A legal tool designed to sniff out illicit wealth was meant to help rid the City of dirty money. But it hasn’t quite delivered the results the government might have hoped for, Ben Lucas reports
After Russia invaded Ukraine, the UK ramped up its efforts to sanction Russian oligarchs and freeze their high-value assets.
But the clamp down on kleptocrats buying up London properties or using UK companies to store and move their suspect wealth has been going on for quite some time.
In 2018, the UK passed a law that gave authorities a new tool to help sniff out illicit wealth, known as Unexplained Wealth Orders, or UWOs.
The popular TV series ‘McMafia’ – a crime drama starring James Norton who plays a British-raised son of a Russian mafia boss trying to escape his past in London – which was being aired at the same time, led to it being dubbed the ‘McMafia’ law.
This only added to the hype and fanfare around this new power, which politicians led the public to believe would help rid the City of dirty money.
At the time the orders were coming in, Ben Wallace, who was security minister at the time, spoke of the orders in a context of launching a “full spectrum” attack on criminals and the corrupt stashing their ill-gotten gains in Britain.
But five years on, it turns out the tool has barely been used by the UK’s crime-fighting authorities.
Court battles
UWOs became available to the authorities in early 2018. They force individuals to explain how they acquired their UK-based assets worth more than £50,000. Failure to offer a sufficient explanation or evidence means the assets can then be considered recoverable.
The National Crime Agency (NCA) first deployed the tool that same year against Zamira Hajiyeva, the wife of a former boss of the Azerbaijani state bank, who was jailed for defrauding the bank out of millions of pounds.
Unexplained Wealth Order recipient Zamira Hajiyeva arrives at Westminster Magistrates’ Court for her extradition hearing. PA Photo. Picture date: Thursday September 26, 2019. The wife of a “fat cat international banker” who spent £16 million in Harrods is wanted on two charges of embezzlement in Azerbaijan. See PA story COURTS McMafia. Photo credit should read: Jonathan Brady/PA Wire
The case targeted Hajiyeva‘s property, including her Knightsbridge home and an £11m Berkshire golf course. It also revealed her excessive spending habits, showing she had spent over £16m at Harrods between 2006 and 2016. She has always denied any wrongdoing.
The NCA was successful, and despite appeals by Hajiyeva, the courts consistently sided with the agency.
But after this win, the authorities lost momentum.
The next case targeted assets linked to family members of the former president of Kazakhstan, Nursultan Nazarbayev, ordering them to explain how they purchased several multi-million pound properties.
The NCA targeted three properties worth a total of £80m that it suspected were purchased with ill-gotten gains, including a mansion on London’s famous Billionaire’s Row, a Chelsea apartment and another house in Highgate.
But the court rejected the NCA’s claims and hit the agency with a £1.5m legal bill.
Experts argue this was a turning point, and since this case authorities’ appetite for using them has all but disappeared.
A spokesperson for the NCA confirmed to City A.M. that UWOs have only been deployed in five cases since they were introduced, including the one where it was ultimately unsuccessful.
Meanwhile, a spokesperson for Serious Fraud Office (SFO) confirmed that it has never applied for such an order, although it still deemed UWOs to be a “powerful tool”.
This is a far cry from what the government envisioned. A 2017 Home Office impact assessment predicted authorities would deploy as many as 20 UWO applications per year.
Expectation vs reality
While all new legislation needs testing, and one would expect to see appeals and robust legal challenges, experts say that the power of UWO’s was definitely over-hyped at the time.
“There have always been significant public misconceptions around UWOs themselves being an ‘end result’ rather than the early investigative tool it is in reality,” one former NCA employee told City A.M.
“Bringing a successful legal action against the well-connected, litigious, wealthy criminals and corrupt [Politically Exposed Persons], where all previous attempts have failed, was always going to be a tall order,” they added.
“The take up hasn’t been anywhere near what one might have expected.”
Pia Mithani, a partner at law firm Stewarts
Pia Mithani, a partner at law firm Stewarts, said despite the fanfare when first introduced, “the take up hasn’t been anywhere near what one might have expected.”
Mithani said, however, that UWOs themselves are not bad tools.
“I think it would be wrong to describe the powers as weak on paper. The threshold requirements to obtain a UWO are not in themselves particularly onerous,” Mithani, who specialises in multijurisdictional fraud and asset recovery cases, told City A.M. “The problem comes when the evidence to support an application is put under the microscope and challenged by very well resourced respondents who want to challenge them and set them aside.”
Lawyers say the risk of landing with a hefty legal bill, as the NCA did in the Aliyev case, was one of the main reasons the authorities became hesitant.
“Have UWOs been effective against high level targets? No, they haven’t,” Ben Cowdock, a senior investigator at Transparency International UK, told City A.M. “I think if [they] were deployed against people that weren’t as politically powerful, they could be more useful.”
A spokesperson for the NCA told City A.M. that UWOs are “only one of a range of tools available to the agency, and they have a very specific use.”
“We have always been cautious about the number of cases we would use UWOs in. A small number a year. They are not a simple solution, involving no small amount of investigation and work to apply for,” they added.
In a bid to breathe life into UWOs, the government changed the law in 2022 so authorities won’t have to pay legal costs in the event they are unsuccessful, unless they were found to have acted unreasonably or dishonestly.
“Now that there’s cost capping, I think it’s worth waiting a little bit longer to sort of see if they are used anymore before we write them off,” Cowdock said. “But I also don’t think we should see them as a silver bullet.”
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A ‘damp squib’
Some, however, argue that even with the cost capping in place, the tool remains unpopular with law enforcement.
Susan Hawley, the director of campaign group Corruption Watch, told City A.M. that law enforcement agencies “don’t particularly like this tool”.
“They have been described by law enforcement as a goldilocks power – they only work under quite narrow and specific conditions.”
Susan Hawley, the director of campaign group Corruption Watch
“They have been described by law enforcement as a goldilocks power – they only work under quite narrow and specific conditions,” she said.
Jonathan Grimes, a partner at law firm Kingsley Napley, said that UWOs are just “quite hard work”.
“At the end of the day, law enforcement has kind of concluded there’s not a whole load that they can get from a UWO that they can’t get from some other means,” Grimes, who specialises in white collar crime cases, told City A.M.
Even though authorities would not necessarily have to pay legal costs in the event of a court loss, they still have to pay to instruct barristers in the high court.
And it still takes time to get results. A spokesperson for the NCA confirmed it is still in the process of trying to confiscate the assets in the Hajiyeva case.
Josef Rybacki, an associate at law firm WilmerHale, told City A.M. that they’ve ultimately been a “damp squib” and are “not favoured by law enforcement agencies”.
But all hope is not lost.
“Sometimes, new policing tools work really well. The Account Forfeiture Orders, for example, have proven to be widely applicable, producing consistently strong results since their inception,” the former NCA employee said.
As for UWOs though, this tool looks like it will be left near the bottom of the toolkit when it comes to fighting financial crime.