The UK is a haven for dirty money; more than £90 billion is estimated to be laundered through the country per year. The size of the UK’s financial and professional services sector, its open economy and the attractiveness of the London property market to overseas investors all make it unusually exposed to international money laundering risks. As part of new measures to tackle asset recovery and money laundering, the UK government introduced Unexplained Wealth Orders (UWOs) in January, which are being hailed as the cure to Britain’s dirty money problem.
What is an Unexplained Wealth Order?
Unexplained Wealth Orders (UWOs) require the owner of an asset worth more than £50,000 to explain how they were able to afford that asset. Introduced primarily to target Russian and Azerbaijan laundromats, UWOs have wide-ranging applications to all situations where the National Crime Agency (NCA) believes wealth was acquired illicitly, including tax evasion.
Unexplained wealth orders are aimed at two targets. The first is a “politically exposed person” (PEP), such as a politician or well-connected civil servant, as well as people close to them, provided they are not citizens of the European Economic Area.What is a Politically Exposed Person?Protecting the global financial system against money laundering, terrorist financing, and proliferation of weapons of…medium.com
The second is a serious crime suspect, whether in the UK or abroad. Recommended Money laundering UK law firms disciplined over money laundering What has caught the eye of anti-corruption activists is that UWOs shift the burden of proof to the asset’s owner. Previously it was up to law enforcement agencies to prove in court that an asset was purchased with laundered funds. “Before this it was almost impossible for law enforcement to act on suspicious transactions without a criminal conviction,” says Rachel Davies Teka, head of advocacy at Transparency International UK, an anti-corruption non-governmental organization. “The UK government’s record on corruption has been mixed, but this new law is probably the most important piece of anti-corruption legislation since the [UK] Bribery Act in 2010.”
The game-changing nature of UWOs lies in the power they give UK law enforcement to prosecute. Formerly, little could be done to act on highly suspicious wealth unless there was a legal conviction in the country of origin. In cases where the origin country is in crisis or the individual holds power within a corrupt government, this is unlikely to be achieved. Where previously law enforcement agencies needed to prove in court that an asset was purchased with laundered funds, UWOs shift the burden of proof away from prosecutors and on to the asset’s owner.
Preventing Financial Crime with Unexplained Wealth Orders
The first successful use of a UWO since its implementation is the recent case of Zamira Hajiyeva, who owns millions of dollars in properties in London through offshore companies. Her husband, Jahangir Hajiyev, was convicted and sentenced to 15 years in prison for fraud and misappropriation of public funds, and authorities were able to identify a clear disparity between his income and the couple’s apparent wealth. Below are 3 examples of properties recovered that were allegedly purchased with misappropriated state funds:
1. Kenwood Gate, Hampstead Lane, London
Suspected owner: First family of Azerbaijan
Estimated Value: £18 million
In 2015, the Organised Crime and Corruption Reporting Project (OCCRP) uncovered an £18 million mansion on Hampstead Lane, North London, belonging to the First family of Azerbaijan. According to Land Registry documents the mansion is owned by Beckforth Services Limited — an Isle of Man company. Official company documents from 2000 state that Beckforth was controlled by Ilham Aliyev, the country’s current President, and his wife Mehriban, who is his now Vice President. In 2012 the registered shareholder was recorded as Leyla Aliyeva, Ilham and Mehriban’s eldest daughter. Since then it has been recorded as a British Virgin Island company, Sonymore Limited, and then another Isle of Man company, Locki Limited, of which Leyla was the sole shareholder until 2014. Since then Locki’s registered shareholder has also been Sonymore and its current shareholder is itself as a trustee of another company.
At the time the property was bought Ilham Aliyev was Vice President of the country’s state-owned oil company, SOCAR, and his father was the country’s President. There is no public documentation about Ilham’s wealth or income at the time when the house was purchased. However, the First family of Azerbaijan are alleged by the OCCRP to have collected vast amounts of personal wealth by abusing their positions of power. Ilham Aliyev has been the country’s President since 2003 and currently has an official annual salary of £75,000. Although elected officials are not yet required to publish the details of their assets, latest estimates by the OCCRP claim the Aliyev family hold a global property portfolio worth at least £100 million, including £41 million in London real estate.
2. Flats 138A and 138B, 4 Whitehall Court, London
Suspected owner: Igor Shuvalov, Russian First Deputy Prime Minister
Estimated Value: £11.44 million
In 2014, the First Deputy Prime Minister of Russia, Igor Shuvalov, published an anti-corruption declaration which showed among other properties, he rented a flat in London just 10 minutes’ walk from the Houses of Parliament. Contrary to this, however, anti-corruption campaigner Alexey Navalny alleges that Shuvalov owns flats Flat 138A and Flat 138B in 4 Whitehall Court, which in total are worth £11.44 million.
Land registry documents show the properties are owned by Sova Real Estate LLC, which according to official records obtained by Navalny indicate is owned by Shuvalov and his wife. It is unclear how Shuvalov was able to afford the apartments. His 2014 asset declaration lists his official salary as £112,000 meaning it would take him 76 years to pay for these Westminster properties. The value of the flats also exceeds the joint wealth of Shuvalov and his wife, which are listed on his 2014 declaration as £634,000.
When questioned about his ownership of foreign properties, Shuvalov acknowledged that he owned a number of properties through holding companies in a 2014 interview however Navalny claims he has never spoken publicly about the London property.
3. 7 and 8 Whittaker Street, Belgravia, London
Suspected owner: Bukola Saraki, President Nigerian Senate
Price: £9 million and £6 million
Land Registry documents show that these two addresses are owned by Landfield International Developments Limited and Renocon Property Development Limited. Based on current market estimates by Zoopla, the properties are worth a combined total of around £15 million. According to data released as part of the Panama Papers, these companies were controlled by Toyin Saraki, the wife of the President of the Nigerian Senate, Bukola Saraki as well as one of his personal aides. At the time of these revelations, none of these offshore holdings were reported in Saraki’s official asset declarations.
Previous public disclosures by Saraki have indicated he has high levels of unexplained wealth. In 2003, his asset declaration showed he had amassed tens of millions of pounds worth of assets during his time as director of Société Générale Bank and Special Assistant to the President on Budget. The explanation he provided for these acquisitions was stated simply as “business”. Saraki is involved in an ongoing court case around allegations of false asset declarations from his tenure as Governor of Kwara state.
When asked by The Guardian about these properties, Saraki stated said he had declared all his assets correctly and in accordance with Nigerian legislation.
With corruption watchdog Transparency International estimating that £4 billion of UK property has been purchased with the proceeds of crime, it is hoped that this successful implementation of a UWO will herald a clampdown on overseas criminals laundering via the property market.
The success of this UWO has been fundamental in beginning to reduce the appeal of the UK as a destination for illicit income. In June, mortgage brokers were already reporting that Russian purchases of prime real estate in London had slowed as a result of both government pressure and a tightening of anti-money laundering rules.
There are, however, reasons to be wary of perceiving the introduction of UWOs as a cure-all for the UK’s money laundering problems. These court orders are ineffective as soon as a defendant can provide an explanation for the source of their wealth. In the absence of evidence to the contrary, they then win the argument. Legal difficulties and costs are other factors that can lead to delays in the UK’s fight against money laundering, while information obtained via a UWO cannot be used in criminal proceedings against the respondent. For UWOs to have credibility, authorities will need to ensure the first uses of them continue to be successful in order to serve as a useful deterrent going forward.
Further, money laundering covers a wide range of criminal activity and consequently can’t be solved by a single approach. Fragmented supervision and anonymous ownership of property in British Overseas Territories and Crown Dependencies are just two areas where Transparency International is still advocating for change to improve the UK’s asset recovery and anti-money laundering regime.