The English High Court recently dismissed the National Crime Agency’s attempt to use unexplained wealth orders to seize homes in London, all of which were held by offshore structures. The case concerned the wealthy relatives of Kazakh PEP Rakhat Aliyev.
The High Court of England and Wales recently (on 8 April) handed down its judgment in relation to an application to discharge three unexplained wealth orders. Though the National Crime Agency (NCA) had earlier been successful in its first UWOs in relation to property held by Mrs Hajiyeva (she of the infamous Harrods spending spree), the High Court decision brought this to a halt and, in doing so, provided some reassurance for offshore service providers about the court's readiness to intervene and to educate where incorrect assumptions are being made in relation to the use of UWOs.
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 while 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. In response, the registered owners of the properties tendered a letter which provided extensive information about the purchase of the properties, details of the registered owners and the identities of the ultimate beneficial owners. In particular, it was said that two of the properties were owned by the ex-wife of Mr Aliyev, and the third was owned by his son.
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. Evidence was also tendered to show that Mr Aliyev’s ex-wife and son both had independent means. When the NCA did not accept that explanation, an application was made to discharge the UWOs. The Judge, after hearing all the arguments, granted the application and discharged the UWOs.
In doing so, he accepted that "the NCA case which was presented at the ex parte hearing was flawed by inadequate investigation into some obvious lines of enquiry... Furthermore, I consider that the NCA failed to carry out a fair-minded evaluation of the new information provided by the UBOs and respondents." There were three aspects which he considered and dealt with in a way that ought to provide offshore service providers with some comfort.
Reasons to be cheerful – one, two and three
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." The Judge was also clearly alive to the incorrect nature of some assumptions in relation to the use of offshore structures. He held that "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."
This should provide comfort to anyone who is faced with a UWO. It means that the courts will not regard the use of offshore structures as, of itself, evidence of wrongdoing. Although that might seem trite, it is helpful to see it confirmed in such a clear and strident fashion.
Second, Mr Aliyev’s ex-wife and his son argued that they had purchased the properties by their own means, which were unconnected with any alleged criminal activity of Mr Aliyev. 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. Again, this is a helpful reminder that a forensic accounting exercise may be required and that it can, on occasion at least, reap rewards.
Third, in considering who had control over the properties, the Judge was asked to consider detailed evidence in respect of Panamanian law concerning the operation of foundations and the way in which people can exercise such control. Again, the Judge, 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 very good news for offshore service providers. It shows that if one of them becomes embroiled in an unexplained wealth order – perhaps on behalf of a structure that holds some property in London – he/it can still make a successful case out of the situation. If there is an innocent explanation for the arrangement of a structure or for some other legal arrangement, then it is worthwhile for him to take steps to promulgate that explanation. Indeed, he may face criticism if he does not. As this case shows, a prosecution by the NCA is not always a foregone conclusion.
* Chris Edwards can be reached on +44 1481 739 320 or at firstname.lastname@example.org