by Alun Milford and Alicyn Cooley
Two and a half years after their introduction in the United Kingdom, unexplained wealth orders (“UWOs”) are garnering more international attention than ever. Litigation surrounding the first UWOs has progressed in English and Welsh courts, clarifying how the law will be applied there and revealing how the authorities have so far sought to use them. In this two-part article, we review the trajectory of UWOs in the United Kingdom, examine what it shows about the English and Welsh approach to self-incrimination issues raised by UWOs, and compare the UWO system to the current civil forfeiture regime in the United States.
The Origin of UWOs
It feels like an age, but it was only four years ago that the United Kingdom’s civil servants were busily preparing for the Prime Minister’s Anti-Corruption Summit. Part of their work entailed examining the United Kingdom’s own response to corruption with a view to identifying for ministers any options for legislative reform.
It was at precisely this time that Transparency International UK (TI-UK) re-issued its paper, Empowering the UK to Recover Corrupt Assets, in which it made the case for UWOs: a civil asset recovery tool that empowers the State to compel people who “hold” property to answer questions and produce documents.[1]
TI-UK noted that, in 2014, the UK Financial Intelligence Unit (“FIU”) received 94 suspicious activity reports (“SARs”) seeking consent for transactions which raised suspicions of grand corruption[2] and that in only seven such cases was consent refused, blocking the transactions. Cases were not getting off the ground, therefore, and TI-UK argued that there were two main reasons for this. First, the United Kingdom’s statutory moratorium period scheme[3], which at the time consisted of an initial period of seven working days with the possibility of a single extension of up to 31 days, provided insufficient time in which to build a preliminary case of sufficient robustness to satisfy a court to make a restraint order (in a criminal matter) or a freezing order (in a civil recovery matter). Second, such investigations typically require admissible evidence from overseas, something that is not easy to secure in a grand corruption investigation into a suspect still occupying a position of influence. Policy makers seized on TI-UK’s answers of extending the moratorium period and creating a new way in which evidence might be obtained, and the following year’s legislative vehicle, the Criminal Finances Act 2017, made a number of amendments to the Proceeds of Crime Act 2002, including the introduction of UWOs and a means by which the moratorium period could be extended, under judicial supervision, by an additional 186 days.
UWOs Defined
UWOs are investigative tools intended to produce evidence in civil proceedings. They are noteworthy, among other reasons, because they require property holders to explain how they obtained assets seemingly out of proportion to their legitimate income. Their primary purpose is to facilitate forfeiture of assets obtained through or otherwise tied to illegal activity, and thereby prevent “criminals from acquiring [assets] or benefiting from unlawful activities.”[4] As the Code of Practice issued pursuant to the Proceeds of Crime Act instructs law enforcement officers, however, “a fundamental aim of the power [to seek UWOs] is to access evidence that would not otherwise be available,” and that, “[a]lthough not an absolute requirement, the applicant should consider whether alternative tools of investigation could be used in obtaining any relevant documents and information.”[5]
An enforcement authority[6] can apply to a High Court judge in England and Wales for a UWO imposing requirements on any person[7], including a person outside the United Kingdom,[8] whom the enforcement authority thinks “holds” the relevant property (the “respondent”). The UWO may require the respondent to provide a statement that, among other things, sets out the nature and extent of the respondent’s interest in the property and explains how he or she obtained it (including, in particular, how any costs incurred were met).[9] The UWO may also require the respondent to produce documents.[10]
The grounds for making the order are broad. The judge may make a UWO if satisfied that:
i) there is reasonable cause to believe that the respondent holds the property and that its value is greater than £50,000 ($61,750 at the time of writing);
ii) there are reasonable grounds for suspecting that the known sources of the respondent’s lawfully obtained income would have been insufficient to enable the respondent to obtain the property; and
iii) either the respondent is a politically exposed person (“PEP”)[11] or there are reasonable grounds for suspecting that the respondent is, or has been, involved in serious crime or that a person connected with the respondent is or has been so involved.[12]
How Statements in Response to UWOs May Be Used
Statements made in response to a UWO may be used in civil recovery proceedings and confiscation proceedings. A respondent’s failure to provide a statement in response to the UWO generates a presumption on which the enforcement authority may rely in civil recovery proceedings that the property in question is or represents the proceeds of crime.[13] Further, the Criminal Finances Act 2017 made it a crime for a respondent to, in purported compliance with a UWO, knowingly or recklessly make a statement that is false or misleading in a material particular.[14]
The statute also provides that a statement made in response to and as required by a UWO may not be used in evidence against that person in criminal proceedings,[15] a so-called “use-immunity” clause. That prohibition does not extend to any prosecution for perjury or for having made a false or misleading statement in response to a UWO, nor does it prevent the statement from being put to the respondent as a prior inconsistent statement during cross examination in criminal proceedings.[16]
Use of UWOs in UK Cases to Date
UWOs so far have been sought in three civil recovery investigations, each conducted by the United Kingdom’s National Crime Agency (NCA). The first concerned the UK property holding of Zamira Hajiyeva, the wife of Jahangir Hajiyev, the former chairman of the International Bank of Azerbaijan (the “Bank”).[17] Hajiyev was convicted two years prior in Azerbaijan of fraud, embezzlement, and abuse of office, and was later sentenced to 15 years’ imprisonment and ordered to pay the Bank $39 million.
The second case concerned various properties held by Mansoor Hussain and a string of companies owned or controlled by him.[18] Hussain is under investigation for laundering money connected to various organised crime gangs in the North of England and chose not to oppose the orders made against him.
Finally, orders were made against Andrew Baker and four off-shore holding vehicles, namely, three Panamanian private foundations and an Anguillan company.[19] The off-shore entities and Baker together were alleged to hold three valuable central London properties for the former wife and son of Rakhat Aliyev, a man accused in Kazakhstan of having used his position as the Kazakh president’s son-in-law to enable the theft of state resources on an industrial scale. Aliyev was exiled to Austria where, in 2015, he was found hanged in prison while awaiting trial for murder. In April 2020, and after an inter-partes hearing, the High Court found that the NCA’s evidence did not establish that Aliyev had been the ultimate beneficial owner of the properties concerned and that the holding, income, and serious crime/PEP requirements for making the UWOs were not in fact met. The UWOs were therefore discharged. The Court of Appeal subsequently refused the NCA’s application for permission to appeal, and the agency now faces a costs bill reported to be in the order of £1.5 million (equivalent to $1.9 million), which it will have to pay from its annual budget. Interestingly, despite the particular rationale behind the creation of UWOs—namely, to provide an investigative aid in grand corruption cases where the relevant evidence is overseas and unobtainable—only twice have UWOs been sought in a grand corruption investigation, and in neither of those cases does the affected State seem unwilling to assist in the provision of evidence.
The Self-Incrimination Challenge
The issue of self-incrimination arose at the outset of English and Welsh litigation challenging UWOs. No doubt, concerns about self-incrimination will likewise be key to an American assessment of the viability of a UWO regime in the United States.
The privilege against self-incrimination has been part of the common law in England and Wales since the abolition of the Star Chamber in the sixteenth century. It “entitles any person to refuse to answer questions or to yield up documents or objects if to do so would carry a real or appreciable risk of its use in the prosecution of that person or his spouse.”[20] The privilege is given statutory expression in section 14 of the Civil Evidence Act 1968, which provides any person with a right “in any legal proceedings, other than criminal proceedings, to refuse to answer any question or produce any document or thing if to do so would tend to expose that person to proceedings for an offence or for the recovery of a penalty.” The statute extends the protection to the person’s spouse. However, both at common law and by statute, the protection is limited to exposure to proceedings for criminal offences under the law of any part of the United Kingdom.[21]
Separately, the right to a fair trial contained in Article 6 of the European Convention on Human Rights includes, by implication, the privilege against self-incrimination.[22] The Human Rights Act 1998 incorporates the rights enshrined in the Convention directly into domestic law by: requiring all legislation to be interpreted so as to be compatible with the Convention, “so far as it is possible to do so;”[23] rendering it unlawful for public authorities, including courts, to act in a way that is incompatible with the Convention;[24] and permitting individuals who claim their Convention rights have been infringed by a public authority either to bring proceedings against that authority or to rely on their Convention rights in any legal proceedings.[25] Significant though these protections are, they fall short of the protection afforded to constitutional rights in the United States. In particular, they do not displace the doctrine of Parliamentary sovereignty. Lord Hoffman described its operation as follows:
Parliamentary sovereignty means that Parliament can, if it chooses, legislate contrary to fundamental principles of human rights. The Human Rights Act 1998 will not detract from this power. The constraints upon its exercise by Parliament are ultimately political, not legal. But the principle of legality means that Parliament must squarely confront what it is doing and accept the political cost. Fundamental rights cannot be overridden by general or ambiguous words. This is because there is too great a risk that the full implications of their unqualified meaning may have passed unnoticed in the democratic process. In the absence of express language or necessary implication to the contrary, the courts therefore presume that even the most general words were intended to be subject to the basic rights of the individual.[26]
This is the context in which the applicability of the privileges against self-incrimination and spousal incrimination was litigated in the first of the UWO cases. Amongst other things, Zamira Hajiyeva argued that the UWO made in respect of the property she held offended against both privileges. She argued first of all that the order breached spousal privilege because it required her to give answers tending to expose her husband to the risk of prosecution in the United Kingdom. Secondly, she argued that, in the absence of an undertaking from the NCA as to the future use in Azerbaijan of the information she might provide, the order failed to ensure her privilege against self-incrimination and her spousal privilege in that jurisdiction, “both of which arose . . . as a matter of [the court’s] discretion.” This argument was open to Hajiyeva because, on being satisfied that the statutory criteria for making a UWO were met, the judge was empowered but not required to make the order.
The High Court and then the Court of Appeal had little difficulty in rejecting these arguments. Both privileges apply only to crimes under UK law, and Hajiyeva had failed to adduce any evidence that she or her husband faced a real and appreciable risk that they would be prosecuted in the United Kingdom—the so-called threshold test for the privileges to apply. In any event, in creating the UWO procedure, Parliament had necessarily intended that the privileges be abrogated. Two factors drove the Court of Appeal to this conclusion. First, the statutory scheme “would be rendered very largely nugatory if the privilege applied.”[27] Second, Parliament had included within that scheme a “use immunity” clause, something which the court noted “often suggests a parliamentary intention to exclude the privilege.”[28] The Court of Appeal did accept that a risk of prosecution overseas could in principle be taken into account when considering whether to exercise discretion to make a UWO. Here, however, there was no evidence of such risk and, in any event, the NCA was bound by domestic law[29] to act compatibly with the European Convention on Human Rights in connection with which the British government had issued specific guidance on determining whether disclosure to a third party would give rise to an impermissible risk.[30] There was no suggestion that the NCA would seek to use or disclose the information otherwise than for the purposes of the UWO statute, the risk that Hajiyeva’s responses to the order might be used in Azerbaijan against her husband and her was negligible (not least because her husband had already been convicted in that country and Hajiyeva had successfully resisted Azerbaijan’s attempt to extradite her), and no further protections were therefore required.
The Court of Appeal’s approach to self-incrimination in Hajiyeva was a textbook example of how the courts in England and Wales approach the privileges’ scope, and this aspect of the judgment generated very little comment. It is also now a binding precedent, and it is not surprising therefore that there was no attempt in Baker—the most recently decided of the UWO cases—to raise self-incrimination arguments.
The question remains whether burden-shifting in this way has generated a useful asset forfeiture tool. In Part II, we will examine the U.S. move away from burden-shifting and its development of a tool promoting transparency in the real estate market.
Footnotes
[1] Jeremy Carver et al., Empowering the UK to Recover Corrupt Assets 24 (Transparency International UK 2016) (hereinafter “TI-UK Report”), available at https://issuu.com/transparencyuk/docs/march2016_uwo.
[2] Grand corruption, as defined by the United Nations, is corruption that pervades the highest levels of a national government, leading to a broad erosion of confidence in good governance, the rule of law, and economic stability. See United Nations Office on Drugs and Crime, The Global Programme Against Corruption: UN Anti-Corruption Toolkit (Vienna 2d ed. 2004) https://www.unodc.org/documents/corruption/Toolkit_ed2.pdf (PDF: 2.99 MB).
[3] The Proceeds of Crime Act 2002 provides a time frame within which law enforcement must review transaction-related disclosures made to it in accordance with the statute. This period, during which the proposed transaction may not be completed, is called the “moratorium period.”
[4] TI-UK Report at 24.
[5] In practice, this Code of Practice is issued by the Home Secretary (responsible for the National Crime Agency and policing) and a duplicate Code is issued by the Attorney General (responsible for the Serious Fraud Office and the Crown Prosecution Service). See Attorney General’s Office, Code of Practice Issued Under Section 377A of the Proceeds of Crime Act 2002: Investigative Powers of Prosecutors (2018), ¶ 167.
[6] In England and Wales they are the National Crime Agency, Her Majesty’s Revenue and Customs, the Financial Conduct Authority, the Director of the Serious Fraud Office and the Director of Public Prosecutions.
[7] “Person” includes a body of persons corporate or unincorporated. See Interpretation Act 1978 § 5.
[8] One of the “under-developed” civil routes existing at the time were disclosure orders, which a judge could make in civil recovery or confiscation cases, authorising an appropriate law enforcement officer to give a written notice to any person the officer considers has relevant information to answer questions or provide information or documents with respect to any matter relevant to the investigation. Disclosure orders cannot be made against people outside UK jurisdiction.
[9] Criminal Finances Act 2017, c. 22 § 362(A)(3).
[10] Id. § 362A(5).
[11] Section 362B(7) of the Criminal Finances Act 2017 defines “politically exposed person” as any of the following: “(a) an individual who is, or has been, entrusted with prominent public functions by an international organisation or by a State other than the United Kingdom or another [European Economic Area] State, (b) a family member of a person within paragraph (a), (c) known to be a close associate of a person within that paragraph, or (d) otherwise connected with a person within that paragraph.”
[12] Id. § 362B(2)-(4).
[13] See id. § 362C(2) (where respondent fails, without reasonable excuse, to comply with UWO’s requirements before end of response period, “[t]he property is to be presumed to be recoverable property for the purposes of any [civil recovery] proceedings in respect of the property under Part 5 [of the Proceeds of Crime Act 2002], unless the contrary is shown”).
[14] See id. § 362E(1) (“A person commits an offence if, in purported compliance with a requirement imposed by an unexplained wealth order, the person—(a) makes a statement that the person knows to be false or misleading in a material particular, or (b) recklessly makes a statement that is false or misleading in a material particular.”)
[15] See id. § 362F(1) (“A statement made by a person in response to a requirement imposed by an unexplained wealth order may not be used in evidence against that person in criminal proceedings.”).
[16] Id. § 362F(2)(d).
[17] National Crime Agency v. Hajiyeva [2020] EWCA Civ 108.
[18] National Crime Agency v. Mansoor Mahmood Hussain and others [2020] EWHC 432 (Admin).
[19] National Crime Agency v. Andrew J Baker and others [2020] EWHC 822 (Admin).
[20] See, e.g., Benghal v. DPP [2015] UKSC 49, [60] (appeal from EWHC 2574) (per Lord Hughes).
[21] See Brannigan v. Davison [1997] AC 239 (citing with approval dicta from Murphy v. Waterfront Commission of New York Harbor, 378 U.S. 52, 55 (1964)); see also Civil Evidence Act 1968, c. 64 § 14(1)(a).
[22] See, e.g., Funke v. France, 16 Eur. Ct. H.R. 297 (1993); Saunders v. U.K., 23 Eur. Ct. H.R. 313 (1996).
[23] Human Rights Act 1998, c. 42 § 3(1).
[24] Id. at § 6(1).
[25] Id. at § 7(1)(a)-(b).
[26] R v. Secy of State for the Home Dept ex parte Simms [1999] UKHL 33, [2000] 2 AC 115 (Consolidated Appeals).
[27] Id. (quoting the Supreme Court’s decision in Beghal v. DPP [2016] AC 88, per Lord Hughes).
[28] NCA v. Hajiyeva [2020] EWCA Civ 108, ¶ 42.
[29] Human Rights Act 1998, c. 42 § 6(1)
[30] Overseas Security and Justice Assistance, Human Rights Guidance, 2017, at 4 (UK).
Alun Milford is a partner at Kingsley Napley LLP, and previously served as General Counsel of the United Kingdom’s Serious Fraud Office, Head of Organised Crime and Head of Proceeds of Crime at the Crown Prosecution Service, and Head of the Asset Forfeiture Division at Revenue and Customs Prosecutions Office. Alicyn Cooley is an Adjunct Professor of Law and the Executive Director of the Program on Corporate Compliance and Enforcement at New York University School of Law, and a former federal prosecutor in the U.S. Attorney’s Office for the Eastern District of New York, where she served as Deputy Chief of the Business and Securities Fraud Section.
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