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A New Era for Financial Transparency: UWOs and the $3B Azerbaijan Bank Scandal

uwo azerbidjian unexplained wealth order hjiyeva jahangir hajiyev khagani bashirov

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An exclusive article by Nicolas Orrico

A recent embezzlement scandal involving millions of euros siphoned off from the state-owned International Bank of Azerbaijan (IBA) between 2005 and 2015 came to light after a six-year investigation by the UK’s National Crime Agency (NCA).

This case saw for the first time the application, grant and recovery of assets through the use of Unexplained Wealth Orders (UWOs), a legal instrument consisting of the requirement for the respondent to explain how an asset or group of assets was acquired. Are UWOs the beginning of a new chapter in fighting international financial crime?

A person suspected of possessing assets from an illegal origin (whether in the UK or abroad) can receive a UWO and must provide an explanation of how said assets were acquired and the costs involved in obtaining them, under penalty of the assets being considered “recoverable property” for the purposes of a civil recovery order.

An application for a UWO in the High Court can be made by the National Crime Agency, the Serious Fraud Office, the Crown Prosecution Service, HM Revenue and Customs and the Financial Conduct Authority (the “enforcement authorities”), in respect of any assets valued at more than GBP 50,000 suspected to be considerably higher than the owner’s purchasing capacity.

The person against whom a UWO is sought must be one of the following: a politically exposed person (PEP) who is not a citizen of the European Economic Area; a person suspected of a serious crime in the UK or abroad; or someone who is connected to a person suspected of a serious crime in the UK or abroad. The High Court can admit grounds for suspicion of any of these circumstances without need for a criminal investigation to have commenced.

In order to prevent an asset from being disposed of before the UWO process is complete or a later unenforceable recovery order, the court order may be accompanied by an interim freezing order (IFO) which prevents the respondent or anyone else from dealing with the assets. Property held in a corporate or trust structure can also be the subject of a UWO if the respondent is deemed to have effective control over it.

To respond to an UWO, a statement explaining how the assets were legitimately acquired must be provided. A response deemed unsatisfactory may lead to the presumption that the property is recoverable under any subsequent civil recovery action, and false or misleading statements can lead up to two years’ imprisonment.

Background and Ratio Legis of the Criminal Proceeds Act 2017

Unexplained Wealth Orders were introduced by the Criminal Finances Act 2017, which is in turn an amendment to the Proceeds of Crime Act 2002. According to the Home Office upon publication of its Royal Assent on 27 April 2017, the amendment “gives law enforcement agencies and partners, further capabilities and powers to recover the proceeds of crime, tackle money laundering, tax evasion and corruption, and combat the financing of terrorism”. (1)

The Criminal Finances Bill was introduced to Parliament on 13 October 2016 by the then Home Secretary of the UK Amber Rudd and presented during its second reading in the House of Commons by the Minister for Security, Ben Wallace.

While presenting Part 1 of the Bill, Mr. Wallace said at the House of Commons: “There are criminals who declare themselves almost penniless, yet control millions of pounds. Law enforcement agencies may suspect that assets are the proceeds of international corruption, but they are unable to freeze or recover them, often because they cannot rely on full co-operation with other jurisdictions to obtain evidence. A court will be able to make an unexplained wealth order to require an individual or organisation suspected of association with serious criminality to explain the origin of assets, where they appear to be disproportionate to their known income. If that person does not respond, this may enable the property to be recovered under existing civil recovery powers.” (2)

We can see with this statement that the then in force Proceeds of Crime Act 2002 was deemed insufficient for the successful freezing or recovery of assets proceeding from financial crime, as a consequence of which criminals were able to hold high-end real estate and other luxury goods in plain sight of the authorities. The UK government therefore justified with this situation the application of the reverse onus principle on which the UWO lies, which consists of reversing the burden of proof onto the specified individual to disprove an element of information.

Another important point in this new legal instrument introduced by the Bill is its extra-territorial extent, as both the property in respect of which the order is sought as well as the person suspected to hold it can be located outside the UK.

In this regard, Mr. Wallace stressed the importance the importance of London as a major international financial centre: “We should be rightly proud of the UK’s status as a global financial centre. This is one of the best places in the world in which to do business, but we must recognise that the size of our financial sector and open economy and the attractiveness of the London property market to overseas investors make this country unusually exposed to the risks of international money laundering. That is why this Government are taking action—to combat money laundering, terrorist finance and corruption—here and overseas. We are sending a clear message that we will not stand for money laundering or the funding of terrorism through the UK.” (3)

The First UWOs: The Azerbaijan Embezzlement Case

The first two Unexplained Wealth Orders were sought by the UK National Crime Agency (NCA) against Zamira Hajiyeva, the wife of Jahangir Hajiyev, former chairman of the state-owned International Bank of Azerbaijan (IBA). Acting through his right hand Khagani Bashirov, chairman Hajiyev embezzled nearly EUR 3 billion from the bank which were extracted via multiple corporate structures and approximately 470 bank accounts.

Among recipients of said scheme were at least three European politicians, businessmen and a journalist who praised the government in the midst of a human rights crackdown that threw opposition politicians and journalists into prison on politically motivated charges.

Hajiyev’s assets include a villa and vineyards in Sardinia valued at around EUR 10.7 million, a private jet worth more than EUR 30 million and a golf course, the purchase of which was disguised through different legal structures. No reasonable explanation was provided to the NCA for the source of funds used to purchase any of these properties.

NCA commander Tim Quarrelle said about the success of this operation: “This result comes almost six and a half years after we served Mrs Hajiyeva with the first unexplained wealth order ever granted, and highlights our commitment to using all the tools at our disposal to combat the flow of illicit money into, and through, the UK.” (4) Deputy Legal Director Armstrong added that: “The NCA’s investigation was followed by complex and lengthy litigation, which saw NCA lawyers address numerous challenges and use a range of legal powers introduced by the Criminal Finances Act 2017 to successfully recover assets worth millions of pounds.” (5)

Conclusion

The case of Azerbaijan’s embezzlement scandal marks a milestone in the application of Unexplained Wealth Orders as a potent tool in combating international financial crime. The successful use of UWOs against assets linked to illicit activities demonstrates the UK’s commitment to cracking down on money laundering and corruption. With broader powers granted under the Criminal Finances Act 2017, law enforcement agencies can now demand greater accountability from individuals suspected of acquiring wealth through illegitimate means.

However, the introduction of the reverse onus principle in these proceedings raises concerns regarding due process and fundamental legal rights as the burden of proof is shifted onto individuals. Careful judicial oversight is therefore essential to ensure that the use of these orders remains fair and proportionate.

While the Azerbaijan case serves as a benchmark, more cases must unfold to fully assess the long-term effectiveness of UWOs in deterring financial crime. Continued application and judicial scrutiny will determine whether this legal instrument can strike the right balance between effective enforcement and the protection of legal rights in the fight against illicit wealth.