The NCA’s Kazakh Unexplained Wealth Order (UWO) – a costly decision?

Author: Joseph Sinclair

1 July 2020

On 17 June 2020, Lady Justice Carr unequivocally refused the National Crime Agency’s (“NCA”) application for permission to appeal. The NCA had sought to challenge Justice Lang’s decision to discharge the unexplained wealth orders (“UWO”) against the Aliyev family (see our earlier post).

The NCA had an uphill struggle given that Lang J had found that it was an unreliable assumption to say that the funds had originated from Rakhat Aliyev. Carr LJ agreed, finding that the lower court’s decision was factually and legally correct. Although the UWO regime might benefit from further judicial guidance, she opined that this case might not be the right one to achieve this.

Reuters has since reported that the Respondents are seeking costs of a staggering £1.5m. The Court has ordered the NCA to make an interim payment of £500,000. Both sums are a significant hit on the NCA anti-corruption work budget which has been just over £4 million annually since 2015. A 2017 Home Office impact assessment predicted 20 UWO applications per year would cost between £800,000 and £1.5m over ten years.

The Legal Implications

Lang J’s finding that the use of off-shore, complex and opaque structures are not in themselves a basis for reasonable suspicion has the potential to significantly undermine the UWO regime. Carr LJ compounded this, finding that the facts needed to “…give rise to an irresistible inference that the property could only have been derived from crime”.

The Criminal Finances Bill was put before Parliament in 2016 with the recognition that there were shortcomings in Proceeds of Crime Act 2002. It could not be used to effectively investigate financial crime and corruption because of the evidential difficulties associated with overseas jurisdictions and complex company structures (see §12-13 of the Explanatory Notes).

MPs made amendments “to ensure that unexplained wealth orders [could not] be circumvented through trusts or other complex financial arrangements” (Rupa Huq; see also §6 of the Explanatory Notes). The then Minister of State in the Lords, Baroness Williams said that “UWOs should be a significant tool to help probe the ownership of UK property [held in the name of an overseas company].”

The Parliamentary debates on the Bill also show a real concern for the use of shell companies. Dame Margaret Hodge cited two examples during the second reading:

  • A 2013 World Bank study shows that of 213 corruption cases between 1980 and 2010, 70% involved shell entities; and
  • The African Progress Panel found that BVI companies had been used to deprive DRC citizens of some £1.35bn through underselling mining contracts. 

The findings in Aliyev have the potential to put the evidential threshold in UWOs on a par with confiscation proceedings. Not only would this be a huge hurdle to surmount, it would undermine the underlying rationale. If there is an “irresistible inference” that property has derived from crime, why bother applying for a UWO at all?

At What Cost?

Whether the Respondents get the full £1.5m or a lower sum, it is a hefty bill to land on the NCA’s doormat. It is a significant portion of its budget that takes tax payer’s money from other aspects of the NCA’s vital work in tackling corruption. Read against the impact assessment, the NCA seems to have spent 10 years of its predicted UWO costs on a single case, excluding its own costs.

It is without doubt that the Aliyev case will not be an anomaly in this area. Tackling kleptocrats and politically exposed persons will involve going against the best and most expensive lawyers, 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.

It was for this reason that the Conservative MP, Nigel Mills, sought an amendment to the Criminal Finances Bill so that costs could not be awarded on an indemnity basis:

“…it would be unreasonable for [respondents] to engage numerous very highly paid barristers and incur costs that were wholly disproportionate, which the taxpayer would end up having to pay. The real risk is that bodies trying to use these powers would be deterred from doing so, because they would fear that very rich people might take large chunks of their budgets for a long period while resisting the orders.”

The amendment was rejected by the government; the ordinary costs regime is “…an important check and balance on parties bringing spurious claims, or the state using its powers erroneously”. The Mills amendment never made it into the POCA.

This position ignores that elsewhere in the POCA regime costs do not operate on a “loser pays” basis. In unsuccessful forfeiture proceedings, for example, the starting point is that there should be no order for costs. The court assesses whether the enforcement authority acted unreasonably and improperly, or whether they would suffer substantial hardship (see Bennett). The Bennett rule not only operates in low-level matters. It would have applied in the NCA’s recent account freezing order of eight bank accounts worth £100m.

In light of the Aliyev case, and if the government takes tackling dirty money in the UK seriously, cost consequences in UWOs must be reconsidered.

Conclusion

The decision to refuse permission is a big blow to the UK’s UWO regime and the NCA’s efforts to tackle dirty money, particularly when it comes into the UK from secretive offshore jurisdictions. There is no doubt that there will need to be a review as to whether the legislation as it stands is achieving its underlying intended aims and a serious rethink on how costs operate in relation to the regime.