High Court dismisses appeal against first Unexplained Wealth Order

Written on 12 Nov 2018

In early October 2018, the High Court dismissed an appeal against the first Unexplained Wealth Order (UWO), granted under new powers that came into force in January 2018. Despite the wide-ranging defences presented in opposition to the UWO, the judge upheld the order, indicating that the regime has the teeth required to act as a useful tool for prosecutors.

The appeal

The wife of a prominent banker (since revealed to be Mrs Zamira Hajiyeva, the wife of an Azerbaijani former state banker) brought a challenge against an UWO which required her to explain the nature and extent of her interest in property in the UK worth £22 million, and how the property was obtained. The court heard that her husband had been convicted of serious fraud and embezzlement offences in connection with his role as chairman of a partially state-owned bank and by virtue of his role, his wife was considered to be a politically exposed person (PEP). The National Crime Agency (NCA) applied for the order on the basis that there were reasonable grounds to believe Mrs Hajiyeva’s known sources of lawful income would have been insufficient to obtain the property.

The appeal against the UWO was advanced on eight grounds. Although most were specific to the facts of the case at hand, three of the arguments were more wide-ranging, concerning human rights, privilege and consequences in the event of non-compliance.

The decision

The judge found in favour of the NCA, ruling that none of the grounds advanced for discharging the order had been sufficient.

The judge rejected the submission that the UWO interfered with Mrs Hajiyeva’s right to peaceful enjoyment of property under the European convention on Human Rights, on the basis that ‘loss of quiet and pleasant environment, without evidence of loss of value is not enough‘; and that the UWO in and of itself was not enough to establish loss of value. Even if interference of the right had taken place, the judge was satisfied the UWO would ‘strike a fair balance’, given that there was reason to believe that the property had been obtained through unlawful conduct and that Mrs Hajiyeva was only required to provide information for one property.

The ruling also explored privilege against self-incrimination and spousal privilege. In finding that neither form of privilege has been infringed, Mr Justice Supperstone found these privileges applied only in relation to criminal offences under UK law, although the risk of prosecution overseas could be a relevant factor for a judge deciding whether to exercise discretion to order disclosure.

In this case, Mrs Hajiyeva had not established an appreciable risk that complying with the UWO would lead to her or her husband being prosecuted, either in the UK or another country. And in any event, the judge found that parliament had intended that such privileges could be abrogated by the UWO regime, since the regime “would be rendered very largely nugatory if privilege applied“. This ruling certainly reduces the scope for individuals or companies using privilege as a shield against UWO’s in future cases.

Mrs Hajiyeva had also argued that the UWO should be discharged on the basis that it incorrectly contained a penal notice. Mrs Hajiyeva argued that the legislative provisions under the Proceeds of Crime Act 2002 set out the consequences of non-compliance with the UWO: namely that that property would become recoverable.

The judge found that this only dealt with the status of the property to which the UWO related, and did not oust the court’s power to attach a penal notice to the order setting out other consequences for the party breaching the order, such as fines or, ultimately, committal proceedings. If the court had not been able to attach a penal notice, this would have left an “enforcement gap”, meaning that a third party could undermine the order, for example by destroying documents, without fear of consequence.

Osborne Clarke comment

This judgment is the first real test of the UWO regime and serves as a success story for both the NCA and the wider application of UWO’s to target proceeds of crime. Although the case concerned an individual, the reasoning suggests that a similarly robust approach would be taken by the courts when considering a UWO served on a company.

There have been further interesting developments in this case since the ruling was handed down. Mrs Hajiyeva’s extradition has been sought by Azerbaijan, and she is currently on $500,000 bail pending that process being determined by the courts. A potentially more interesting development saw the NCA use linked proceedings against Mrs Hajiyeva’s daughter to recover £400,000 of jewellery which were being valued by Christie’s. The use of UWO powers involving third parties serves to re-emphasise the importance of having processes in place to ensure accurate client identification with which to guard against unforeseen reputational damage.

We will continue to monitor the use of UWO’s generally, and will publish further updates if significant developments arise.