£1.5m legal bill forces rethink over McMafia wealth orders
14 Jul 2020

A central measure in the government’s strategy to investigate so-called McMafia corruption is at risk after the cost of fighting complex cases increased sharply.

Ministers hailed the unexplained wealth order (UWO) as the centrepiece of a “full-spectrum” assault on illicit wealth being laundered through the London property market.

The measure is being reassessed after the National Crime Agency (NCA) was hit with a £1.5 million legal bill from a failed attempt to impose UWOs on three London properties worth £80 million linked to a wealthy Kazakh family. The Court of Appeal ordered the payment of £500,000, immediately, criticised the NCA’s approach to the case as “flawed” and refused permission to appeal. Sources told The Times that the agency was braced to pay the remainder of £1 million.

A previous High Court judgment was scathing of the NCA’s investigation describing it as inadequate. It said the agency ignored “cogent evidence” the properties were bought legitimately.

The costs of the case amount to more than a third of the £4.3 million budget of the NCA’s international anti-corruption unit and have prompted a rethink on the future use of UWOs.

The orders, which freeze assets and require those targeted to explain the source of their wealth, could be subject to a further legal challenge. Lawyers for Zamira Hajiyeva, the wife of a jailed Azerbaijani banker whose properties worth £22 million are frozen, are seeking a Supreme Court hearing.

The situation is embarrassing for the Home Office, which predicted in an impact statement in 2017 that UWOs would be used in 20 cases per year with a maximum estimated cost of £10,000 each. In reality since their introduction in 2018 UWOs have been deployed in only four investigations since their introduction in February 2018.

The NCA is the only body to have used the powers. The Serious Fraud Office, HM Revenue & Customs, Financial Conduct Authority and Crown Prosecution Service have authority but have shied away from them.

Sources told The Times that UWO investigations into oligarchs and “politically exposed persons” had proved much more difficult than expected.

Financial arrangements were difficult to disentangle, large amounts of paperwork slowed the process and inquiries in some overseas jurisdictions were not possible. There is frustration in some agencies that UWOs have been hyped by ministers and the media when they are a limited tool rather than a silver bullet to tackle alleged money laundering.

The orders were the key measure in the Criminal Finances Act, which came into effect in January 2018.

Ben Wallace, the security minister at the time, said in an interview with The Times that he was pressing law enforcement agencies to use UWOs and bring the “full force of the government” to bear on corruption and organised crime.

Susan Hawley, of Spotlight on Corruption, said the failures in the Kazakh case would have a major impact on the future of UWOs. “The costs awarded against the NCA in this one case represent what the government predicted the costs would be from UWOs over ten years,” she said. “Taking such action will involve unpicking complex corporate vehicles and reams of evidence. Such cost exposure poses a real hurdle to the continuing use of UWOs in all but the most obvious cases.”

Graeme Biggar, director of the NCA’s national economic crime centre, admitted that the costs order was a blow. “Clearly we need to think about what it means for future cases and we will learn from it,” Mr Biggar said. “We are still committed to going after suspected illicit finance in the UK and using UWOs as part of that. We will still look to use UWOs where it is the right tool.”

The Kazakh politician Dariga Nazarbayeva and her son Nurali Aliyev, whose properties were targeted by the NCA, said that the agency had behaved irresponsibly in the case. Mr Aliyev said the NCA had obtained the UWOs “on an inaccurate basis as part of a flawed investigation which was entirely without merit”. He accused the NCA of pursuing “a groundless, vicious legal action”.

By Sean O’Neill, The Times, 13 July 2020

Read more at The Times

RiskScreen: Eliminating Financial Crime with Smart Technology

You can claim CPD minutes for this content, by signing up to our CPD Wallet