High Court discharged three Unexplained Wealth Orders (UWOs) – lessons to be learned

The High Court of England and Wales has recently (on 8 April 2020) handed down its judgment concerning an application to discharge three unexplained wealth orders.

https://www.judiciary.uk/wp-content/uploads/2020/04/Approved-Judgment-NCA-v-Baker-Ors.pdf

Speed Read

On 8 April – case reported as NCA v Baker & Ors handed down remotely - all three UWOs and related interim freezing orders were discharged.

In this significant decision, the High Court discharged three Unexplained Wealth Orders (UWOs) following applications by the respondents to those orders.

This is the first time the High Court has acted to discharge such orders. The National Crime Agency (NCA) has already indicated its intention to appeal.

Three UWOs, and related interim freezing orders, were obtained by the NCA in May 2019 over three different London properties – reportedly worth £80 million in total.

The NCA argued that these were acquired by the late Mr Rakhat Aliyev, a former senior official of the government of Kazakhstan, as a means of laundering the proceeds of unlawful conduct.

Mrs Justice Lang ruled that requirements for making UWOs under the Criminal Finances Act were not met and that the NCA's underlying assumption that Rakhat Aliyev was the source of the funds "was unreliable".

In addition, she found "cogent evidence" that Dr Nazarbayeva and Nurali Aliyev had established the companies which owned the properties and provided the funds to purchase them.

In reporting that the High Court had ruled against it, the NCA stated that:

1. We disagree with this decision to discharge the UWOs and will be filing an appeal. These hearings will establish the case law on which future judgments will be based, so it is vital that we get this right.
2. The NCA is tenacious. We have been very clear that we will use all the legislation at our disposal to pursue suspected illicit finance and we will continue to do so."

Background

In this case, the NCA asserted that three London properties were acquired as a means of laundering the proceeds of the unlawful conduct of Rakhat Aliyev, a former senior politician in Kazakhstan who died in prison in 2015 whilst awaiting trial for murder.

The properties were all held by offshore structures, which was said by the NCA to be evidence in itself in support of the UWOs.

Registered owners of the properties

A letter was tendered by the registered owners of the properties. The letter provided

1. Extensive information about the purchase of the properties, details of the registered owners as well as who the ultimate beneficial owners were.
2. In particular, it was said that two of the properties were owned by the ex-wife of Mr Aliyev, and the third by his son.
3. Moreover, the purchase of the properties was said to be entirely unconnected to Mr Aliyev and any alleged criminal activities, and he was said to have never been the ultimate beneficial owner of them.
4. Evidence was also tendered to show that Mr Aliyev's ex-wife and son both had independent means.

When that explanation was not accepted by the NCA, an application was made to discharge the UWOs.

NCA case flawed

The Judge, after hearing full argument, granted the application and discharged the UWOs - In doing so, said

1. 'The NCA case which was presented at the ex parte hearing was flawed by an inadequate investigation into some obvious lines of enquiry...
2. Furthermore, I consider that the NCA failed to carry out a fair-minded evaluation of the new information provided by the UBOs and Respondents…'.

x3 key aspects of the case

There were three aspects which he considered and dealt with in a way which should provide comfort to offshore service providers.

1. First, the Judge noted that the NCA 'placed significant weight on the 'complex and secretive' manner in which Property 1 was obtained and subsequently handled, eventually being transferred to a Panamanian foundation which is subject to strict secrecy laws, whilst being managed by property management companies in the UK.'
   • Those working in offshore jurisdictions may tend to take umbrage at the notion that the purchase of a property by such means was 'complex and secretive'.
   • Happily, the Judge was alive to those concerns. In words which will be well received by offshore service providers he held that:
     1. 'The use of complex offshore corporate structures or trusts is not, without more, a ground for believing that they have been set up, or are being used, for wrongful purposes, such as money laundering. There are lawful reasons – privacy, security, tax mitigation - why very wealthy people invest their capital in complex offshore corporate structures or trusts.
     2. Of course, such structures may also be used to disguise money laundering, but there must be some additional evidential basis for such a belief, going beyond the complex structures used. '
     3. This should provide comfort to those faced with a UWO that the courts will not regard the use of offshore structures as, of itself, evidence of wrongdoing. Whilst that might seem trite, it is helpful to have that confirmed in such clear and strident fashion.

Second, Mr Aliyev's ex-wife and her son argued that they had purchased the properties from their own means, which were unconnected with any alleged criminal activity of Mr Aliyev.

1. In cases involving allegations of corrupt activities by politicians, assertions such as these can all too easily be taken with the proverbial handful of salt. However, the Judge considered the evidence carefully, accepted their arguments, and rejected the NCA's arguments to the contrary.
2. Again, a helpful reminder that a forensic accounting exercise may be required and that it can, on occasion at least, reap handsome rewards.

Third, in considering who had control over the properties, the Judge was asked to consider detailed evidence as to Panamanian law concerning the operation of foundations and how control is exercised.

1. Again, the Judge was quite prepared to roll up her judicial sleeves and, in detailed reasoning, set out why she accepted that control was exercised by the Foundation and its governing body the Foundation Council, and rejected the arguments of the NCA to the contrary.

This is good news for offshore service providers.

1. It shows that, if they become embroiled in a UWO – perhaps on behalf of a structure holding London property – all is not lost.
2. If there is a good explanation, then it is worthwhile to take steps to put that explanation forward. Indeed, they may face criticism is they do not do so.
3. As this case shows, the NCA can get it wrong, and those who ignore the sort of inquiry and the explanatory process undertaken in this case, and merely accept what is asserted against them at face value, may do so at their peril.

Source - https://www.mourant.com/file-library/media---2020/unexplained-wealth-orders-discharged-by-english-high-court-(april-2020).pdf / https://www.kingsleynapley.co.uk/insights/blogs/criminal-law-blog/unexplained-wealth-orders-discharged-tenacious-nca-to-appeal