Leaders of organized criminal groups, dictators who steal from their people, crooked officials, and other shady characters have become adept at hiding their millions in Western capitals.

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The convoluted corporate networks, hidden bank accounts, and sophisticated proxy schemes that underlie these financial flows are largely beyond the grasp of all but the most dedicated specialists. But there’s one sector where the corruption takes physical form, turning cities like London into virtual showcases of tainted foreign wealth: Real estate.

Sherlock Holmes’ iconic address on Baker Street is owned by structures connected to the daughter of former Kazakhstani dictator Nursultan Nazarbayev. In stately and elegant Belgrave Square sits a ten-bedroom mansion belonging to a Ukrainian oligarch who is accused of stealing billions from a bank he owned. The city hosts so many of these assets that one group of activists was inspired to conduct “kleptocracy tours” to highlight property after ill-gotten property.

Thanks in part to repeated journalistic exposés, pressure has been growing for law enforcement to take a harder line against corrupt foreigners. One new mechanism, introduced with some fanfare in the United Kingdom in 2018, is the unexplained wealth order (UWO). This procedure allows the country’s investigators to require that the owners of suspiciously large assets show how they paid for them. If they cannot, the presumption is that the assets were obtained unlawfully, making it possible for the authorities to seize them.

James Mather, a lawyer specializing in commercial fraud, said the UWO was introduced “very much in the expectation that [it] would transform asset recovery, perhaps above all by slicing through the Gordian Knot of disguised ownership structures and shadowy dealings with property.”

Unusually for a technical legal instrument, the UWO received widespread and favorable coverage in the mainstream press, which dubbed it the “McMafia law”after a popular BBC drama.

In a couple of cases, UWOs worked as advertised. In January 2021, Zamira Hajiyeva, the wife of a jailed Azerbaijani banker, lost a Supreme Court appeal against the first UWO ever issued, and will now have to justify to investigators her purchase of two luxury properties. Two months earlier, a UWO in a separate case helped the National Crime Agency (NCA) secure the forfeiture of several properties owned by Mansoor Mahmood Hussain, a Birmingham businessman with alleged ties to organized crime.

But while experts acknowledge these successes, and laud the elevation of dirty money on the public agenda, many note that the reality has not always met expectations.

“There’s quite a bit of a gulf between the public perception and the media portrayal of UWOs … and what the law actually says,” says Phil Taylor, a lawyer who specializes in financial crime. “It was never intended … to be some kind of magic bullet. It’s an investigative tool which has a limited purpose.”

To date, the NCA remains the only agency to have pursued a UWO, though virtually all enforcement bodies have the power to do so. And when UWOs are used, the opacity of the financial structures being investigated — the very problem they were meant to overcome — make it difficult to gather the evidence that will ensure they stand up in court.

Jon Lennon, a U.K. barrister who specializes in serious crime and corporate wrongdoing, went so far as to describe UWOs as “something of a damp squib.” Since their introduction two years ago, only a small number have been pursued by U.K. law enforcement. The 15 issued so far apply to just four cases.

🔗Could Trump Be Asked to “Explain” His Scottish Golf Resorts?

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In February 2021, the Scottish Parliament debated the possibility of bringing UWOs against two golf courses owned by former U.S. President Donald Trump.

Those in favor pointed out that the U.K. government is technically empowered to ask authorities to pursue a UWO if they believe it to be in the public interest. The provenance of Trump’s investment in the Turnberry and Aberdeen golf courses has long been shrouded in mystery, and MPs cited mounting investigations into Trump’s financial interests in the United States as grounds to scrutinize his holdings in the U.K.

The motion was ultimately defeated after ministers argued that actually enacting their ability to instigate proceedings would essentially amount to political interference in the investigative process.

Moreover, perhaps the highest-profile of the UWO cases — the pursuit of allegedly illicit wealth acquired by the ex-wife of a top Kazakh official — was dismissed in court for insufficient proof. And it was an expensive setback: The loss ate up over a third of the NCA international anti-corruption unit’s annual budget.

What does this mean for the future of what was once hailed as a transformational anti-corruption mechanism? And what role do UWOs have now, two years later, in the fight against dirty money?

Much of the popular misunderstanding about UWOs comes down to the simple truth that they alone would never be enough to fix the U.K.’s woeful record on illicit finance. As one judge said in a recent ruling, it’s “important not to lose sight of the relatively limited purpose” for which they were introduced.

In fact, a UWO is little more than an investigative tool. It enables authorities to gather intelligence on the provenance of a person’s assets, rather than acting as a punishment in and of itself. Even if the owner of a targeted asset fails to satisfactorily explain how it came into his or her possession, there’s no guarantee it’ll end up being confiscated. Prosecutors might begin civil recovery proceedings in the High Court to seize it, but the owner can still contest the proposed forfeiture before a judge and appeal if things don’t go their way.

“Unexplained Wealth Orders have obviously caught the zeitgeist, generating a lot of publicity,” says Rachel Harper, the head of threat response at the National Economic Crime Centre, an NCA unit that brings together officials from several enforcement agencies to coordinate investigations. But they are just one of many tools available — and not necessarily investigators’ first choice.

If a crime has been identified, and the evidence is robust enough, investigators might simply pursue straightforward criminal charges. Alternatively, they can apply for an account freezing order — which, unlike a UWO, targets financial accounts rather than property or luxury items.

🔗Account Freezing Orders

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Though relatively little-known, Account Freezing Orders (AFOs) are used much more frequently than UWOs. Unlike a UWO, which targets specific assets, an AFO targets a person’s bank accounts, freezing their holdings until they’re able to prove that their cash is legitimate. They’re exceptionally easy to apply for, require a much lower threshold of evidence, and are overseen by magistrates rather than High Court judges, which means they’re subject to less rigorous judicial testing. Hundreds are processed every year.

“It’s very much case-by-case, and it always depends on the intelligence available. We build a picture of a given criminal enterprise, and then identify the most disruptive options available to us,” Harper says.

Misconceptions about the scope of UWOs also obscure the difficulty of pursuing them. Investigators first have to satisfy a judge that the person does indeed own the asset, then show either that they’re suspected of committing a serious crime or that they occupy a prominent political role outside of the European Economic Area.

Given the complexity of the structures involved, gathering the necessary evidence can be arduous. It was the notorious opacity of the U.K. financial system that saw the recent Kazakh case slip through the NCA’s fingers. Investigators had applied for UWOs against three luxury London residences they suspected had been bought with funds earned illicitly by Rakhat Aliyev, a former contender for the Kazakh presidency.

Aliyev had been accused of fraud, kidnapping and several murders — including that of a prominent opposition leader — before his 2015 suicide in an Austrian prison. In response to the UWOs, the offshore owners of the properties submitted a letter to the NCA disclosing that they belonged to Aliyev’s son Nurali and ex-wife Dariga Nazarbayeva — herself the daughter of the former president of Kazakhstan, Nursultan Nazarbayev. They had been purchased with Nazarbayeva’s own funds, the letter claimed, and as a result had no connection with Aliyev’s tainted money.

The NCA was not persuaded and kept the UWOs in place, leading the Nazarbayevs to appeal to a higher court for review. In that case, a judge concluded that the agency’s arguments were “flawed by an inadequate investigation into some obvious lines of inquiry,” pointing out that the NCA did not fully take into account the information provided by the family. She ruled that the UWOs be dismissed. A spokesperson for Nurali Aliyev told OCCRP that the family felt “vindicated” by the result.

While the NCA lost a subsequent appeal against the court’s decision, a journalistic investigation published last November revealed that Nazarbayeva Have a peek here and her son allegedly acquired other properties in London with funds spirited out of Kazakhstan through Carribean offshores. The reporters noted that their findings raised fresh concerns about the money behind the properties targeted unsuccessfully by the NCA.

Though pursuing the case was costly, and the widely publicized loss demoralizing for transparency advocates, the information investigators received from the respondents was not without value. Anita Cliford, a lawyer who specializes in financial crime, described the case as “an example of UWOs doing what they set out to do.”

“Here the NCA was not victorious,” she said, “But … a large amount of information was ultimately provided by those who held beneficial interest in those properties. Though … a lot can be said about the tool being ineffective, I wonder whether it has gained access to information which otherwise would have remained very secret indeed.”

More broadly, Harper said, the NCA’s work in this area has helped the agency raise public awareness of the corporate structures that make the United Kingdom such a haven for dirty money, in particular pushing the regulation of beneficial ownership registries further up the policy agenda.

Even so, the amount of dirty money already in the U.K. poses its own challenges.

In its explosive report on Russian interference in U.K. politics and public life, Parliament’s Intelligence and Security Committee emphasized that the sheer scale of Russian investment in luxury residences makes it difficult to use UWOs effectively. “The extent to which this money has now been invested, and reinvested, calls into question the efficacy of the recently introduced Unexplained Wealth Orders when applied to the investigation of individuals with such long-established — and to all intents and purposes now apparently legitimate — financial interests in the UK,” the report read.

Resources are another obstacle. UWOs can be challenged on a variety of grounds, and “the kind of respondents you’re likely to see in these cases, by their nature, have access to large teams of highly-trained lawyers,” says Taylor, the financial crime specialist. By the NCA’s own admission, the agency is at a significant disadvantage: The Russia Report quoted an official saying that “we are, bluntly, concerned about the impact on our budget” of the fight to pursue even a single UWO.

Taylor points out that the problem isn’t unique to the NCA. Funding challenges are “something you’ll find, unfortunately, across U.K. law enforcement quite widely,” he says. As a result, experts say, the country is failing to bring the full force of its arsenal to bear against unexplained wealth.

As barrister Jon Lennon reflects: “I’m always disappointed at the lack of grit that some of the prosecution agencies have with going after what is clearly, obviously dirty money.”

OCCRP by Will Neal and Ilya Lozovsky

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03 de August de 2023