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What are UWO's? A new tool to combat dirty money

Euan Grant

Unexplained Wealth Orders – a promising start, says Euan Grant

The UK’s new Unexplained Wealth Orders (UWOs) came into effect in January 2018, having been passed into law in the Criminal Finances Act 2017. The UK has been the subject of much publicity about the huge sums of “dirty money” flowing through British banks and often being used to acquire assets in the UK itself (typically property). Media commentators have been critical about the length of time it was taking to actually implement UWOs, especially given as they were seen as being so valuable, as the subject of the order faces confiscation of assets if he or she fails to explain the legitimacy of their wealth.

Yes, they are valuable, but much of the criticism of the delay in issuing them was misplaced. Public and media pressure to issue UWOs not surprisingly increased following the March 2018 attempted murder of the former Russian military intelligence (GRU) officer Sergei Skripal in Salisbury and the subsequent very strong case presented by UK authorities that members of his former agency were the attempted assassins. However, UWOs take time to prepare. Any use of a UWO against a Russian or Russian associated individual would have to be legally watertight in the first place, but particularly diligent in the case of Russian-linked persons, in order to avoid any perception of it being used for political purposes. Why him, why her, why not the other chap? While any such categorically objective use would likely be insufficient to avoid Russian retaliation, it would be a key supportive factor in reassuring allied countries that the rule of law was being followed and was not subject to improper political interference.

Before considering the first such UWO, perhaps not as well examined as it might have been, it would be worthwhile explaining how a UWO works and where it differs from existing powers that are available in many countries for seizing the proceeds of crime. It must be noted that these powers have resulted in only very small proportions of these proceeds being seized worldwide. This is largely because of the need to obtain criminal convictions for the offences which generated the wealth, but also because of the creation over the years of long and elaborate ownership chains, with funds being transferred to and from an increasingly wide range of offshore banking centres. It was no coincidence that the-then head of the European Police Agency (EUROPOL), Rob Wainwright, spent much of the last year of his second term before his 2018 retirement urging fresh approaches worldwide. The UWO is such an approach.

The UWO reverses the burden of proof for determining whether a person’s assets could have been lawfully derived from legitimate income or other proper circumstances such as inheritances and puts it on the defendant. The onus is for the served person to show it is. Equally important is that the procedure is a civil one, and does not require a criminal conviction in order to seize the assets, as opposed to merely freezing them. The legislation governing the Order’s use provides rights of appeal and safeguards such as time limits before which assets cannot actually be seized. However, the fact that it is a civil procedure means that the processes are likely to be quicker, and much greater inference is allowed to be drawn from simply failing to provide explanations than would be the case in a criminal matter. There may well be challenges in applying the lessons of English and Scottish civil law procedures in some European jurisdictions, especially Germany, where the use of civil actions in lieu of criminal prosecutions is much more restricted.

It is also important to note that in those cases of UK criminal asset forfeiture, which already involve frequent cooperation with European agencies, the criminal sources of assets are typically much more obvious than it is for oligarchs and the proxies of political kleptocrats. Such seizures have involved activities such as drugs and cigarette smuggling where the commercial facades have been easy to expose, and it has not been that much harder to do in cases of cross border VAT ‘carousel’ frauds which feature prominently in UK and European criminal forfeiture cases.

The first UWO was issued against the wife of an Azeri ex-state banker. The corporate structures for cases like this are typically much more elaborate and involve long and complex chains of registrations of ‘shell’ companies to act as intermediaries. These are found in many EU states, the dependent territories of the UK and the Netherlands and, increasingly, in sovereign nations such as Belize, Seychelles, Mauritius and Pacific Islands countries. This is not to forget individual states of the USA, where they are no longer found only in Delaware or Wyoming. One leading long-term US observer of these global structures has said that chains containing 50 companies are neither new nor unusual. The critics of the “slow” progress need to take that into account, as well as how high the burden of proof is in criminal cases.

The first UWO was served against Zamira Hajiyeva as the wife of Jahangir Hajiyev, long-serving chairman of the International Bank of Azerbaijan before his resignation in 2015 and subsequent jailing for 15 years for embezzlement. The UWO was actually issued in February 2018, only weeks after the Criminal Finances Act came into force. The reason critics claimed undue delays was that anonymity was only lifted in October, which is likely to be seen as a test case victory in itself: the disinfectant of publicity.

The case is also relatively uncontroversial, enabling teething problems to be resolved before tackling the really sensitive stuff. A strong case can be made that it was well chosen. The lady’s husband is already convicted in Azerbaijan, so political selectivity can hardly be alleged by the Baku authorities. There is a clear implication that the assets in the UK might be the proceeds of the embezzlement case there and hence rightly the property of Azeri individuals or the state. The UK National Crime Agency, as the chief law-enforcement agency for issuing orders (though not the only one) has pointed out that any frozen assets might well be subject to an Azeri claim and accordingly returned. That would doubtless reassure BP and its shareholders that its operations in the country would be unimpeded.

The civil nature of the process also needs to be emphasised again. This is likely to greatly enhance the impact and usefulness of future orders. Information obtained in the course of UWO investigations cannot be used in criminal investigations. This is crucial in relation to information provided by many states potentially likely to seek recovery of assets. It is not well known that UK judges can and do deem evidence from a wide range of countries inadmissible, because they are not satisfied that the investigatory process is independent and impartial.

UK media coverage which reported Mrs. Hajiyeva’s arrest by UK authorities, soon after her identity was disclosed, did not always make it clear that this was in response to an Azeri extradition request, based on allegations of embezzlement. The detention was not in relation to suspicion of a criminal offence having been committed in the UK. And as a civil procedure which reverses the burden of proof, but not in relation to criminal prosecution and hence the possibility of conviction and jailing, recovery of assets in future cases is likely to be faster and more complete. This would send a powerful message to both the proxies of kleptocrats and the kleptocrats themselves, who are much harder to positively identify.

This correspondent expects that honour will be satisfied for both official parties – the UK and Azerbaijan - in that any continued failure to account for the source of funds will result in seizure and liquidation of the value of the defendant’s properties, including the non-residential one, namely a golf course. Appropriate funds would be returned to Azerbaijan, but the lady is unlikely to be extradited. This would address likely criticisms that she was being punished as a scapegoat for the actions of others, for whom her husband was a proxy, while they got away scot-free. 

Clearly, the prospect of funds in this case, and in many future ones, being repatriated and recycled into further corrupt activity is a real one. However, that is a challenge for another day.

There will hopefully be wider collateral effects which in the long run will have greater impact. The lifting of anonymity in this first case may well spur more questions about the “enablers”, the professional service providers such as solicitors, accountants and estate agents who handle the large property purchases, to say nothing of the banks and credit card companies through whose accounts so much of the “£16 million spent in Harrods” flowed. They are likely to consider that it may be time to start being more selective in providing custom. And to make sure law-enforcement knows they are doing this. It will be worthwhile monitoring how art dealers, jewellers and private jet and helicopter charterers get on in the coming seasons, and whether their counterparts on the Costas and Rivieras are getting a boost or not.

The UWO is not a magic bullet. No one in authority is claiming it is. But it is a step forward, and potentially a major one. It is treading new and often very rocky ground. Success will not be easy and will be measurable in many ways, not all of them immediately obvious. Hopefully public opinion will give those tasked with implementing them time to do so, and look sceptically, but not cynically, at their efforts. This is very much a case of patience being a virtue.

Let us hope plenty of people have that in mind and keep watching, as much in Brussels and throughout the EU as in the Five Eyes nations. Sharing information with these countries and institutions will be a – the? – key factor in determining ultimate success and in combating the countermeasures taken. Sharing is a two-way process. All parties involved in making the impact of UWOs and their equivalents elsewhere are going to find that out soon.

High stakes, long haul. But this will be one long haul which won’t be boring. Keep it civil, and keep it public.  

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