rel­e­vant London prop­er­ties.

The NCA sought to pierce the cor­po­rate veil in alleg­ing that the three prop­er­ties were bought using Aliyev senior’s ill-got­ten gains.

Baker’s lawyers suc­cess­ful­ly con­test­ed the UWO, argu­ing that the statu­to­ry test had not been ful­filled and that the NCA did not have rea­son­able cause to believe that Aliyev senior’s wealth was used to buy the prop­er­ty.

The off­shore enti­ties argued that the source of the wealth was Nazarbayeva’s legit­i­mate income acquired after her divorce from Aliyev, togeth­er with their son’s (Nurali Aliyev) income.

Even though the orders were resist­ed; Baker, as pres­i­dent of the Panamanian foun­da­tions, found him­self cen­tre stage in this dis­pute and, while the High Court judg­ment exon­er­ates him, the NCA has (now pub­licly) been scathing in its crit­i­cism.

Hard stance on offshore income

This was not the first time that we have seen the use of a UWO against an off­shore enti­ty that owns London prop­er­ty.

In Mrs Hajiyeva’s case, the prop­er­ty was owned by a com­pa­ny incor­po­rat­ed in the British Virgin Islands, although in that case the com­pa­ny did not dis­pute her own­er­ship.

Clearly, both the Hajiyeva and Aliyev appli­ca­tions high­light the NCA’s hard-line stance on off­shore income.

To date, the NCA has care­ful­ly select­ed its UWO respon­dents, and this lat­est appli­ca­tion appeared to fur­ther demon­strate a focused approach.

In tar­get­ing a promi­nent fam­i­ly who are active­ly involved in a for­eign gov­ern­ment, its sig­nal was clear: where there is a UK nexus, no one is beyond its reach.

But for the read­ers of this pub­li­ca­tion, what will per­haps be of greater inter­est is the clear sig­nal that scruti­ny of finan­cial advis­ers and ser­vice providers – the gate­keep­ers of these off­shore enti­ties – is key to the NCA’s strat­e­gy of recov­er­ing the pro­ceeds of crime and mak­ing the UK an unat­trac­tive option for the laun­der­ing of these ill-got­ten gains.

A setback for the NCA?

This most recent judg­ment is, how­ev­er, undoubt­ed­ly a set­back for the NCA.

For a court to issue a UWO, it must be sat­is­fied that there are rea­son­able grounds for sus­pect­ing that the known sources of the subject’s law­ful­ly obtained income would have been insuf­fi­cient for the pur­pose of buy­ing the prop­er­ty – the ‘income require­ment’ test.

The NCA had con­sid­ered whether Baker’s per­son­al income was like­ly to be insuf­fi­cient to have pur­chased the prop­er­ties.

However, the High Court found that Baker did not ‘hold’ the prop­er­ties and so the ‘income require­ment’ was not met – a point that is like­ly to be appealed by the NCA.

Obtaining infor­ma­tion about off­shore struc­tures’ own­er­ship of UK prop­er­ty was cen­tral to the inten­tion of par­lia­ment when intro­duc­ing UWOs and, if the income require­ment can­not be met because of the cor­po­rate struc­tures, it would arguably under­mine the pur­pose of the leg­isla­tive scheme.

The court was also crit­i­cal of the NCA’s assump­tion that a com­plex hold­ing struc­ture was auto­mat­i­cal­ly sus­pi­cious, which, it said, was not nec­es­sar­i­ly the case.

Rachel Cook

Moreover, while the NCA believed that Baker was linked to Aliyev senior – a sus­pect­ed crim­i­nal – it did not fol­low that Baker must there­fore be a ‘mon­ey laun­der­er’ or a per­son asso­ci­at­ed with seri­ous crim­i­nal­i­ty, not least because Baker had only joined the foun­da­tions after Aliyev’s death and after the prop­er­ties were pur­chased.

Nevertheless, and what­ev­er the out­come of any appeal by the NCA, the Aliyev appli­ca­tions are a stark reminder that finan­cial advis­ers and ser­vice providers, of both off­shore and onshore enti­ties, could become caught up, or even cen­tral to, expen­sive and high­ly pub­li­cised lit­i­ga­tion con­cern­ing their role in the man­age­ment of their clients’ assets – even if their involve­ment comes long after the con­duct prin­ci­pal­ly com­plained of.

This ati­cle was writ­ten for International Adviser by Rachel Cook, senior asso­ciate at Peters & Peters Solicitors.

By International Adviser, 11 May 20

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