by John Helmer, Moscow
For catching birds it’s old-fashioned child’s play to put salt on their tails. But fooling the bird in order to get close enough with the salt-shaker, before the bird takes off, is a job for grown-ups.
When it comes to catching fugitive bankers, money launderers and the families of corrupt state officials in Russia and the former states of the Soviet Union, the two-year history of the British National Crime Authority’s (NCA) Unexplained Wealth Orders (UWOs) is faltering because the courts require more than suspicious police and allegations promoted in the press.
Last week, the High Court ruled that NCA lawyers, prosecutors and investigators had made “unreliable” assumptions; conducted “inadequate investigation of the obvious”; applied “artificial and flawed reasoning”; were “unfair” in their evaluation of the evidence as well as pursuing targets “without any evidence”. “It is ultimately for the Court, not the NCA, to determine whether there is ‘reasonable cause to believe’,” Justice Dame Beverly Lang decided on April 8, dismissing three Unexplained Wealth Orders, together with three asset freeze orders covering several London residential properties worth about £80 million. Through a network of offshore foundations, trusts, and cut-out companies these belong to Dariga Nazarbayeva and Nurali Aliyev, daughter and grandson of Nursultan Nazarbayev, the ruler of Kazakhstan. Nazarbayeva is currently the speaker of the Kazakh Senate.
The stinging rebuke to the NCA, and a pending appeal of two earlier court judgements against Zamira Hajiyeva, the wife of a jailed Azerbaijani banker, are likely to slow down, or stop altogether, the pursuit by Prime Minister Boris Johnson (lead image, left) of Russian runaways in the UK.
Unexplained Wealth Orders (UWOs) were the creation of a British statute called the Criminal Finances Act of 2017, which came into operation on January 31, 2018. Its aim at the time, according to the notes attached by parliament, was “to recover the proceeds of crime, and to tackle money laundering, corruption and terrorist financing.” The NCA told the London press it was preparing to launch ten UWO investigations. In two years, however, just two targets have been identified and UWOs issued – the first in 2018 claiming corruption in Azerbaijan, the second in 2019, corruption in Kazakhstan.
London lawyers regard them as test cases for a campaign against wealthy Russians in the UK. “A toe in the water”, commented a London banker “without risking the disruption of the UK’s bilateral relationship with the governments of Azerbaijan and Kazakhstan”.
According to the statute, “an unexplained wealth order is an order requiring the respondent to provide a statement— (a) setting out the nature and extent of the respondent’s interest in the property in respect of which the order is made, (b) explaining how the respondent obtained the property (including, in particular, how any costs incurred in obtaining it were met), (c) where the property is held by the trustees of a settlement, setting out such details of the settlement as may be specified in the order, and (d) setting out such other information in connection with the property as may be so specified.”
The statute provides for the NCA to go to the High Court and make an initial application for the court to endorse the UWO. This, the government argues, is an investigative procedure, not a criminal charge, so the target doesn’t have the right to defend himself until later. To make the application in court, the NCA must meet this test: “(3) The High Court must be satisfied that there are reasonable grounds for suspecting that the known sources of the respondent’s lawfully obtained income would have been insufficient for the purposes of enabling the respondent to obtain the property. (4) The High Court must be satisfied that— (a) the respondent is a politically exposed person, or (b) there are reasonable grounds for suspecting that— (i) the respondent is, or has been, involved in serious crime (whether in a part of the United Kingdom or elsewhere), or (ii) a person connected with the respondent is, or has been, so involved.”
The first target was Zamira Hajiyeva. She is the wife of Jahangir Hajiyev, who headed the International Bank of Azerbaijan, the largest bank in the country, between 2001 and 2015.
Left, Zamira Hajiyeva; right, her husband, Jahangir Hajiyev. Testifying as an expert in Hajiyeva’s defence, William Bowring, a University of London legal expert, said: “there is no independent judiciary in [Azerbaijan], and that the chances of receiving a fair trial by reference to international standards are effectively nil."
At the end of 2015 Hajiyev was arrested and convicted the following year of fraud, embezzlement and abuse of power; then sent to prison for 15 years. His wife was also charged, put on a wanted list, and her extradition sought from the UK. Last September the Azerbaijan indictment was considered in the Westminster Magistrate’s Court by the Chief Magistrate, Emma Arbuthnot. She dismissed it with the finding that a fair trial in Baku was impossible. Independent legal observers don’t doubt the prosecution of them both is politically motivated.
Political favouritism has also been charged against the British judges in the case. Sir Michael Supperstone, the judge in the UWO case against Haijyeva, has been called by London barristers one of the most “pro-Government” judges on the High Court. Arbuthnot’s record in extradition cases has also been accused of political bias. She has denied extradition for Russian grand larcenists and bank fraudsters on the ground that their prosecution in Moscow was politically motivated and impossible to assure a fair trial; for the case of Ilya Yurov, read this. On the other hand, she remains active in the review of the US extradition application for Julian Assange, though she has withdrawn from the hearings.
Arbuthnot’s ruling left Hajiyeva free to live in the UK – and to fight the NCA’s allegations, although they depend in part on her husband’s conviction in Azerbaijan. Lawyers close to the case believe she was targeted for the first UWO because her husband had been convicted in Azerbaijan for stealing money she had allegedly spent in the UK.
The first High Court ruling on the UWO against Hajiyeva was issued on October 8, 2018, twelve months before Arbuthnot reviewed the same
evidence, Supperstone (right) backed the Azerbaijan trial and the NCA’s reliance on evidence from the conviction. “Although the NCA was aware of the deficiencies in the criminal system of [Azerbaijan],” Supperstone ruled, “it cannot be said that it was wrong for the NCA to rely on the conviction at that time. Even now, on the assumption Mr Hajiyev had a trial that breached his Article 6 rights, I do not accept that it is impermissible to have regard to the conviction. This is not a case where the conviction resulted from a confession or torture.”
“In any event Mr Hajiyev’s conviction was only one of a number of factors relied upon by the NCA,” Supperstone added.
Hajiyeva’s property identified in the UWO was a London home bought in 2009 for £11.5 million through a British Virgin Islands company. In addition, the press were told Hajiyeva had acquired an Ascot country club for £10.5 million, and spent £16.3 million at the Harrods department store between 2006 and 2016. The club and the Harrods purchases were not targeted by the NCA. Hajiyeva has defended her outlays as lawful proceeds of her husband’s successful career in commercial banking. The NCA countered that he had been a state official who had corruptly enlarged his income, as the Azerbaijan authorities alleged.
Read the Supperstone judgement of October 3, 2018, here.
Hajiyeva’s lawyers took her case to the Court of Appeal, arguing that Supperstone had been wrong to accept the Azerbaijan prosecutors’ evidence on the couple’s sources of income; and wrong to judge the International Bank of Azerbaijan as a state entity, which is one of the requirements of the statute backing the UWO. Supperstone refused permission to appeal but he was overruled by a higher judge on the ground that because Hajiyeva’s case was the first test of the NCA’s powers to pursue UWOs, “it would be beneficial to have guidance from the Court of Appeal on the scope of statutory powers underlying UWOs.”
On February 5, the 3-judge panel ruled unanimously to back Supperstone against Hajiyeva; read their ruling here. “The evidence was clear,” they decided, “that the State had more than a 50% shareholding in the Bank. On the facts of the case, the judge was entitled to conclude that it had ultimate control, and consequently Mr Hajiyev was a politically exposed person, being a person who had been entrusted with a prominent public function as a member of the management of a state-owned enterprise.” Since Hajiyev was a politically exposed person [PEP], according to the British law, so was Hajiyeva, his wife; accordingly, the money she had spent was lawfully the target of the NCA’s investigation and of the UWO issued against her.
This is now the key issue on which the NCA’s pursuit of Hajiyeva depends; she has applied to the Supreme Court for a fresh appeal. If the highest of the British courts accepts the appeal, it will decide what is the proper test for a state enterprise. If the Supreme Court rules that the 51% state shareholding in the International Bank of Azerbaijan didn’t turn Hajiyev into a state employee on a modest state salary, far below his capacity to pay his wife’s British bills, then the NCA investigation will fail, and the UWO will be dismissed. It is suspended for the time being.
This issue is a sensitive one for at least one former Russian state banker who moved to London from Moscow and invested, spent and displayed wealth far in excess of his state salary. That is the case of Vladimir Chernukhin (right), now a British citizen and formerly a Russian Finance Ministry employee and protégé of Finance Minister, then Prime Minister Mikhail Kasyanov, as well as of Finance Minister and Deputy Prime Minister Alexei Kudrin. On their direction, Chernukhin supervised the takeover of most Russian pension fund contributions; management of Soviet-era debts owed to Moscow by states like Czechoslovakia and Vietnam; and bail-out loans for companies designated by Kasyanov, Kudrin, or President Vladimir Putin as politically valuable; these included state media companies. Chernukhin was head of the state-owned Vnesheconombank until he was removed by Putin in 2004.
In London in other litigation, Chernukhin has been supported by Sir John Scarlett, former chief of the Secret Intelligence Service (MI6). His wife is also a well-known financier of the Conservative Party’s election campaigns. For Chernukhin’s story in the British courts, read this.
“If Mrs Hajiyeva had given less of her husband’s money to Harrods and more to the Tories, like Mrs Chernukhin, the NCA might not have been given the political clearance to pursue the UWO,” commented a London lawyer.
Last week, in the second of the UWO cases to be tested by a judge, a High Court ruling put a stop to Supperstone’s run in support of the government, and for the time being at least, discredited the NCA’s investigations. This is the judgement of High Court Justice Dame Beverly Lang, issued on April 8, to dismiss UWOs against the London properties of Dariga Nazarbayeva (photo, below left) and Nurali Aliyev (right). Read the court judgement here.
To enlarge the image, click on print.
Lang’s judgement turns, not on whether Nazarbayeva is a politically exposed person (PEP) herself and state employee in Kazakhstan, but on multiple failures by the NCA to substantiate its evidence and allegations. As the case against Hajiyeva turned on the Azerbaijan prosecution of her husband, the case against Nazarbayeva was based on NCA’s claims that the money for her London properties came from her former husband, Rakhat Aliyev, who died in an Austrian prison in February 2015; he was waiting for trial on Austrian charges relating to the murder of two bankers. Aliyev and Nazarbayeva were divorced in 2007, before the London real estate was purchased.
Lang turned the tables on Supperstone. Like Supperstone’s reliance on the Azerbaijan prosecutors against Hajiyeva, Lang accepted the testimony of Kazakh prosecutors in favour of Nazarbayeva. But she attacked the NCA for building their case on Aliyev’s criminal record.
“Although Ms Kelly [chief NCA investigator] noted that DN [Nazarbayeva] and RA [Aliyev] were divorced, she did not appear to take into account the breakdown of the relationship between DN and RA, in assessing the likelihood of DN’s involvement in laundering RA’s suspected proceeds of unlawful conduct. Ms Kelly also did not consider it appropriate to take into account the investigation and confiscation proceedings against RA in Kazakhstan which confiscated his assets, but not those of DN. The prosecutor’s account into the investigation into RA, provided under cover of the 9 August  letter, confirmed that the investigation into RA found that RA had not transferred illegally acquired funds or assets to DN, and DN did not hold any illegally acquired funds or assets.”
“Curiously,” the judge added, the NCA “did not even mention the possibility that DN was the founder of Villa Magna [registered as proprietor of one of the targeted properties], although she is a successful businesswoman who was named in Forbes list of richest people in Kazakhstan in 2013, and so her wealth could have been identified by Ms Kelly from material in the public domain.” In pursuing their UWOs, the NCA investigations did not call into question the lawfulness of Nazarbayeva’s business practices or the fortune she had accumulated from them. For Lang, Nazarbayeva’s place on the Forbes Rich List was a cachet of the respectability of her money, not a clue to a crime.
Lang also attacked the NCA for its suspiciousness. “The use of complex offshore corporate structures or trusts is not, without more, a ground for believing that they have been set up, or are being used, for wrongful purposes, such as money laundering. There are lawful reasons – privacy, security, tax mitigation – why very wealthy people invest their capital in complex offshore corporate structures or trusts. Of course, such structures may also be used to disguise money laundering, but there must be some additional evidential basis for such a belief, going beyond the complex structures used.”
The NCA says it will appeal. ““UWOs are new legislation and we always expected there would be significant legal challenge over their use,’ said Graeme Biggar, the NCA’s director general of the National Economic Crime Centre. ‘We disagree with this decision to discharge the UWOs and will be filing an appeal. We have been very clear that we will use all the legislation at our disposal to pursue suspected illicit finance and we will continue to do so.’”