This article was originally published in Lawyer Monthly and can be accessed here.
Dominic Bulfin, Associate
Unexplained Wealth Orders: Guilty Until Proven Innocent?
HOW DO YOU SPEND £15.5M AT HARRODS?
Zamira Hajiyeva managed to do so over a ten year period ending in 2016.
It was this spending spree, amongst other factors, that sparked the UK’s National Crime Agency (NCA) to take action against her. Action which culminated in her becoming the most high profile recipient of a landmark Unexplained Wealth Order (UWO).
Lawyer’s representing Ms Hajiyeva have made the point that “…Spending money, however exorbitant, is not a criminal offence”. We quite agree with that statement but it is neither here nor there. The crux of the case against Ms Hajiyeva is where that money came from.
In this article, we explain how the UWO regime is intended to function and what risks it might pose to the superyacht and luxury asset markets.
WHAT ARE THEY?
Brought in under the Criminal Finances Act 2017 (the Act), a UWO is an order of the High Court which calls on an individual (referred to as the “respondent” in the UWO) to explain the source of the income they used to acquire an interest in the property specified in the order. Essentially, they are another means of rooting out the fruits of money laundering and other corrupt practices.
In order to convince the Court that making such an order is justified, the authority that is applying for it must establish, amongst other things, that:
- There are reasonable grounds for suspecting that the known sources of lawfully obtained income of the respondent would have been insufficient for the purposes of procuring the property; and
- The respondent is either a Politically Exposed Person (PEP) as defined in the Act; OR,
- Has been involved in serious crime either in the UK or abroad or is connected with such a person.
Should the court see fit to issue the UWO, the respondent is required to explain its interest in the property and how it was obtained, amongst other matters as may be set out in the particular order.
Failure to comply with the terms of the UWO can result in the property specified in the UWO from being frozen and/or seized. So, in other words, a UWO can result in the respondent, quite literally, “losing their house” or, for that matter, their superyacht.
The use of UWOs has been a divisive subject. Much electronic ink has been spilled both supporting an extension of the Court’s powers to combat financial crime and corruption, and attacking their use as a draconian breach of privacy.
Whilst the objectives of the Act and the UWO regime must surely be welcomed, as lawyers we do find one aspect of the UWO process to be objectionable.
The “innocent until proven guilty” principle is a central tenet of the English legal system. Under the UWO regime however, you could argue that this principle has been flipped on its head.
We refer, of course, to the tests that must be met in order for the Court to grant a UWO. On a strict reading of those tests, no final findings of fact need be made. If we focus on the tests that we refer to above, the authorities need only establish that (a) there are “reasonable grounds” to suspect that the respondent’s lawful income is insufficient to procure the relevant property, and (b) that they are “connected” to an individual who is involved in serious crime.
The question is, of course, how carefully or loosely those terms are interpreted and what evidence the court will weigh up in, for example, answering the “reasonable grounds” question.
By way of example, the Court will look at the respondent’s sources of income which are:
“reasonably ascertainable from available information at the time of making the application or order”.
In our view, it is not difficult to see how nothing more than a lack of readily available information regarding an individual’s wealth, in addition to a tenuous and perhaps ultimately groundless “connection” might form part of the basis for justifying the making of an UWO.
Just imagine, for example, that an individual who has made their fortune in a foreign jurisdiction that, unlike our own, does not keep electronic records of wealthy or prominent citizens that are accessible by foreign individuals? Might a lack of available information itself be used by the authorities to argue that reasonable grounds exist?
- We are in the early days of the UWO regime. At the time of writing, only three have been made and it is only the case of Ms Hajiyeva that has entered the public domain because she has made an application to set the order aside. It would be premature to reach a conclusion on whether the Courts are exercising the level of care that is appropriate in these circumstances.
- The bankers and lawyers that act for superyacht owners and charterers across the EU are already obliged to carry out extensive “Know Your Client” (KYC) due-diligence on them. Part of this exercise requires the source of the client’s wealth to be established. It stands to reason, therefore, that anyone that has passed these tests should not have too much difficulty in responding to a UWO. This, it seems to us, is a far better course than applying to set the UWO aside as Ms Hajiyeva has tried and failed to do.
 Likely to be the UK National Crime Agency, although HMRC, the Financial Conduct Authority and the Serious Fraud Office are among the bodies that may apply in their capacity as “enforcement authorities” under the Act.  The Act defines a PEP as: an individual who is, or has been, entrusted with prominent public functions by an international organisation or by a State other than the UK or another EEA State, a family member of such a person, someone “known to be a close associate” of such a person, or anyone “otherwise connected” with such a person.  See Section 362B, Subsection (6)(d) of the Act.  It would be quite wrong, for example, to assume that the Forbes List is a complete and infallible record of the world’s billionaires.  National Crime Agency v Hajiyeva (Rev 1)  EWHC 2534.