National Crime Agency -v- Baker and others  EWHC 822 (Admin)
Analysts and firms conducting client due diligence should exercise care when relying on ‘adverse news’ to avoid drawing premature and ill-founded conclusions without a proper investigation of client’s source of wealth and funds.
This case and the judgment are relevant for the anti-money laundering world as it reviews tax-based and apparently opaque corporate structures and finds that they are not of themselves evidence of money laundering.
The Court discharged the orders obtained by the NCA at its first hearing.
The principal message of this judgment is that the Court will exercise its power to review carefully and forensically evidence offered by the NCA when it attempts to use this investigative power and not hesitate to discharge order[s].
In the second unexplained wealth order case to come before the Court, the order obtained by the NCA was discharged by the judge.
The order was discharged on the evidence at the first hearing before the High Court, the NCA said that it will appeal.
This case concerned the discharge by the High Court of three unexplained wealth orders [UWOs] obtained by the NCA. The related interim forfeiture orders [IFOs] were also discharged.
It has been reported correctly in the media that the orders related to the (admitted) beneficial ownership of two properties belonging to Dariga NAZARBAYEVA (the daughter of a former President of Kazakhstan) and a further property owned by her son Nurali ALIYEV by her former husband Rakhat ALIYEV (the former Ambassador of Kazakhstan to Austria).
The NCA alleged that the source of funds for the purchases was Rakhat ALIVEV and that those funds resulted from criminal activity.
The Court found that this was not the case in a judgment reported as ‘damning’ in The Daily Telegraph.
Procedure to obtain OWOs
UWOs are obtained by application by the NCA to the High Court without notice to the party against whom the order is sought and without their presence in what used to be called an ex parte hearing. The evidence offered is scant at such hearings and the NCA only has to disclose an arguable case, what used to be called a prima facie case. At a return hearing both parties can attend to present evidence.
The facts in this case are not relevant to this Briefing Note except insofar as the Court found that Mrs Nazarbayeva and her son were the source of the funds that were used to buy the properties.
Mrs Nazarbayeva is the incumbent chairman of the senate of Kazakhstan and a successful legitimate businesswoman. She was deputy prime minister of Kazakhstan 2015-16. She is a political figure and a candidate for the presidency.
Her divorce from Mr Aliyev in 2007 was found not to be a sham.
She is also the daughter of Nursultan Nazarbayeva who was President of Kazakhstan 1990-2019.
He was last elected effectively unopposed with 98 per cent. of the vote. His current title is Leader of the Nation.
Mr Aliyev was the Ambassador of Kazakhstan to Austria in 2002 and later in 2007.
Austria refused to extradite him in 2007 after he was removed from public office in Kazakhstan after announcing that he would run in the presidential elections.
In 2014 he was arrested by the Austrian authorities and in 2015 died in prison having committed suicide.
Politically Exposed Person
It is notable that no one was found to be a politically exposed person [PEP] at any relevant point in the chronology having strict regard to the fourth money laundering directive and the Money Laundering Regulations 2017 [MLR 2017] notwithstanding active and prominent histories in Kazakh politics.
Under Proceeds of Crime Act 2002 s362B [POCA 2002], an individual must be either a PEP (as defined in POCA not as defined in the MLR 2017) (see an earlier Briefing Note on this topic) or suspected of involvement in a ‘serious crime’ (as defined in the Serious Crimes Act 2007, see below).
The Court (Mrs Justice Lang) invented a brand-new acronym IEPPF in her judgement.
An IEPPF is an individual entrusted with a prominent public function.
This is a useful definition of PEP for POCA 2002 purposes as it does not mirror the definition used in the MLR 2017 or elsewhere.
This was a ‘serious crime’ and not a PEP case –
‘On the much more detailed evidence before me, I am not satisfied that the NCA has proved that Mr Baker [the respondent in the case s trustee for the UBOs] is a PEP. Nor am I satisfied that there are reasonable grounds for believing that Mr Baker is or has been involved in serious crime, or that he is connected to persons who have been so involved.’
So far as the ‘serious crime’ limb of POCA 362B was concerned –
‘151. The NCA does not dispute that Mr Baker has no criminal record.’
Ultimate Beneficial Ownership
Mrs Nazarbayeva and her son admitted beneficial ownership of the three properties.
The NCA alleged that the source of funds was ‘criminal’ for POCA 2002 purposes and was unsuccessful.
The NCA further alleged that the changes in legal ownership and the use of corporate and tax-based trusts was not in itself evidence of money laundering.
Changes in legal ownership
It was more or less ‘common ground’ that the properties in questions went through various tax-driven changes in legal ownership since 2008 and later depending on the date of initial purchase.
There was no dispute about ultimate beneficial ownership.
The Court reviewed prior case law carefully and found –
‘97. In my judgment, these principles [the prior case law] apply equally in the context of UWOs. 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.’
‘In my judgment, the NCA’s reasoning was artificial and flawed …’
Put simply, the Court found that the NCA had relied on reports by Global Witness –
‘157. I repeat paragraphs 68 to 70 of my judgment, concerning [the NCA’s] failure to consider (1) that DN [Mrs Nazarbayeva] might be the founder of Tropicana; (2) the breakdown of the relationship between DN and RA [Rakhat Aliyev] when assessing the likelihood of DN’s involvement in laundering RA’s proceeds of unlawful conduct; and (3) the investigation and confiscation proceedings against RA which found that he had not transferred illegally acquired funds to DN and DN did not hold any illegally acquired funds or assets.’
‘217. … However, I do accept that the NCA case which was presented at the ex parte hearing was flawed by inadequate investigation into some obvious lines of enquiry: see the matters set out at paragraphs 68 to 70 and 178 above. Furthermore, I consider that the NCA failed to carry out a fair-minded evaluation of the new information provided by the UBOs and Respondents under cover of the letter of 9 August, in particular, in relation to the evidence of purchase on behalf of the UBOs, the absence of any link between RA and the three foundations, and the matters at paragraphs 68 to 70 and 178 above. I have taken this into account in reaching my conclusions on the three UWOs.’
Proceeds of Crime Act 2002 s362 Unexplained Wealth Orders
Serious Crimes in England and Wales
Serious Crimes Act 2007 Schedule 1 Part 1
Prostitutes and child sex
Offences in relation to public revenue (evasion of VAT and income tax etc)
Environment (fish, wildlife endangered species, trade in wild fauna and flora)
Attempt or conspiracy
Encouraging or assisting
Aiding. Abetting, counselling or procuring
Common law offence of conspiracy to defraud
NCA -v- Baker and others  EWHC 822 (Admin)