30.11.2018 Crime and (maybe) punishment

30.11.2018 Crime and (maybe) punishment

The first unexplained wealth order has now been issued (UWO). Despite the defendant’s lawyers’ efforts to keep anonymity, the court refused it, and we now know that the order was obtained against Zamira Hajieva whose ex-banker husband has been jailed for 15 years for defrauding the state bank for £2.2 billion. Mrs. Hajieva 55, must now provide the National Crime Agency with a clear account of how she could afford to buy their large home in Knightsbridge and a golf and country club in Ascot.

As with any new legislation, there will be teething problems. There are four major flaws that seem evident. Firstly, the presumption of innocence is turned upside down. This fundamental legal right has evaporated. Secondly, this law seems to be discriminatory against anyone who is not the UK or EU citizen and who might be a politically exposed person (“PEP”) or their relative. The additional problem is that there is no need to prove any criminality when it comes to PEP’s funds – it is enough to suspect that they cannot afford the property according to their income. Thirdly, when it comes to pursuing individuals like Mr. Hajiev, the UK judges will be relying on the verdicts of foreign criminal proceedings (often in countries which the UK considered unreliable or even corrupt before). Lastly, why would Britain keep the criminal money? Wouldn’t’ it make sense to return it to the victims?

UWO is a new power, which has been designed to target suspected corrupt foreign officials who have potentially laundered stolen money through the UK. It has been nicknamed McMafia law after a BBC1 drama.

Is there a presumption that property bought as a result of illicit behaviour can only occur outside the UK and EU?

Take Berslusconi’s for example, who was the longest-serving prime minister in Italy holding the office for 9 years. Berlusconi’s criminal charges were no less than 9, namely abuse of office, extortion, perjury, false accounting, money laundering, tax fraud and bribery of police officers to name just a few! After being handed a number of custodial sentences, he was allowed to do community service as a result of his age… And a 5-year ban for applying for any further public office. Berlusconi does not hide his lavish property holdings and why should he. He is an EU citizen after all. The UWO targets offshore property owners, as the ones likely to hide the origin of their wealth and potential links to criminal money. Offshore structuring has been used for centuries by the Anglo –Saxon system. If you look at most of the UK’s PLCs, you would struggle not to find complex off-shore structures being part of the company, which are entirely legal. A recent report compiled by the Guardian identified 68 members of the House of Lords having active directorships or controlling interests in companies linked to offshore havens. Lord Chandos, who is a labour peer, commented on his directorship in a company being registered in Luxembourg: “I don’t think anybody would see it as an aggressive tax structure – just efficiency.” Lord Chadlington who is a conservative peer said in relation to links to Swiss, BVI and Cyprus companies: “The BVI company was set up for the purpose of doing business in Dubai, and Dubai (not BVI) is its tax residence, so there is no question of any advantage being taken on the BVI’s tax regime”. Needless to say, structuring companies in Dubai can be as favourable as the BVI.

So hypocrisy rules on a grand scale. The former Prime Minister David Cameron is known for being linked to a Panamanian Fund based in the Bahamas founded by ex-Prime Minister’s late father and which still exists today. It was confirmed that in 30 years this fund has never paid a penny of tax in the UK on its profits.

The Downing Street at the time simply commented: “ That is a private matter.” Most people that require offshore structuring would agree that these matters are indeed private. Cameron later also admitted he did not know whether the £300,000 he inherited from his father had benefited from tax haven status due to part of his estate being based in a unit trust in Jersey. Any first law student would know that ignorance does not amount to a defence. “I obviously can’t point to the source of every bit of money and dad’s not around for me to ask the questions now,” David Cameron said. This may be an acceptable answer for a former prime minister, but it certainly wouldn’t work for anyone who is handed a UWO. It is of course not just wealthy foreigners that use offshore structuring.
The consultation paper during the time the UWO was being drafted stated that: “There are critical gaps in the UK legal framework which are being exploited by corrupt individuals and companies.” The big question remains – why are the UK and EU politically exposed citizens automatically excluded from this substantial piece of legislation. It is a continuation of the Criminal Finances Bill; however, the CFB does apply to all, not just a select group of countries. Surely an amendment to the law is needed? If one happens to be a PEP or his relative from outside the EU, there is no need to prove any suspicions of criminality. The enforcement agency just needs to be satisfied that their income would not be sufficient to buy the property in question. Could it be the only piece of legislation in the world that a critical part of it automatically does not apply to its citizens?
The UK announced that it currently has £4.4 billion of suspicious wealth (read “potential confiscations”). It’s not such a difficult target to achieve. If one estimates that the average house price would be £20 million, you would only need to seize 220 assets. Of course, there are many properties valued well over £100 million, so the target is achievable.

Mrs. Hajieva is not subject to any criminal investigations in the UK (she has now been arrested following an extradition request and faces deportation). However, the UK authorities rely on the criminal record imposed by Azerbaijan (an ex- CIS country). This is just the first case, and many more will follow. It would be interesting to see what happens when a Russian citizen is involved. Would the UK courts take for granted any criminal records awarded by Russia? A conflict of interest might arise. The tension between Russia and the UK has escalated to a dangerous level. The countries do not see eye to eye. This often results in both countries refusing extradition requests. The UK refused at least 50 extraditions of Russian citizens in the past few years (many of which are labelled as “politically motivated”). Judges often rule that, if extradited, the alleged offenders might not receive a fair trial in Russia. Similar arguments would apply to Syria, Afganistan and many middle-Eastern countries.

So there is a general mistrust of the rule of law in certain countries. Not without reason, perhaps. When it comes to relying on the criminal evidence from countries which systems are generally frowned upon by the UK, what would happen then? If the UK believes that there may be politically motivated criminal cases in Russia for example, surely it would not rely on such evidence to confiscate multi-million property fortunes?

But what happens to the criminal money? Will the UK keep it? In any criminal case, there is usually a victim. In Mr. Hajiev’s case it’s the defrauded bank and the Azeri Government. Wouldn’t it make sense to return the funds to them? It’s not just the money spent on buying the property that one should question. What about the billions worth of stamp duty land tax received by HMRC. Last year it collected £13 billion. Is it ok to tax criminal money? Shouldn’t that be returned to victims too?

The UWO briefing paper cites that the UWO will act a bar to “stolen wealth” flowing into the country. It seems to me that there is nothing stopping it flowing into the country. It just re-directs ownership from a suspected criminal to the UK. It is not going to be an easy act for the courts to balance.

Whilst the UK is keen to stop any illicit funds flowing into the UK; there is also a question of morality and indirect promotion of criminal threat. Britain is now the second biggest arms dealer in the world – with most of the weapons fuelling deadly conflicts in the Middle East. 22 of its partners in the arms trade are on the UK Government’s own human rights watch list. Many experts argue that two- thirds of UK weapons sold to the Middle Eastern countries has led to increased risk of terror threats to Britain and the West. The UK has sold more arms than Russia, China or France on average over the last 10 years.

The UK Government has been continuously warned by the UN bodies of the damage that its arms trade is causing in the Middle East. The Government’s response was that “it had not seen any evidence of Saudi war crimes.” This brings me to Theresa’s May instant accusation of Russia’s government and personally of Vladimir Putin in attempting poisoning the Skripals just a day after the event. Irrespective of which country might have been involved, it would have been impossible to have unequivocal evidence of such a crime in 24 hours.

Boris Johnson, Britain’s former foreign secretary, now stands accused of publicly misrepresenting the evidence in the case.

Chief Executive of Britain’s top military laboratory, Gary Aitkenhead, said that it could not verify the nerve agent in the Skripal poisoning came from Russia. It seems that evidence is an ambiguous concept when it comes to international politics and hypocrisy runs deep in the veins.

A similar criticism comes from the shadow foreign secretary Emily Thornberry in the Observer, who slams the government for days of silence after the Saudi journalist’s Jamal Khashoggi’s disappearance.

She criticizes the government’s response as “far too little, far too late,” comparing it with the government’s rapid denunciation of the apparent killing of Ukrainian journalist Arkady Babchenko in May.

“Imagine for one second how the current Tory government would have reacted if… either Russia or Iran had abducted – and in all likelihood murdered – one of their dissident, exiled journalists within the sovereign territory of another country,” she writes.

She further accuses the government of soft- pedalling on human rights to secure a post-Brexit weapons deal. Is the commerce really above all else?

There will be many other questions asked in relation to human rights and the UWO. There are 3 more countries that have a similar law, namely Ireland, Australia, and Colombia. Interestingly, in 2014 the Congress in Colombia repealed part of its law in favour of reforms to the commitment to basic liberties to individuals involved in asset confiscation proceedings (such as a right to family life). Unlike the UK, none these 3 jurisdictions focus attention on foreign politically exposed persons.

In Australia, since 2010 the total amount recovered amounted to AUD$14.4 million. The Irish confiscated $15.7 million since 2004. The low figures are attributed to judicial push back to the UWO deficiencies, lack of public support, disputes over jurisdiction and so on. Perhaps a re-think will follow to the UK legislature.

The UK seems to be much more ambitious in its pursuits. It reminds me of a greedy crocodile that was so busy devouring his victims that he accidentally chopped off his tail. Ouch.

This law might work as a preventative measure, and perhaps that is an objective worth achieving. However, there are many legal challenges ahead, specifically the reversed burden of proof and the argument that they are, in essence, disproportionate punitive measures that infringe on the fundamental rights such as the presumption of innocence, not to be discriminated against and the right not to self-incriminate.

If you have any queries in relation to UWOs please contact Tatiana Sveltova, a partner at Svetlova LLP at tsvetlova@svetlovallp.com.