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.
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