Foreign politicos and their intermediaries have employed numerous strategies in the past two years to adapt to a new legal measure that has placed their U.K. assets at higher risk of seizure, sources told ACAMS moneylaundering.com.
In January 2018, U.K. investigators gained authority to petition judges to approve unexplained wealth orders, which place the burden on suspected criminals and politically exposed persons, or PEPs, based outside the EU, to demonstrate that their property, funds and other assets proposed for seizure derive from legitimate sources.
UWOs made headlines that October when the High Court in London dismissed a legal challenge brought by Zamira Hajiyeva, the wife of an Azerbaijani banker jailed for fraud and embezzlement in his home country, against the measure’s first use, a petition by the National Crime Agency to seize two U.K. properties worth a combined £22 million from the couple.
David Templeman, an NCA operations manager, told moneylaundering.com that, following the ruling, individuals fearing they may become a target for a UWO and their lenders, lawyers and accountants have shown more willingness to cooperate at the onset of an investigation.
“The incentives for them to come forward, interact with us and provide information are much stronger,” Templeman said.
Fear and disclosing
The NCA obtained UWOs in three more cases in 2019 – including against two unidentified U.K. citizens suspected of ties to organized crime syndicates – bringing the total value of assets restrained to date to more than £140 million.
In response, some wealthy foreigners have started preemptively collecting information about the sources of their wealth and even conducting audits of their finances to field any questions from the NCA in case they become the formal target of a UWO, said Stephen Ross, an attorney with Withersworldwide, a law firm in London that caters to high net worth individuals.
“Of course there are legitimate targets for the NCA but often PEPs who have done nothing wrong are caught in the crossfire of political upheavals back home,” Ross wrote in an email, noting some of his clients’ “palpable fear” that a change of government in their home countries could see “fabricated” charges brought against them and trigger a UWO in the U.K.
Another key challenge for politicos from ex-Soviet republics with assets in Britain is to prove the origin of money they may have made during the sudden, and often non-transparent, privatization of state-owned firms in those jurisdictions, Ross said.
Banks step forward
Hajiyeva managed to spend more than £16 million on luxury goods at Harrods, a fashionable department store in west London, in a little under 10 years, including with credit cards issued by her husband’s former employer, the state-owned International Bank of Azerbaijan, apparently without raising suspicions.
London-based law firm Mishcon de Reya, Trident Trust, a fiduciary services provider, and Werner Capital, a wealth management firm, were separately identified in news reports as responsible for setting up the offshore legal entities that the Azerbaijani couple used to acquire the properties at issue – an upmarket residence in London and a golf club south of the capital.
Investigators are now finding that some rich foreign PEPs and their intermediaries are more willing to hand over requested information voluntarily to avoid the legal and reputational costs of a UWO, and the media attention it is likely to bring, Templeman, the NCA operations manager, said.
In one case, for example, a private lender in London filed a suspicious activity report, or SAR, on one of its clients, a wealthy foreign national, after news outlets accused the individual of involvement in corruption, leading the agency to consider seeking a UWO against him, he said.
The SAR showed that the client owned assets far in excess of known income and that the lender had in-depth knowledge about him, so investigators contacted the lender for further information.
To their surprise, the bank turned over hundreds of pages of documents showing evidence of his legitimate sources of wealth, under what is known as the “section 7 information gateway”, a provision in the 2013 Crime and Courts Act that allows financial institutions and the NCA to exchange information voluntarily.
“In that case we have a bank that would 10 years ago probably have said nothing to us, provide us with a frank, comprehensive picture as to the provenance of their client’s wealth,” Templeman said. “In full possession of the facts, we were able to discontinue the case with confidence.”
Legal entities domiciled in offshore tax havens have purchased some £4.4 billion-worth of U.K. properties under suspicious circumstances in recent years, global advocacy group Transparency International estimated in 2017.
Banks have had to “sharpen” their scrutiny of PEP clients as a result of UWOs, a senior compliance officer with a U.K lender in London told moneylaundering.com.
“I think it forces banks to think yet again about the risk profile they carry, particularly with PEPs,” the compliance officer said on condition of anonymity. “And when something happens [involving your client], you want to look at it very closely to understand if there’s something your controls could or should have identified.”
The growing use of UWOs has also led several U.K. lenders to voluntarily review their records for indicia of possible financial crimes and share their findings with officials through fora like the Joint Money Laundering Intelligence Taskforce, Templeman said, but declined to comment on the exact nature of the banks’ internal investigations.
The National Economic Crime Center, or NECC, a year-old body that sits within the NCA and of which JMLIT is part, has further “enhanced” financial institutions’ ability to “work proactively” and refer cases to law enforcement, he said.
Investigators have obtained “anecdotal evidence” from attorneys working in the City of London that UWOs are discouraging criminals and corrupt officials from laundering their ill-gotten gains through U.K. property, a different NCA official told an industry event in London in July.
But others say it is far too early to judge the measures’ impact.
Kennedy Talbot, a barrister with 33 Chancery Lane in London, told moneylaundering.com there is “no doubt” that UWOs are contributing to making Britain “more unpopular” among corrupt elites and organized criminals looking to launder funds through real estate or corporate transactions, but downplayed the overall significance of the new power.
“That’s mainly to do with greater suspicious activity reporting by risk-averse banks and law firms,” Talbot said.
Contact Koos Couvée at firstname.lastname@example.org
|Topics :||Anti-money laundering , Counterterrorist Financing , Corruption/Bribery|
|Source:||United Kingdom , United Kingdom: National Crime Agency|
|Document Date:||November 26, 2019|