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Economic Crime Act seeks to boost meagre use of Unexplained Wealth Orders

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United Kingdom

The introduction of Unexplained Wealth Orders (UWO) in the Criminal Finances Act 2017 was heralded as a powerful new weapon for enforcement authorities to wield in the fight against organised crime. UWOs (dubbed 'McMafia orders') allow certain UK enforcement authorities (the NCA, SFO, FCA, the Director of Public Prosecutions and HMRC) to freeze and potentially seize the assets of individuals whose wealth is suspected to be unlawfully obtained.  A handful of UWOs have been obtained over the past four years, but success has been limited and their use far more restrained than was initially anticipated.
 
The Economic Crime Act, which is likely to become law next week, has been sped through Parliament in response to Russia's invasion of Ukraine with the aim of cracking down on 'dirty money' flowing into the UK from Russia. The new Act will give an attempted boost to UWOs by introducing three new notable provisions:
 
  • Enabling UWOs to be sought against property held in trust and other complex ownership structures such as opaque foundations.
  • Increasing time available to law enforcement to review material provided in response to a UWO.
  • Limiting costs exposure in the event that a UWO is successfully overturned by the respondent.
The last of these key provisions is the most interesting. The financial liability of pursuing a case will be limited as long as the law enforcement agency has demonstrated it behaved reasonably and honestly. This provision is likely a response to a UWO that badly backfired for the NCA in 2020. In May 2019 two companies which own three multi-million pound properties in London - which were said to be worth approximately £80 million in total - were made subject to UWOs by the NCA over links to Rakhat Aliyev, a Kazakh politician turned dissident who was once married to the daughter of Nursultan Nazarbayev, the former president of Kazakhstan. The NCA argued that there were grounds to suspect that Rakhat Aliyev had enriched himself through the corrupt use of his public position and therefore the properties had not been acquired through legitimately obtained money. Nurali Aliyev, the son of Rakhat Aliyev, occupied one of the properties and he and his mother, Dariga Nazarbayeva, were ordered to explain how these properties were acquired. 
 
The defendants to the UWOs challenged them in the High Court and in April 2020 this challenge was successful. The Court held that the properties were legally owned through two companies, and that "the NCA's assumption" that Rakhat Aliyev was the source of the money used to buy the three properties was ultimately "mistaken" and "unreliable". The High Court concluded that there was "cogent evidence" that Dariga Nazarbayeva and Nurali Aliyev had founded the companies which owned the homes, and had provided the money to pay for them. Ultimately, the High Court ruled that the NCA's evidence did not sufficiently prove that that Rakhat Aliyev's funds had been used to set up various offshore shell companies used to purchase the properties. As a result, the High Court discharged the UWOs and ordered the NCA to pay the defendants' costs, estimated at approximately £1.5 million.
 
It is no secret that the NCA is underfunded and this serious setback likely dissuaded the NCA and other authorities from embarking on further cases. By reducing the potential costs exposure to an unsuccessful UWO, the Economic Crime Act may kick-start their use after two years of stagnation. Given the comments made about the NCA's evidence by the Court in the Aliyev judgment, this may not necessarily have been a case where the financial exposure would have been limited. However, those subject to UWOs in the future will have put forward strong arguments in court to demonstrate that the relevant investigating authority has not acted reasonably or honestly in order to maximise its costs recovery if they successfully overturn a UWO. Whilst we can expect there to be increased use of UWOs there is still a prospect that well-resourced defendants will be able to overturn them and maximise their costs recovery.

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