‘QUASI-CRIMINAL LITIGATION IN A TIME OF CORONA’: NATIONAL CRIME AGENCY SUFFER FIRST LOSS AS, VIA A REMOTE JUDGMENT, A HIGH COURT JUDGE DISCHARGES THREE UNEXPLAINED WEALTH ORDERS.’
Click here for the press release version.
A fascinating development in the burgeoning body of case law arising from the National Crime Agency’s (NCA) use of Unexplained Wealth Orders (UWO) (and related interim freezing orders -IFO) to fight financial crime came last week with their first big loss in National Crime Agency v Baker & Ors [2020] EWHC 822 (Admin) (08 April 2020).
Unexplained Wealth and Interim Freezing Orders:
History
UWOs were introduced by the Criminal Finances Act 2017 and inserted into Part 8 of Proceeds of Crime Act 2002 (POCA 2002), at sections 362A to 362R. They came into force with effect from 31 January 2018, and it is noteworthy that they have retrospective effect.
Section 362A POCA 2002: Unexplained Wealth Orders
“(1) These are the requirements for the making of an unexplained wealth order in respect of any property.
(2) The High Court must be satisfied that there is reasonable cause to believe that –
(a) the respondent holds the property, and
(b) the value of the property is greater than £50,000.
(3) The High Court must be satisfied that there are reasonable grounds for suspecting that the known sources of the respondent’s lawfully obtained income would have been insufficient for the purposes of enabling the respondent to obtain the property.
(4) The High Court must be satisfied that –
(a) the respondent is a politically exposed person, or
(b) there are reasonable grounds for suspecting that –
(i) the respondent is, or has been, involved in serious crime (whether in a part of the United Kingdom or elsewhere), or
(ii) a person connected with the respondent is, or has been, so involved.
…
(7) In subsection (4)(a), ‘politically exposed person’ means a person who is –
(a) an individual who is, or has been, entrusted with prominent public functions by an international organisation or by a State other than the United Kingdom or another EEA State,
The three conditions for making an IFO are that: the Court has made a UWO in respect of the property (subsections 362J(1)-(2) POCA 2002); the order is being considered in ‘the same proceedings’ as those in which the UWO was made (subsection 362J(4)(b) POCA 2002); and it is ‘necessary’ to make an IFO ‘for the purposes of avoiding the risk of any recovery order that might subsequently be obtained being frustrated’.
History of Proceedings
In May 2019 the NCA obtained three UWOs, and related interim freezing orders, over three different London properties – reputedly worth a cumulative £80 million.
The NCA argued that these were acquired by the late Mr Rakhat Aliyev (‘RA’), a former senior official of the government of Kazakhstan, as a means of laundering the proceeds of unlawful conduct. RA died in prison in Austria in 2015 while awaiting criminal proceedings there. RA had been married to the daughter of the former President of Kazakhstan, Mrs Dariga Nazarbayeva (‘DN’), between 1983 and 2007 and they had a son Mr Nurali Aliyev (‘NA’).
In August 2019, Andrew J Baker, Villa Magna Foundation, Manrick Private Foundation, Alderton Investments Limited and Tropicana Assets Foundation (who were the subjects of the UWOs and IFOs and thus the respondents to the NCA’s original ex parte application), along with DN and NA furnished information about the purchase and transfer of the properties, their registered owners and the ultimate beneficial owners (UBO).
The respondents’ successful appeal
On 8 April 2020 Lang J discharged the three UWOsand the corresponding IFOs, ruling that the requirements under the Criminal Finances Act were not met: the NCA’s underlying assumption that RA had been the source of the funds to purchase all three properties was ‘unreliable’. Alongside that conclusion Lang J ruled that both DN and NA had presented ‘cogent evidence’ that they had not only established the companies which owned the properties but also provided the funds for their purchase.
The NCA’s response
Unsurprisingly the NCA has indicated it will appeal:
‘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. 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.’
Commentary
This is without doubt the most significant judgment yet in the new legal landscape brought about the advent of the Criminal Finances Act. Having started slowly the NCA’s (& other UK Law enforcement agencies’) use of the UWO, IFO, Account Freezing Orders (AFOs) and Asset Freezing Orders (AssFOs) provisions have accelerated at a pace in the last 18 months with few successful challenges in the appeal courts leading to significant sums being seized or frozen. Given that the interested parties, DN and RA, are almost certainly PEPs, and the substantial value of the properties, the successful application to discharge is a blow to the NCA.
Reading the judgment of Lang J in detail it is clear that the approach I laid out in my previous article: ‘…showing the court, by way of documentary evidence, the origin of money that forms the balance of the frozen account and presenting a credible explanation about the source and intended use of the funds.’; can be successful.
It also serves as a perfect example of how wealthy PEPs with property interests in the UK can, despite relying on perfectly lawful company structures – and Lang J specifically addressed the use of offshore entities:
‘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. 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.’
; be drawn into a UK law enforcement investigation.
How Berkeley Rowe can assist
Berkeley Rowe can assist with comprehensive analysis on the legal risks assets and business relationships expose individuals to and provide robust and clear advice as to measures that can be taken to address weaknesses. In the event of UK law enforcement intervention Berkeley Rowe has dynamic litigators and advocates to ensure clients achieve the most favourable outcomes. Like AFOs and AssFOs, UWOs and IFOs need not be ‘Black Swan’ events. Berkeley Rowe’s holistic approach, which it adopts across all practice areas, is to assist individuals and corporates in identifying problems, propose the best cost-effective solutions and build a strong and lasting working relationship that survives a crisis.