Unexplained Wealth Order: Row on 'Billionaires' Row'

On 8 April 2020, the High Court dismissed three unexplained wealth orders ("UWOs") and related interim freezing orders made under the Proceeds of Crime Act 2002 (National Crime Agency v Baker & Ors [2020] EWHC 822 (Admin)). The case centred on three London homes (worth approximately £80 million), one of which is on England's most expensive road, known as "Billionaires' Row" (the "Properties"). UWOs are a potent tool in the UK enforcement authorities' arsenal, but this case underlines the need for them to be deployed with care (due to their inherently draconian and intrusive nature) and to be backed up by proper investigations.

Please see our previous update for details regarding the thresholds for securing a UWO.

Background

The National Crime Agency ("NCA") obtained the UWOs in May 2019. The orders required each of the respondents to provide information about the purchase and transfers of the Properties (in particular, how they were funded) and details about the registered owners and ultimate beneficial owners. In support of its application, the NCA submitted evidence from its investigator to the effect that the properties were acquired as a means of laundering the proceeds of unlawful conduct by Mr. Rakhat Aliyev. Mr. Aliyev was previously a senior official of the Government of Kazakhstan, and son-in-law of the former President of Kazakhstan. He died in prison in 2015 whilst awaiting trial for murder charges.

The respondents to the UWOs provided information on a voluntary basis to the NCA, together with the ultimate beneficial owners of the Properties, who were Dariga Nazarbayeva (the ex-wife of Mr. Aliyev), and Nurali Aliyev (son of Mr. Aliyev). This included information about the identity of and funding provided by Ms. Nazarbayeva and Mr. Nurali Aliyev in respect of the Properties. The respondents and beneficial owners argued that the basis of the NCA's application was flawed in that the purchases of the Properties were unconnected to Mr. Rakhat Aliyev and his alleged criminal activities and he was never the ultimate beneficial owner of the Properties. However, the NCA refused to withdraw the UWOs, following which, the respondents applied to have them discharged.

UWOs dismissed

The judge (Mrs. Justice Lang) granted the respondents' application. She held that the UWOs did not meet any of the thresholds. The NCA's application was based on the assumption that Mr. Rakhat Aliyev was the founder of the registered owners of the Properties (all of which were offshore entities), and the source of their funds. However, information provided by Ms. Nazarbayeva and Mr. Nurali Aliyev demonstrated that this assumption was unreliable. In particular, the NCA did not have any or sufficient regard to various factors, including:

• Ms. Nazarbayeva was a successful (and long-standing) businesswoman in her own right.She was named in Forbes' list of the richest people in Kazakhstan and so the source of her wealth was readily identifiable.
• Mr. Nurali Aliyev's education and employment history demonstrated that he was also a successful businessman in his own right and was sufficiently independent of his parents to purchase the Property himself.
• The NCA's investigator acknowledged that Ms. Nazarbayeva was divorced from Mr. Rakhat Aliyev when each of the Properties were purchased. However, when assessing the likelihood that they were purchased with the proceeds from Mr. Rakhat Aliyev's unlawful conduct, the investigator did not take into account the breakdown of the relationship between Mr. Rakhat Aliyev and Ms. Nazarbayeva (after their divorce) nor the fact that Mr. Nurali Aliyev had cut off contact with his father as well.
• The NCA's expert also failed to take into account findings of the investigation and confiscation proceedings against Mr. Rakhat Aliyev in Kazakhstan. In that context, the prosecutor's account confirmed that the investigation into Mr. Rakhat Aliyev found that he had not transferred illicitly acquired funds or assets to Ms. Nazarbayeva, nor did she hold any illegally acquired funds or assets.

These matters were addressed in the information provided by the respondents and Ms. Nazarbayeva and Mr. Nurali Aliyev to the NCA. However, the judge was critical of the NCA's investigator for ignoring them or not giving them their proper weight. 

Secrecy is not enough

The judge also found that the NCA had placed significant weight on the "complex and secretive" manner in which the Properties were obtained and subsequently handled. In each case, this was through the purchase by a BVI company and subsequent transfer to offshore entities, which had limited disclosure requirements. The judge referred to the well-established need for caution in treating the complexity of property holding through corporate structures as grounds for suspicion. This principle was recognised in the context of assessing the risk of dissipation of assets in civil proceedings, and the judge held that the principle applied equally to UWOs. She held that there are lawful reasons, including privacy, security and tax mitigation, for setting up complex offshore corporate structures and additional evidence must be adduced beyond the structures themselves in order to establish grounds for suspicion.

Criticism of the NCA

UWOs are undoubtedly an intrusive tool. They require a person who is suspected (not proven) of being involved in or associated with criminality, to fully explain sensitive personal financial matters, failing which, property may be seized. A person who – even recklessly – makes a false or misleading statement can also be subject to criminal prosecution. Given the potential effect on a person's right to respect for private and family life and the protection of property under the European Convention of Human Rights, use of UWOs should be "proportionate", "fully and clearly justified" and prosecutors exercising such powers should consider whether the necessary objectives could be achieved by "less intrusive means". One of those means is to approach the potential respondent to ascertain whether they will provide the required information without the need for a court order or to give them prior notice that an application is to be made.  

In this case, the application was made on an ex parte basis and without notice to the respondents.   Whilst the judge held there was no material non-disclosure on the part of the NCA when they obtained the UWOs, she did find that the case which was presented at the ex parte hearing was "flawed by inadequate investigation into some obvious lines of inquiry". In particular, she was critical of the failure of the NCA to have sufficient regard to information which was in the public domain. Further, the judge remarked that the NCA failed to carry out a "fair-minded" evaluation of the new information provided by Ms. Nazarbayeva and Mr. Nurali Aliyev. 

What next for the NCA?

It has not been all bad news for the NCA – it has had some recent (and high profile) success in securing an UWO (see Hajiyeva v National Crime Agency [2020] EWCA Civ 108). Nevertheless, this decision is undoubtedly a setback, although the NCA is appealing. The fundamental aim of an UWO is to obtain information and documents in relation to a property that appears to be disproportionate to the known income of an individual or company. It is only one of several investigatory powers available to the NCA. Given the significant legal challenge which it will face, the NCA might look to alternative powers of investigation more readily (such as seeking production or disclosure orders) or, when considering use of an UWO, adopt a more cautious approach by seeking information voluntarily and/or making an application on notice where appropriate. Either way, the NCA will need to handle what is a blunt instrument with care and precision.