Reports of a $21 million shopping spree at the posh London department store Harrods (examples here, here, and here) dominated accounts of the first court decision to test the new U.K. law requiring those owning a high-end property to show how they could afford it. The court cited the Harrod’s binge in its October 3 decision denying Zamira Hajiyeva’s application to quash an order compelling her to explain how she could afford her $15 million London home in Knightsbridge (walking distance to Harrods) when her only visible means of support is Mr. Hajiyeva, a deposed Azerbaijan oligarch now serving 15 years in an Azeri prison for bank fraud. Tabloid fascination with Mrs. Hajiyeva’s spending binge is understandable, but the decision’s import stretches far beyond the disclosure of the crass excesses typical of a gangland moll.
Even before the law took effect, concerns were heard it would not advance its objective of making the United Kingdom “a more hostile place for those seeking to move, hide or use the proceeds of crime or corruption or to evade sanctions.” Would the British judiciary’s traditional respect for property rights and qualms about forcing individuals to reveal their personal finances produce such narrow readings of the law as to eviscerate it? Would law enforcement authorities reach too broadly when seeking an order, giving well-financed targets multiple grounds on which to mount a challenge? The Hajiyeva decision is the first to answer these questions, and for kleptocrats, crime bosses, drug kingpins, and other malefactors hoping the law would go awry, the answers are all bad.
The Criminal Finances Act 2017 authorizes the High Court to issue an Unexplained Wealth Order (UWO) when, upon the request of a designated law enforcement agency, it is “satisfied that there are reasonable grounds for suspecting” that the target of the order could not afford the property given the person’s “known sources” of “lawfully obtained income” (§362B). The target must produce a statement showing his or her interest in the property, how the property was obtained “including, in particular, how any costs incurred in obtaining it were met,” and other property-related information the order requests (§362A). If the target fails to fully comply with the order, the agency which sought it can bring a civil action under part 5 of the Proceeds of Crime Act to seize the property.
A February 27 UWO issued at the request of the National Crime Agency (NCA) directed Hajiyeva to show how she could afford the Knightsbridge home. In a petition to quash it, she argued:
- The law does not apply to her. Hajiyeva claimed she is not subject to the UWO law because her husband was not, as required for the law to reach her, a “Politically Exposed Person” under European Union rules.
- It is unreasonable to think she couldn’t afford the property. The evidence the NCA presented did not provide the court “reasonable grounds” to suspect her lawful income was insufficient to pay for the property.
- The UWO was erroneously drafted. The UWO warned she could be held in contempt of court for failure to comply, a punishment not listed in the statute.
- The UWO violates her human rights. The UWO infringes the “peaceful enjoyment” of her property, a right protected by the European Convention on Human Rights.
- The UWO would require the violation of U.K. legal privileges law. The UWO requires Hajiyeva to violate her privileges against incriminating herself and incriminating her spouse.
- The court misused its discretion. Taking account of the arguments above and the context of the proceedings, the court should have exercised its discretion to refuse to issue the order.
The High Court, per Mr. Justice Supperstone, considered and rejected each in turn. Its reasoning:
Jurisdiction. For a UWO to issue against Hajiyeva, she must be a “politically exposed person” as defined by the 2015 EU’s Antimoney Laundering Directive. The NCA contended Hajiyeva’s husband, as chair of “state-owned enterprise,” a bank majority-owned by the Azerbaijan government, qualified as a politically exposed person under EU rules and thus, as the rules also provide, she too was a politically exposed person. Although Hajiyeva claimed majority ownership by itself was not enough to make an enterprise state-owned, she offered only rhetoric to support the argument. The NCA pointed not only to sources suggesting majority ownership sufficed but, more damningly, as the court noted, statements by the bank and her spouse calling the bank “state-owned.”
Hajiyeva also sought exclusion from the statute’s reach by seizing on language in section 262B(7) of the act. On one reading, it limits politically exposed persons to individuals outside Europe who are or were once “entrusted with prominent public functions,” a test she argued that, as an officer of a bank, he did not meet. The argument failed. A careful parsing of the statute showed such a limitation was not meant, an interpretation consistent with the explanation proffered by the legislation’s principal sponsor during debate in the House of Commons.
Income test. Hajiyeva offered no evidence she had access to any funds other than her husband’s. Hence, whether the court had “reasonable grounds” to suspect she did not earn sufficient “lawful income” to pay for the house boiled down to whether it was reasonable to believe the monies her husband used to acquire it came from legitimate sources. Hajiyeva cited three reasons suggesting the funds were legitimate. First, contrary to the NCA’s claim that he had been nothing but a government employee from 1993 until his arrest in 2015, she argued that he had in fact been a major commercial banker. Second, she offered what the court termed “a short document” from a U.K. wealth management firm saying he was worth $72 million in 2011, and third, she testified that he was “very well-off” when they married in 1997.
The court found none of the three arguments persuasive. Its earlier finding that the bank her husband chaired was state-owned belied the claim he had been a commercial banker. It dismissed out-of-hand the document from the wealth management firm and her testimony.
In seeking an UWO, the NCA cited the husband’s bank fraud conviction in Azerbaijan to suggest he bought the Knightsbridge home using funds obtained illegally. Hajiyeva argued the court erred in giving the conviction any weight as there are, as the court acknowledged, “serious deficiencies” in the Azerbaijan criminal justice system. The court ruled that the fairness of the husband’s trial, if it were to be become an issue, was for consideration at a later stage in the proceeding.
Furthermore, and it was here, that Hajiyeva’s shopping habits became part of the case, the court observed that it was hardly farfetched to conclude that her husband had indeed defrauded the bank. Harrods’ records showed her shopping binge had been charged to 35 different American Express, Visa, and Master Cards issued in her name by the husband’s bank. One of the charges at his fraud trial had been that he issued credit cards to his family and stuck the bank with the bills.
Erroneous warning. That Hajiyeva was willing to throw everything, including the kitchen sink, at the case in hopes of overturning the order is evidenced by her claim the order should be quashed because of language it contained warning her she could be found in contempt if she violated it. Her lawyers argued that the warning exceeded the penalties for noncompliance imposed by the statute and the order was thus invalid. Their argument was met with what, on this side of the Atlantic, is called “short shrift.”
Human rights violation. The court gave more shrift to the claim the UWO violated Hajiyeva’s right to the “peaceful enjoyment” of her London flat guaranteed by Article 1 of Protocol 1 (A1P1) to the European Convention on Human Rights. Hajiyeva claimed ownership of the flat as the beneficial owner of a BVI corporation which held legal title to the flat. It would thus “appear,” the court said, that this makes her the beneficiary of a discretionary trust, and it “is not clear” the rights of discretionary beneficiaries are protected by A1P1. In any event, to invoke the protection of A1P1 the challenged action must have some effect on the property’s value. Simply requiring her to show how she paid for the flat “would not give rise to a loss of value.”
Finally, even if the UWO did interfere with rights protected by A1P1, “[t]here are grounds to believe the property has been obtained through unlawful conduct.” Hajiyeva is being asked only for information on a single, residential property she has lived in for many years. The information requested is thus for a legitimate end, and as the court observed, it constitutes “no more than a modest interference with the peaceful enjoyment of the property.” It thus passes muster under a proportionate or fair balance test.
Privilege offenses. Hajiyeva argued that to comply with the UWO “would offend” her privilege against self-incrimination and her privilege against incriminating her husband in criminal conduct. In the U.K. both privileges are statutory, granted by the Civil Evidence Act 1968, and apply “only as regards criminal offenses under the law of any part of the United Kingdom. . . .” The court ruled that Hajiyeva therefore had no right to invoke either privilege on the ground she or husband might face prosecution in Azerbaijan if she answered the UWO. As for prosecution in the U.K., it concluded there was little risk they would face prosecution and that even if there were, by statute neither privilege was applicable in civil proceedings involving the seizure of property.
Discretion. Hajiyeva offered a final, catchall argument to avoid telling authorities how she could afford the flat. Taking account of all the other arguments she had advanced, “plus the broader context of these proceedings,” she contended the court should have exercised its discretion and declined to issue the UWO. One of the broader considerations Hajiyeva urged was the risk that whatever she said in replying to the UWO could be used to prosecute her or her husband in Azerbaijan. The court found there was “no real or appreciable risk” that disclosure of information about how the property was obtained would give rise to prosecution in Azerbaijan. Furthermore, whatever information she did provide about the property’s acquisition would be held by the NCA, and under current U.K. rules the NCA could not share any incriminating information with Azerbaijan without first assessing the fairness of its justice system.
The second “broader consideration” Hajiyeva advanced was that since her husband bought the property in 2007, she would need his assistance to answer the UWO, but that thanks to his imprisonment in Azerbaijan, he “will be unable to meaningfully engage with this process. . . for many years.” The court answered by noting that the UWO was directed at Hajiyeva, not her husband, and that the NCA had shown there were many others “well placed to explain [Hajiyeva’s] sources of wealth” and how the property was paid for.
Accordingly, on October 3 in National Crime Agency v Mrs A  EWHC 2534 (the decision’s formal citation), the court dismissed Hajiyeva’s application to quash the UWO.
One Azeri activist expressed (necessarily anonymously) disappointment that the U.K. had chosen Hajiyeva as the first target of an UWO:
“Out of all the Az officials currently in power and who own as much if not more assets in the UK, they went after an ‘easy target’ – the wife of someone who has fallen out of grace with the ruling regime and serves prison term.”
Rather than a criticism of the NCA, however, the Hajiyeva prosecution shows how savvy the NCA was in picking her as a test case. As the wife of someone on “the outs” with the Azeri government, Hajiyeva’ plight was unlikely to complicate matters by injecting any diplomatic or foreign policy concerns into the case. Even better, her grotesque, vulgar displays of wealth made it an even more attractive test case as she was hardly likely to generate public sympathy or political support — in either Azerbaijan or the U.K.
Whether the NCA could choose which High Court judge would hear the challenge to the order I don’t know. So, it was either a further example of NCA’s shrewd, strategic thinking when it picked the judge. Or plain luck. For as the discussion above shows, Mr. Justice Supperstone, while carefully assaying Hajiyeva’s arguments, never failed to heed the statute’s aim or its rationale. More than once he weighed the slight burden it put on an order’s target — to show how the property was acquired — against a compelling interest in closing a major avenue that mobsters, drug kingpins, and corrupt officials use to hide their money. And every time, he came out on the side of demanding that Hajiyeva comply with the UWO.
For the honest, an UWO request is trivial. For those like Hajiyeva, where serious questions about how the property was obtained have been raised, it may well be a far different matter. The harder those like Hajiyeva fight having to explain how they obtained their property, the more obvious it is they are hiding wrongdoing, a point that comes through subtly but unmistakably in the court’s ruling. And one that will hang over future challenges to UWOs. The more a target fights to keep the lid on how property was obtained, the more certain the court can be that much crime lies underneath.
Is the court’s ruling bad news for bad people? It certainly seems so from this side of the Atlantic. More importantly, it also seems so from those whose opinions count for more, learned U.K. defense counsel. Lawyers from the London firm Stewarts say the decision “has set the bar high in several areas for any respondent wishing to set aside UWOs. . . .” Anita Clifford, co-author of a forthcoming volume on the Criminal Finances Act, concludes that in the first important test of a UWO, the court signaled “the legislation is fair and reasonable. . . [and thus that] UWOs sought by confident enforcement authorities are inevitable.”
Properties in Knightsbridge now run between $500,000 and $14.5 million. If, as many NGOs believe, Hajiyeva is not the only one in the neighborhood whose funding provenance could be subject to an UWO, might there suddenly be a flood of “For Sale” signs popping up around her?