Unexplained Wealth Orders and London property market
The National Crime Agency (NCA) has just obtained another round of unexplained wealth orders (UWOs) to investigate multi-million pound properties in London. But what are they, and how are they being used?
The NCA recently obtained three UWOs in relation to three residential properties in London exceeding £80m held by offshore entities.
The names of the individuals subject to these orders have yet to be released. Separately, Azerbaijani banker Jahangir Hajiyev and his wife Zamira Hajiyeva have once again found themselves in the media spotlight following a UWO made against the latter in February 2018.
Court documents recently published show that Hajiyeva apparently spent a staggering £16m at Harrods, and that the Hajiyevs own a £15m Berkshire golf course. The risks involved with PEPs and the authorities’ interest in ascertaining sources of funds remain very topical issues.
What are UWOs?
UWOs are investigative orders that may be issued by the High Court to assist government authorities in uncovering how assets were acquired. UWOs are powerful tools against not only known or suspected criminals and their assets but also PEPs from outside the UK and the EEA whose ostensible incomes fail to explain their asset portfolio.
Moreover, in the case of PEPs, the authorities do not need to establish a suspicion of serious criminality – the mere fact that an individual is a PEP or associated closely with a PEP is sufficient, coupled with the fact that their assets appear disproportionate to their known legitimate income.
Those subject to UWOs must explain how the relevant property was obtained and demonstrate what income (whether lawful or potentially unlawful) was deployed in acquiring the relevant assets.
UWOs are a civil remedy and when issued may be accompanied by freezing orders in order to prevent the dissipation of the relevant assets. Evidence produced in response to a UWO may be used in future Court proceedings and any assets seized may potentially be used in civil recovery proceedings.
London properties, the ideal target
In a 2017 report, Transparency International UK found that £4.2bn worth of London property was bought by individuals (and associated entities) representing a high money laundering risk. UWOs are an appropriate tool to consider whether this high money laundering risk has in fact materialised.
Given that the minimum threshold for seizure of suspicious assets is relatively low (£50,000), it is an effective way to target London properties that may have been purchased using criminal proceeds. Due to their illiquid nature, it is relatively easier for government agencies to target such properties, as opposed to cash and other liquid assets.
Also, their ownership must be registered publicly and, if purchased through UK companies, the ultimate beneficial owner or “person with significant control” must be listed on public registers. Even in the case of properties purchased by shadowy foreign entities, such as SPVs incorporated offshore, a combination of public record searches and other investigative tools is likely to offer the authorities enough material to open an investigation and seek a UWO against suspected persons as means to investigate suspected corruption.
In July 2017, the Supreme Court of Pakistan removed Pakistani Prime Minister Nawaz Sharif from office on the grounds that he had failed to declare his interests in Park Lane properties valued at around £8m. Sharif has vehemently protested his innocence of any wrongdoing. The Pakistani authorities continue to investigate how Sharif was able to acquire these properties and Transparency International UK have put Sharif’s properties, along with other properties believed to be owned by PEPs from outside the EEA, on a list of “hot cases” the UK authorities ought to consider pursuing.
Whether, how and, indeed, with what gusto the authorities will deploy UWOs is yet to be seen. However, it is clear that if the authorities are minded to, UWOs offer them an incisive method to uncover the stories and facts behind some of the influx of cash into the London property market.
Philip Young is a partner and Shamilee Arora is an associate, both at Cooke, Young & Keidan
Originally published in Economia on 11 June 2019.