RECENT REFORMS ARE NOT ENOUGH TO TACKLE KLEPTOCRACY, NEW REPORT EXAMINING COMPLEX WEB OF KAZAKHSTAN PROPERTY OWNERSHIP SAYS

News Release
29-Mar-2022

Reports and Pro­ceed­ings
Uni­ver­sity of Exeter

            
Experts have criticised inadequate legislation, failures by the National Crime Agency, and “flawed” legal judgements which led to the dismissal of a high-profile case against the relatives of Kazakhstan’s autocratic first president.

The Nation­al Crime Agency “failed to adequately invest­ig­ate and rebut” mater­i­al sup­plied by the law firm Mish­con de Reya, a new report which exam­ines the com­plex web of Kaza­kh­stan prop­erty own­er­ship in Lon­don says.

The NCA should take “a large part of the blame” for the col­lapse of the Unex­plained Wealth Orders against Dariga Naz­ar­bayeva and Nur­ali Ali­yev, the daugh­ter and grand­son of Nur­sultan Naz­ar­bayev, whose rule ran from 1991 to 2019.

The report, launched in Par­lia­ment today by aca­dem­ics and Dame Mar­garet Hodge MP, says the judge­ment made by the judge who heard the case, Ms Justice Lang, was flawed, as she accep­ted evid­ence from the Kaza­kh author­it­ies that was “likely tain­ted by polit­ic­al bias, giv­en the Naz­ar­bayev family’s con­trol over Kaza­kh­stan at the time the UWOs were issued”.

Pro­fess­or Heath­er­shaw and Mr Mayne call on the NCA to review the case, known as NCA v Baker, and exam­ine the own­er­ship of £137 mil­lion prop­er­ties in Baker Street.

“Crimin­al­ity Not­with­stand­ing: The use of Unex­plained Wealth Orders in Anti-Cor­rup­tion Cases”, was writ­ten by Tom Mayne and John Heath­er­shaw from the Uni­ver­sity of Exeter. Research for the report was con­duc­ted under the Glob­al Integ­rity Anti-Cor­rup­tion Evid­ence Pro­gramme, fun­ded by UK Aid.

The report calls for increased fund­ing and man­date for the UK enforce­ment agen­cies so that they can prop­erly invest­ig­ate and freeze cor­ruptly obtained assets. It argues for the use of spe­cial­ist invest­ig­at­ors, great­er use of experts who can provide evid­ence on the polit­ics and laws of coun­tries in ques­tion and an eco­nom­ic crime court with spe­cial­ised judges.

Unex­plained Wealth Orders were intro­duced in the United King­dom in 2017 to tackle organ­ised crime and grand cor­rup­tion eman­at­ing from klepto­cra­cies. Only four UWO invest­ig­a­tions have been repor­ted since 2018, no UWO has been issued since July 2019, none have been issued against Rus­si­an nation­als, and only one UWO invest­ig­a­tion has been suc­cess­ful against prop­erty held by a for­eign polit­ic­al fig­ure — a former Azerbaijani banker, Jahangir Haji­yev, and his wife. Even though the UWO was upheld, the prop­er­ties are yet to be recovered and leg­al pro­ceed­ings are still ongoing.

The UWO invest­ig­a­tion into Dariga Naz­ar­bayeva and Nur­ali Ali­yev was launched in 2019, and three orders were issued on prop­er­ties owned by them. Oth­er prop­er­ties, includ­ing a block of flats and offices on Baker Street worth £137 mil­lion, were not issued with UWOs, although it is unclear why. The orders were dis­missed by the High Court in 2020, which saw the Nation­al Crime Agency landed with a £1.5 mil­lion bill in costs.

The report says the NCA “did not focus to any great extent on the klepto­cracy centred on the Naz­ar­bayev fam­ily that forms the basis of Kazakhstan’s polit­ic­al eco­nomy and missed key evid­ence already in the pub­lic domain which would have helped the judge dis­miss cer­tain aspects of Nazarbayeva’s claims as unreliable”.

It high­lights how Ms Justice Lang “expressed the need for cau­tion in treat­ing the com­plex­ity of cor­por­ate struc­tures as grounds for sus­pi­cion, yet did not ques­tion the pos­sible reas­ons why Naz­ar­bayeva and her son were using such com­plex structures”.

The report iden­ti­fies five flaws in the ori­gin­al Unex­plained Wealth Order legislation:

its acceptance that wealth is “lawfully obtained” if it is generated legally under the laws of the country from where the income arises;
that respondents can point to public statements of wealth as legitimate and sufficient evidence in and of themselves without corroborating evidence;
the fact that respondents can avoid the presumption that their property was criminally obtained by “purporting to comply” rather than complying fully with the order;
the fact that enforcement bodies can issue UWOs against trustees and other nominees, yet the other requirements refer more clearly to the property’s beneficial owner. This creates an awkward mismatch, where the enforcement body must demonstrate that, for example, a trustee is a politically exposed person.
the fact that costs in unsuccessful cases are not capped, meaning that the UK body that has brought the investigation is liable to pay the legal costs of the other side, leading to bills in the millions of pounds.

The recently-passed Eco­nom­ic Crime (Trans­par­ency and Enforce­ment) Act 2022 seeks to address the final two of these but leaves the first three untouched.  How­ever, the report argues that “the first three issues remain, and pose a threat to the future use of UWOs against cor­rupt incum­bent officials.”

Tom Mayne said: “We believe key to the suc­cess­ful out­come of NCA v Haji­yeva and the lack of suc­cess in NCA v Baker is the fact that at the time the orders were issued Jahangir Haji­yev was in jail in Azerbaijan and had no sup­port from the country’s rul­ing powers, while Dariga Naz­ar­bayeva, the daugh­ter of the then pres­id­ent of Kaza­kh­stan, retained favour in her home coun­try.  Thus, there is the pos­sib­il­ity that instead of coun­ter­act­ing klepto­cracy, UWOs may rein­force it.  Extra efforts must be made to bet­ter tackle those who remain in power and not just the “fled and polit­ic­ally dead.”

Pro­fess­or Heath­er­shaw said: “There is the danger that UWOs will only have an impact in the most clear-cut anti-cor­rup­tion cases.  Unless there is fur­ther reform or new leg­al pre­ced­ent to estab­lish that wealth accrued by such polit­ic­al means is not in fact “law­fully obtained”, then UWOs will remain a weak tool against kleptocracy.”

The report says in NCA v Baker the NCA “paid little atten­tion to the cor­rupt under­pin­nings” of Kaza­kh­stan, where Naz­ar­bayev “allowed mem­bers of this fam­ily to accrue bil­lions of dol­lars in opaque and ques­tion­able cir­cum­stances”. The NCA’s case failed as it attemp­ted to tie the prop­er­ties to Dariga Nazarbayeva’s crim­in­al ex-hus­band, Rakhat Ali­yev, even after it was revealed that the bene­fi­cial own­ers of the prop­er­ties were Dariga Naz­ar­bayeva and Nur­ali Ali­yev. How­ever, des­pite parts of the NCA’s case being faulty, its cent­ral ten­et – that there is little sep­ar­a­tion between Dariga and Rakhat’s wealth – is pre­dom­in­antly true, based on oth­er pub­licly avail­able inform­a­tion and fur­ther research.

One of the prop­er­ties ori­gin­ally sub­ject to UWOs was 32 Dene­wood Road, Highg­ate. Pur­chased on 2 April 2008 for £9.3 mil­lion. Accord­ing to Mish­con, the prop­erty was held by Nur­ali on trust for his moth­er, through a com­pany called Twin­gold Hold­ing Ltd that was owned in turn by Dariga, Nur­ali and a com­pany called Sagitta Busi­ness Corp. The prop­erty was later trans­ferred to a Panamani­an private interest found­a­tion, Villa Magna, which held the prop­erty for Dariga Naz­ar­bayeva.  A French law­yer was the ori­gin­al pres­id­ent of the found­a­tion, but was replaced in 2015 by Andrew Baker, a Brit­ish soli­cit­or based in Liecht­en­stein. The house was put on sale in March 2021 for £9.5 mil­lion, later reduced to just under £9 million.

Anoth­er prop­erty, 33 Bish­ops Aven­ue was pur­chased on 20 May 2008 for £39.5 mil­lion. A pre­vi­ous own­er, Hos­sein Ghandehari, bought it in July 2002 for just £4.21 mil­lion, almost ten times less. Ghandehari, an Ira­ni­an investor, is the son of Hour­ieh Peramam, a busi­ness­wo­man ori­gin­ally from Kaza­kh­stan, who also owns a house on the same road, which she bought for £50 mil­lion in 2008. dNur­ali bought the house through an off­shore com­pany, Rivi­era Alli­ance Inc, which was wholly owned by Nurali’s com­pany Greatex Trade and Invest Corp. In March 2013, Nurali’s Greatex trans­ferred its shares in Rivi­era to Man­rick Private Found­a­tion, incor­por­ated in Cur­açao, and the leg­al title for the prop­erty was trans­ferred from Rivi­era to Manrick.