Алты́нного во́ра ве́шают, а полти́нного че́ствуют – Laws catch flies but let hornets go free (Russian Proverb)
‘Unexplained Wealth Orders’ (‘UWOs’) came into force on 31 January 2018[1]. UWOs are designed as part of a move to make the UK a more hostile place for those who hold, hide and move the proceeds of serious crime and evade sanctions[2].
We take a look at whether the McMafia figures have cause for concern.
A UWO is an order made by the High Court which places the burden on those suspected of involvement in serious criminality to explain their interest in and the origins of assets which appear to be disproportionate to their known income. Where the target of a UWO fails to explain how he came to obtain the property in question, it is presumed to be recoverable property for the purposes of Part 5 of the Proceeds of Crime Act 2002.
Despite their status as a civil power and an investigative tool, UWOs have been touted, most recently by the UK Foreign Secretary[3], as an addition to the UK’s (arguably threadbare) armoury in addressing Russian mischief from Salisbury to Syria, by putting pressure on those connected to Putin’s regime and thereby punishing Putin himself.
The release of the BBC’s documentary series McMafia coincided with the coming into force of the UWOs, and provided the Government with an unprecedented opportunity to use James Norton to boast about its action to tackle organised crime.
In a message which might reverberate from Mayfair to Moscow, Security Minister Ben Wallace asserted,‘We know what they are up to’, which is certainly a good start.
However serious and organised criminals are often reticent about revealing the source and extent of their ill-gotten gains. Conversely, the POCA regime is not known for its effectiveness in depriving top-tier criminals of their assets.
Moreover, and perhaps in reaction to demands by MPs for UWOs to be deployed in response to the nerve agent attack on Sergei and Yulia Skripal, NCA Economic Crime Director Donald Toon recently pointed out that law enforcement authorities could not ‘target people by nationality’, but rather had to have evidence to take action.
The Targets: McMafia
There is a long history of Russian leaders seeking harness the capabilities of the ‘vory’, or criminal underworld, to do their dirty work[4], a recent example being the role Russian crime gangs have played in seizing the Crimea and fomenting unrest in Eastern Ukraine.
Putin has curbed the public brutality of the vory but permitted the growth of a symbiotic relationship between a more sophisticated and entrepreneurial breed of gangster and the state. Targeting the former, it is argued, is a means to bring the latter in to line.
The Issue: Retrospectivity and Extra-Territoriality
UWOs came into force on 31 January 2018, prior to the anti-climax of McMafia. However a BBC production of this scale typically takes two years to film and produce, and it can therefore be assumed that the McMafia targets all obtained their assets before the UWO provisions became law.
This will not save these hardened criminals from the grasp of the UWO, however, because the Act makes it clear that it is immaterial whether the Respondent obtained the property before or after the coming into force of the Act[5].
Further, the Act explicitly states that a UWO may be made in respect of those outside the United Kingdom[6], and would therefore apply to almost all the male characters portrayed. The requirement that the target is, or has been, involved in ‘serious crime’ applies whether that crime was committed in the United Kingdom or ‘elsewhere’[7], thereby capturing their activities abroad.
Verdict: A Good Start
The Target: Dmitri Godman
The head of the Godman clan, Dmitri moved to the UK following a Kremlin-imposed exile in early 1990s. The precise nature of Dmitri’s criminal background is not spelt out, but rather is implied by Dmitri’s vodka infused ruminations, delivered in a thick Russian accent, about historic ‘business’ in the old country, typically whilst feeding ducks in Regent’s Park.
The Issue: The Property
An application for a UWO must specify or describe the property in respect of which the order is sought[8]. It is clear, therefore, that a UWO cannot be used as a way to investigate what assets may or may not be held by the target, and the enforcement authority must know of the existence of the asset before making an application.
Dmitri is plainly a man of means, but appears to boast few identifiable assets. The High Court must be satisfied that there is reasonable cause to believe that the Respondent holds the property[9], and that there is reasonable cause to believe the value of the property is greater than £50,000[10].
In his case, the enforcement agency would likely pursue his luxury Mayfair penthouse.
It is likely that Dmitri, preternaturally certain of his own imminent demise, would have registered the property in both his and his wife’s name. This will not save him, however, as the Act makes clear that the target can hold the property in its entirety or in part with any other persons[11].
Further, moving the property wholly in to another’s name in order to avoid a UWO will not assist Dmitri, as the Act provides that a person ‘holds’ property where he has effective control over the property[12].
However Civil Recovery under Part 5 of the Act cannot be pursued more than 12 years from the date when the enforcement authority’s cause of action accrued[13], which, in Dmitri’s case, would be 12 years from when he obtained the property. As the décor is distinctly late 20th Century, it appears Dmitri can sleep easy on this front at least.
Verdict: More Important Things to Vory About
The Target: Semiyon Kleiman
Semiyon Kleiman is a Russian exile turned Israeli citizen who built his fortune in the shipping and entertainment industries. An intelligent and devious operator, Kleiman is careful to shield his criminal enterprise behind a network of proxies, and an enforcement agency might struggle to satisfy a court that there are ‘reasonable grounds for suspecting that [he] is, or has been, involved in serious crime (whether in a part of the United Kingdom or elsewhere)[14].
However as a member of the Knesset, Semiyon Kleiman would be considered a ‘politically exposed person’[15]for the purposes of the Act, thereby providing an easier route for an enforcement authority to establish liability for a UWO.
The Issue: Lawfully Obtained Income
Kleiman maintains an extensive legitimate business empire. The enforcement authority, in an ex parte application and further to its duty of candour, would be bound to provide details of this to the High Court.
Unless the High Court was satisfied that there were ‘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’[16], a UWO could not be made against Kleiman.
In his case, therefore, the enforcement authority would likely have to satisfy the High Court that the value of the specified property exceeded the ability of his legitimate businesses to obtain it.
This would present a significant, practical, obstacle to pinning down the elusive Kleiman.
Verdict: Safe as Safe Houses
The Target: Alex Godman
The son of Dmitri Godman, Alex Godman is the CEO and manager of a profitable hedge fund that is brought to near collapse as a result of unfounded rumours of connections to Russian organised crime. After the death of his beloved Uncle Boris, Alex seeks to restore his fortunes by laundering the criminal proceeds of Semiyon Kleiman, and revenge by taking over Vadim Kalyagin’s criminal enterprise.
The Issue: Serious Crime
Alex consistently presents as a slightly bewildered Labrador. The High Court would have to be satisfied that there are reasonable grounds for suspecting Alex ‘is, or has been, involved in serious crime (whether in a part of the United Kingdom or elsewhere)’[17], which on the face of it seems fundamentally unlikely[18]. However the alternative possibility, that he is a master manipulator of the financial markets, seems equally improbable, rendering it a score draw on that front.
Alex’s involvement in actual crime is largely limited to the movement of monies abroad on behalf of Semiyon Kleiman, and introducing criminals to each other so as to defeat his nemesis Vadim Kalyagin.
The Act provides that a person is involved in ‘serious crime’ if he would be so involved for the purposes of section 2 of the Serious Crime Act 2007[19].
An offence of money laundering, contrary to sections 327-329 of the Act, is defined as a ‘serious crime’ for the purposes of section 2 of the Serious Crime Act 2007[20]. As criminal property is that which constitutes a person’s benefit from criminal conduct, and criminal conduct includes conduct which would constitute an offence ifit occurred in the United Kingdom[21], Alex will be caught notwithstanding the fact that the monies he launders are generated by crime abroad.
In answering a UWO, Alex will not be able to hide behind his professional duties as a broker to Kleiman, as the Act provides that a UWO has effect in spite of any restriction on the disclosure of information, however imposed[22].
Verdict: A Rusky Business
The Target: Vadim Kalyagin
A veteran of the Afghan War and a former KGB officer, Vadim Kalyagin heads an international crime empire that operates under the protection and patronage of the Russian state.
The First Issue: Serious Crime
The only obvious crime committed by Vadim in the UK was the murder of Uncle Boris Godman (which was by way of a response for Boris’s attempted assassination of him, and under the code of the vory, probsbly fair enough). As that offence was committed by way of a kitchen sink’s worth of knives, rather than firearms, it does not amount to a ‘serious crime’ for the purposes of the Act.
However that definition extends to conduct abroad, provided it would have been a ‘serious crime’ had it occurred in the UK.
Vadim’s most public criminality involves the trade in counterfeit handbags, perfumes and Real Madrid T-shirts, but trade mark offences are not deemed to constitute ‘serious crime’. Fraud is considered a ‘serious crime’[23], however as the consumers of Vadim’s products knowingly make their purchases from street vendors rather than a Gucci outlet, it might be hard to characterise his criminality in this way.
The offence of ‘participating in activities of an organised crime group’, contrary to section 45 of the Serious Crime Act 2015 is a ‘serious crime’, and one undoubtedly committed by Vadim. Establishing ‘reasonable grounds for suspecting this’may present a real hurdle for a UK enforcement authority, given Vadim’s operations are based in, and condoned by, the Russian state[24], and Russia is notoriously uncooperative when it comes to assisting with foreign investigations into its favoured nationals.
The Issue (2): No Property in the UK
Whilst Vadim heads les criminels sans frontieres, Vadim himself is something of a homebody, preferring the protection afforded by the Motherland to the gilt and gold of Belgravia.
As we have seen, UWOs can be made where the target resides outside the UK and the ‘serious crime’ is committed outside the UK. Whilst the Act does not explicitly state that UWOs capture property held outside the jurisdiction, it does refer to ‘any property’[25], suggesting that a UWO can be made in respect of property held outside of the jurisdiction, and further makes specific provision for the enforcement authority to seek, via the Secretary of State, the assistance of a foreign government in securing property held abroad[26].
However Civil Recovery Orders may only be made in respect of property that is outside the United Kingdom where ‘there is or has been a connection between the case and the relevant part of the United Kingdom’[27]. As UWOs are an investigative precursor to a Civil Recovery Order, it is possible that the High Court would require that a ‘connection’ between the case and the UK be made before making a UWO in respect of property held abroad.
Moreover, the UK enforcement authorities authorised to apply for UWOs[28]may have little interest, or no mandate, to pursue property held outside the UK by a foreign national domiciled abroad who is suspected of criminality committed elsewhere.
Verdict: No Tremblin’ in the Kremlin
The Targets: Uncle Boris, Oksana and Katya Godman
The extrovert Boris was exiled from Russia with his brother Dmitri but unlike his sibling continued his involvement in serious and organised crime from the UK, and publically flaunted his ill-gotten wealth.
The Issue: Boris’ Death
Boris met an untimely end before UWOs came into force, and in that regard he has little to worry about. His sister-in-law Oskana and niece Katya, however, who inspected his considerable estate with possibly indecent haste following his demise, may not be so safe.
A UWO can be obtained against an individual provided there are reasonable grounds for suspecting that a ‘person connected with’ them is, or has been, involved in serious crime[29].
The term ‘connected with’ is defined with reference to section 1122 of the Corporation Tax Act 2010, which provides that individual ‘A’ is ‘connected with’ individual ‘B’ if ‘A’ is a relative of ‘B’[30].
It follows that, notwithstanding their law-abiding lives, Oskana and Katya might well be required to demonstrate how any assets in excess of £50,000 inherited from Uncle Boris were obtained, which will present something of a problem. Should they fail, without reasonable excuse, to comply with the requirements imposed by a UWO, the property will be presumed to be recoverable property for the purposes of Part 5 of POCA, unless the contrary is shown[31].
Verdict: Putin Risk (of a UWO)
In February 2018, the NCA (represented by Jonathan Hall QC in the High Court) announced that it had secured the first UWOs.
[1] Part 1 of the Criminal Finances Act 2017, inserting sections 362A to 362D into the Proceeds of Crime Act 2002.
[2] National Security Strategy and Strategic Defence and Security Review 2015: A Secure and Prosperous United Kingdom, Cm. 9161.
[3] https://www.ft.com/content/666b3aa6-2aa2-11e8-9b4b-bc4b9f08f381
[4] The Vory: Russia’s Super Mafiaby Mark Galeotti provides an excellent exposition on the history of organised crime in Russia, and the extent to which it operates with the consent and connivance of the Kremlin.
[13] s.288(1) of POCA, inserting section 27A of the Limitation Act 1980
[15] s.362B(4)(a) The definition of a PEP includes ‘an individual who is, or has been, entrusted with prominent public functions by an international organisation or by a state other than the UK or another EEA state’.
[18] Interestingly, James Norton played a far more convincing criminal as Tommy Lee Rocye in the BBC’s Happy Valley, however that character had no wealth at all, and would therefore be an unlikely target for a UWO.
[20] Sch.1, para.6 of the Serious Crime Act 2007
[23] Serious Crime Act 2007, Sch.1 para.7
[24] Serious Crime Act 2007, sch.1, para.13A
[27] s.282A – introduced following the decision of the Supreme Court in Perry v. SOCA [2012] UKSC 35
[28] The NCA, HMRC, the FCA, the Director of the SFO, or the DPP (s.362A(7) POCA)
