Challenge To First Unexplained Wealth Order Fails In High Court
National Crime Agency v Mrs A  EWHC 2534 (Admin) 3rd October 2018
Even given the prices it charges, running up a £16 million bill in Harrods over ten years takes some doing. But when it’s done by a woman who does not claim to have independent wealth of her own, and who was married to a banker who earned at most around £60,000 a year, it is hardly surprising that the National Crime Agency (NCA) took an interest.
Zamira Hajiyeva was known as Mrs A in the judgment but she subsequently lost her battle to remain anonymous. It is now known that her husband, Jahangir, was Chairman of the International Bank of Azerbaijan which was referred to as “the Non-EEA Country”. For simplicity the original terms of the judgment are used in this article.
Back in February of this year Mrs A, was the subject of the first ever Unexplained Wealth Order (UWO). The UWO regime is set out in Sections 362A to 362R of the Proceeds of Crime Act 2002 (POCA). They were brought into force on January 31st this year. They allow the Court to oblige a respondent to provide information about who owns specified property (which must be worth more than £50,000), how it was acquired and where it is held. It is, therefore, essentially an investigative tool. If the information is not forthcoming, or does not demonstrate that the property was acquired from lawful income, the property can be made the subject of the civil recovery provisions of POCA.
The original order was made by Mr Justice Supperstone on the ex parte application of the NCA. In July, lawyers for Mrs A applied to him to discharge the order. There were two main areas of challenge – first that Mr A was not what is known in the legislation as a Politically Exposed Person, and second that the NCA had failed to establish reasonable grounds for believing that the property had not been acquired from lawful income (the “income requirement”). There were further grounds relating to the order allegedly offending against self-incrimination and spousal privilege, and a suggestion that it was in breach of Mrs A’s rights under Article 1, Protocol 1 ECHR to peaceful enjoyment of her property.
First though, a little more of the background. Mrs A’s husband had been Chairman of a bank in an unspecified non-EEA country (for certain purposes the legislation is not applicable in the UK or other EEA countries). Mr A had been a government Finance Ministry official before joining the Bank in 1995. During the relevant period the government of the non-EEA country was a majority shareholder of the Bank, owning around 50-60% of the shares. In 2016 Mr A was jailed for 15 years for offences of fraud and embezzlement against the bank allegedly amounting to tens of millions of pounds. At the time of judgment there were no outstanding appeals against conviction or sentence.
The UWO related to a property bought for £11.5 million in 2009. A deposit of around £4 million was thought to have been put down, and the rest funded by a mortgage which was paid off within five years. The property was owned by Vicksburg Global Inc. a company registered in the British Virgin Islands of which, it was not disputed, Mr A was the beneficial owner.
Politically Exposed Person (PEP)
Under the legislation the respondent to the order must either be a PEP (which includes by stipulation a family member, known close associate or a person “otherwise connected” with the PEP) or the court must have reasonable grounds for suspecting that the respondent “is, or has been, involved in serious crime”. For Mrs A the question was whether Mr A was a PEP. There was no dispute that if he was, then she qualified too as his wife.
Section 326B(7) provides that a PEP is:
(a) an individual who is, or has been, entrusted with prominent public functions by an international organisation or state other than the United Kingdom or another EEA state …
For the determination of whether a person is “entrusted with prominent public functions” the legislation directs that Article 3 of Directive 2015/849/EU applies. The key for whether Mr A was so entrusted came down to Article 3(9)(g) which brings under this phrase “members of the administrative management or supervisory bodies of State-owned enterprises”.
Counsel for Mrs A submitted that the Bank was not a “state-owned enterprise”. It was, he submitted, a normal commercial bank, an Open Joint Stock Company, which happened to be part-owned by the state. The NCA argued for a wide definition of “state-owned enterprise”, taking its natural meaning – that is, an enterprise in which the state exercises any ownership rights. It was common ground that determining this issue is a matter of fact. Mrs A’s argument was rejected on the grounds that “at all material times the Government of the non-EEA country had a majority shareholding in the Bank and had ultimate control of the Bank” [at 38]. The judgment leaves open the question of whether that would still be the case if the state had a minority shareholding.
Supperstone J also rejected a further argument made by Mrs A that Mr A had not been entrusted with his prominent public functions “by an international organisation or a state”. Mrs A argued that if the legislation were applied as the NCA contended then the senior executives of any corporation owned by one of the sovereign wealth funds which buy up UK assets would be entrusted by a state and so come under the definition. The Judge disagreed. Such an application would fail anyway, he said, because there would be no reasonable grounds for suspecting that the fund did not have the lawfully acquired resources for the purchase [at 50].
The “income requirement”
In order to impose a UWO the court must be satisfied that there are reasonable grounds for suspecting that the known sources of the respondent’s lawfully obtained income would have been insufficient to obtain the property [s362B(3)].
One objection taken by Mrs A to the making of the order was the court’s reliance on her husband’s conviction. Evidence from his lawyers provided a picture of what Mrs A said was a flagrantly unfair trial in which Mr A had been prevented from cross-examining many prosecution witnesses, and denied permission to call his own witnesses. She called expert evidence attesting to the non-EEA country’s routine abuse of international norms for criminal prosecutions. The court held [at para 78] that there was no exclusionary rule preventing the court relying on the conviction whether or not it was obtained flagrantly unfairly, with a limited exception relating to evidence obtained by torture.
The court held that the trial did not appear to be so flagrantly unfair that the NCA should be prevented from relying on it at this early investigative stage, although that might influence what the NCA invited the court to do in the future as a result of the UWO. Further he held that the income requirement was satisfied even without reliance on the conviction. As a matter of fact there was corroborative evidence of the embezzlement, and insufficient supporting evidence of what Mrs A claimed was her husband’s pre-existing wealth.
This first challenge to a UWO, if it is not successfully appealed, demonstrates that challenging an order will not be easy. The court granted a wide latitude to the NCA over what evidence could be relied on at what it emphasised was a purely investigative stage. It rejected further grounds of appeal suggesting that the process breached the rule against self-incrimination, spousal privilege of peaceful enjoyment of property. It remains to be seen whether challenges might be more successful at the stage when the disposal of the property is being considered.