Heightened Need to Consider CFIUS Risks

Alert: Three Unexplained Wealth Orders Against The Family Of Former Kazakh Official Discharged

April 2020 Last week the English High Court discharged three Unexplained Wealth Orders (“UWOs”) granted in 2019 in relation to properties owned by the family of a former senior Kazakh official, Mr Rakhat Aliyev. (NCA –v- Baker and Others [2020] EWHC 822 (Admin)).

UWOs are a relatively new investigative power introduced in 2018 to enable law enforcement agencies to obtain evidence from respondents as to the source of their wealth. These are the first UWOs to be successfully challenged.

In May 2019 the National Crime Agency (“NCA”) successfully obtained the UWOs in relation to three London properties which it suspected were purchased using the proceeds of unlawful conduct by Mr Rakhat Aliyev. Mr Aliyev had previously held prominent positions in the Kazakh government, but died in prison in Austria in 2015 whilst awaiting trial on charges of murder. The UWOs were made against four entities registered in Panama, Curaçao and Anguilla, as the registered owners of the properties, as well as against Mr Andrew Baker, a solicitor and professional trustee who acted as “President” to the two Panamanian entities (together, the “Respondents”).

In August 2019 the Respondents filed evidence identifying the ultimate beneficial owners of the properties as Mr Aliyev’s ex-wife Dariga Nazarbayeva and their son Nurali Aliyev. Ms Nazarbayeva is also the daughter of former Kazakh president, Nursultan Nazarbayev. The Respondents argued that the purchase and transfer of the properties was unconnected to Rakhat Aliyev or his alleged criminal activities, but the NCA refused to withdraw the UWOs.

After reviewing the Respondents’ evidence in detail, the High Court ordered that the UWOs be discharged.

The Court found that the NCA’s case was “flawed by inadequate investigation into some obvious lines of enquiry” and that the NCA had “failed to carry out a fair-minded evaluation of the new information provided”. In particular, the Court observed that the NCA did not appear to have considered the fact that Ms Nazarbayeva and Mr Nurali Aliyev were successful business people in their own rights, that Ms Nazarbayeva’s relationship with her ex-husband had broken down in 2007, and that an investigation into Mr Rakhat Aliyev in Kazakhstan had concluded with the confiscation of his assets, but not hers.

In addition, the judgment also highlights some of the difficulties, and potential pitfalls, of applying the UWO legislation against offshore structures and professional trustees.

In this context, the High Court’s judgment looked in particular at the NCA’s allegations against Mr Baker, the named “President” of the Panamanian foundations through which two of the properties were owned. Having reviewed the Respondent’s evidence as to the structure and incorporation of the foundations, the Court did not consider that Mr Baker could be taken to have effective control over, or to be a trustee of, the properties. The Court was also not satisfied that the NCA’s evidence established that Mr Baker was a PEP, or that he had been involved in serious crime. The NCA’s case here was based entirely on the presumption that the properties had been acquired using funds from Rakhat Aliyev and without evidence of an actual connection between Mr Aliyev and Mr Baker.

The Court also noted that the NCA had placed significant weight on the “complex and secretive” manner in which the properties were obtained, and subsequently handled, via offshore structures and UK management companies. The Court commented that although complex offshore structures could be used to disguise money laundering, there are lawful reasons (privacy, security, tax mitigation) why such structures are sometimes used. The use of such structures alone is not a ground for suspicion unless there is enough additional evidence to give rise to an “irresistible inference” that the property could only have been obtained as a result of crime (R –v- Anwoir [2008] EWCA Crim 1354).

Conclusion

This is an important judgment for wealthy families connected to foreign politicians. It clearly shows that the High Court will apply the rules around the UWO regime rigorously and that the ability to demonstrate independent sources of funds can result in a successful discharge of an UWO. The Court's findings may also cause judges to take a more robust approach going forward when asked to grant UWOs in the first place – particularly against trustee or nominee respondents.

The NCA is reported to be considering an appeal, so this remains a case to watch in this new area of law.

Contributing authors: Neill Shrimpton, Olga Bischof, Joanna Curtis

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