Unexplained Wealth Orders and London Property Bargain Hunters: Part II

Last week I dangled before readers hunting for a home in an upscale London neighborhood the possibility that prices might take a sudden nose dive. Britain’s recently enacted law on Unexplained Wealth Orders (UWO) authorizes law enforcement agencies to seize a property if the owner cannot show it was bought with monies honestly come by. Given estimates some 40,000 U.K. properties can’t pass this test, I suggested it was possible the London real estate market could soon be flooded with properties for sale at bargain basement prices as those fearing an UWO try to dump them before law enforcers confiscate them.

But to the great disappointment of GAB readers looking for bargains on London properties, I explained that another new law makes this scenario highly unlikely.  Those trying to offload a property purchased with criminally obtained money are, under U.K. law, committing the crime of laundering money, and thanks to the recent tightening of the U.K. money laundering rules, British real estate agents must alert authorities to any transaction where they suspect money laundering.  With enactment of the UWO law, selling a property of questionable provenance now at less than full market price would scream money laundering. So loudly that no real estate agent no matter how hard of hearing could ignore it.

While the post dampened the hopes of readers thinking the UWO law might shave a couple of million pounds off a place in Mayfair, Knightsbridge, or other neighborhood where many anticorruption activists now dwell (okay, or more likely wish they dwelled), it did serve my real purpose: to prompt reader reactions.    And so it did. Continue reading

Unexplained Wealth Orders: Godsend for London Property Bargain Hunters?

Those looking for bargains in London real estate may want to follow developments in National Crime Agency v Mrs A [2018] EWHC 2534 closely. The case is the first to rule on Unexplained Wealth Orders, Britain’s new tool for halting the purchase of British properties with money derived from corruption, human trafficking, and other wrongdoing perpetrated on a massive scale.  In its October 3 decision, the court held that Zamira Hajiyeva, owner of a tony Knightsbridge townhome, must tell authorities how she could afford the place when her only means of support is a husband now serving 15 years for defrauding the Azerbaijan state-owned bank he ran. If she cannot show the house was bought with money from legitimate sources, the U.K. National Crime Agency will seize the property, now worth an estimated £15 million.

The Hajiyeva case could prompt a run on London real estate.  Owners of other properties with a questionable provenance may decide to dump them on the market at fire sale prices rather than wait for the NCA to confiscate them.  If so, there could indeed be many bargains on offer.  Transparency International U.K. estimates £4.2billion (US$5.4 billion) worth of U.K. properties are held by those at risk of receiving an UWO.

But both bargain hunters and dodgy real estate owners might best hold off ringing an estate agent until considering another recent directive aimed at curbing criminal money flows into real estate markets. The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 is likely to crimp quick sale plans.  It is also very likely to ensure that any quick sale effort produces instead even quicker service of an UWO. Continue reading

What, Besides Creating a New Court, Could the International Community Do To Fight Grand Corruption? A Partial List

Last week, Richard Goldstone and Robert Rotberg posted a response to Professor Alex Whiting’s critique of the proposal to create an International Anti-Corruption Court (IACC). Early in their response, Goldstone and Rotberg–both advocates for an IACC–remarked, a bit snarkily, that “[n]otably absent from [Professor Whiting’s] post is a description of what the other effective responses to combating grand corruption might be.”

That struck me as a bit of a cheap shot. Professor Whiting’s post offered a careful, thoughtful argument based on his experience and knowledge of the International Criminal Court (ICC) and similar tribunals, and not every such critical commentary on a given proposal must include a full-blown discussion of alternatives. Still, Goldstone and Rotberg’s implicit challenge to IACC skeptics to articulate alternative responses to grand corruption is worth taking seriously, for two reasons:

  • First, this seems to be a common rhetorical gambit by advocates for an IACC, or for other radical measures that critics deem impractical: Rather than answering and attempting to refute the critics’ specific objections directly, the move is to say, “Well, but this is a huge problem, and there’s no other way to solve it, so poking holes in this proposal is really just an excuse for inaction. This may seem like a long shot, but it’s the only option on the table.”
  • Second, and more charitably to those who make this point, grand corruption is indeed an enormous problem that needs to be addressed. And so even though not every critical commentary on a particular proposal needs to include a full-blown discussion of alternatives, those of us who (like me) are skeptical of deus-ex-machina-style responses to the grand corruption problem ought to make a more concerted effort to lay out an alternative vision for what can be done.

In this post I want to (briefly and incompletely) take up the implicit challenge posed by Goldstone and Rotbert (and, in other writings, by other IACC proponents). If the international community is serious about fighting corruption, what else could it do, besides creating a new international court and compelling all countries to join it and submit to its jurisdiction? When people like Professor Whiting (and I) suggest that lavishing time and attention on the IACC proposal might be a distraction from other, more effective approaches, what do we have in mind? What else could international civil society mobilize behind, besides something like an IACC, to address the problem of grand corruption?

Here are a few items on that agenda: Continue reading

Bad News for Bad People: Decision in U.K.’s First Unexplained Wealth Order Case

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. Continue reading

The Missing Piece in UK’s Unexplained Wealth Order Mechanism

All of a sudden politicians, public figures, and oligarchs – such as Russian First Deputy Prime Minister Ignor Shuvalov and former Nigerian Oil Minister Diezani Alison-Madueke – have to explain how they are able to afford the swanky apartments in London’s posh Mayfair neighborhood on their modest official salaries. This is due to the UK’s new Criminal Finances Act (CFA), which came into force in February and is meant to crack down on the flow of dirty money into the UK—a flow that has given London in particular a reputation as a “Death Star” of global kleptocracy. Most notably, the CFA adds a new investigative tool, the Unexplained Wealth Order (UWO), into the civil recovery regime. Originally proposed by Transparency International UK a few years ago, a UWO is an order granted by the High Court in cases where there are reasonable grounds to believe (1) the respondent owns some property worth more than £50,000; (2) either the respondent is a politically exposed person (PEP), or the respondent or a person connected to the respondent has been involved in a serious crime; and (3) respondent’s lawfully earned income would not be sufficient to obtain the property in question. If there are reasonable grounds to believe that each of these three conditions is satisfied, the High Court may issue an order requiring the respondent to provide information regarding the nature of her interests in the property in question and how she was able to lawfully obtained such property. If the respondent is unable to provide a reasonable explanation, the UK Government can subsequently initiate the civil forfeiture process and seize these assets.

Lauded as “a powerful new weapon in[] the anti-corruption arsenal,” UWOs are expected to be particularly helpful when there is no conviction against the respondents in their countries of origin, or when efforts to get a corrupt foreign government to cooperate with investigations have led to naught. Moreover, even though UWOs are a civil enforcement mechanism, the information they uncover may be useful in pursuing criminal investigations, and if respondents recklessly or knowingly make false statements or mislead the enforcement body in responding to an order, they may be criminally prosecuted. There’s already some evidence that the new law will make a difference: In March, a month after the promulgation of the CFA, two UWOs were issued requiring a tycoon in Central Asia to explain how he is able to afford real properties in the UK totaling £22 million.

Yet notwithstanding the enthusiasm for UWOs in some quarters, the effectiveness of the UFO mechanism is likely to be hampered by an important missing piece in the UK’s anticorruption framework, namely an effective means for ensuring genuine transparency regarding the beneficial ownership of real and movable property. Without knowing who really owns what, the new law is unlikely to realize its full potential, and indeed may not make much difference outside of a handful of cases involving particularly careless criminals.

Continue reading

Nigeria’s Former First Lady: Stop Attacking Me for Gifts I Received

Ex-Nigerian First Lady Patience Jonathan’s patience is being tested by a campaign of calumny being waged against her.  Since her husband left office in 2015 she has been under constant attack merely because she recieved some small gifts from friends and well-wishers while her husband served in government.   The Nigerian NGO Socio-Economic Rights and Accountability Project is trying to force the authorities to open a criminal case against her and the Economic and Financial Crimes Commission, Nigeria’s anticorruption agency, wants to seize the gifts.

It is easy to see why the attacks are testing Patience’s patience.  The gifts were all small, some as little as $800, and altogether they total just $15 million.  Moreover, as she has repeatedly explained, she had nothing to do with the money being deposited into bank accounts in someone else’s name.  An assistant did that without telling her, and in any event why does it matter?  She was the only one authorized to write checks on the account.

Thankfully for the former first lady, members of the Union of Niger Delta Youth Organisation for Equity, Justice and Good Governance have come to her defense.  In a complaint filed in early October for themselves and Mrs. Jonathan the group asked the Federal High Court in Lagos to enjoin the NGO SERAP from “taking any further steps in further vilification, condemnation and conviction of the Former First Lady Mrs Dame Patience Jonathan . . . and in the use of the judicial process for that purpose by the extremely publicized pursuit of any application for the coercion of the Attorney General of the Federation to prosecute the Plaintiff/Applicant for owning legitimate private property . . . .”  The group’s complaint seeking the injunction against SERPA goes on to detail just how unjust the criticism of Dame Patience is – Continue reading

Guest Post: U.S. Constitutional Principles Do Not Preclude Burden-Shifting or Illicit Enrichment Offenses

Peter Leasure, Ph.D. candidate in criminology and criminal justice at the University of South Carolina, contributes the following guest post:

It is well known that corrupt kleptocrats often transfer enormous sums of money from their countries. As a result, there has been a growing emphasis on attempts to freeze, seize, and return stolen assets to their jurisdiction of origin. However, countries vary in the legal mechanisms they have to achieve these objectives. One common fixture of many of these legal mechanisms is the requirement that the assets (or the capital used to acquire them) be traced to a predicate offense. However, meeting this requirement can sometimes be difficult, which hinders asset recovery proceedings.

To address this problem, some jurisdictions, such as France, have adopted a burden-shifting approach. Under the relevant provisions of the French Criminal Code, officials have the burden to account for the lavish assets they have acquired once claims of corruption arise. A similar sort of burden-shifting takes place under so-called “illicit enrichment” or “unexplained wealth” statutes. Under such statutes, a government official can be criminally liable if the official has substantial assets that he or she cannot adequately explain. In other words, once the government proves that the corrupt official has assets grossly disproportionate to his or her official salary, the burden shifts to the defendant to prove that the assets have a legitimate origin. Many countries have adopted statutes of this sort. Moreover, some international anticorruption conventions, such as the Inter-American Convention Against Corruption (IACAC), expressly call for the adoption and enforcement of such laws.

The U.S. takes a different approach. The U.S. made this clear in filing a reservation to the IACAC’s illicit enrichment section (Article IX), in which it stated that the offense of illicit enrichment set forth in the convention “places the burden of proof on the defendant, which is inconsistent with the United States constitution and fundamental principles of the United States legal system.”

But is it always the case that the government bears the burden of proof in the U.S.? In fact, it is not. There are numerous examples of areas from U.S. criminal law where burdens are shifted from the government to the defendant. Continue reading