UNTIL quite recently, Zamira Hajiyeva was living the high life, according to British authorities. She had a US$14.5 million townhouse in London's tony Knightsbridge neighbourhood, a golf club in the English countryside and a gold-plated shopping habit at Harrods. That was before a British court this year asked the 55-year-old from Azerbaijan an impertinent question: How did she afford those purchases?
That query is at the heart of a bold British push to try to reverse what the government believes is a flood of foreign investment stemming from overseas corruption and criminality. For more than a decade, ultrarich people from the former Soviet Union, China and the Middle East have turned to London mansions, New York high-rises, and chic properties in Vancouver, Miami and Paris to store their cash. The phenomenon has turned the real estate markets of North American and European cities into the savings accounts of wealthy foreigners - some of whom face allegations of corruption or crime back home.
Regulators on both sides of the Atlantic have failed to stem the tide, which has helped drive property prices beyond the reach of some local residents and, critics argue, facilitated illicit conduct overseas. Now a new investigative tool being launched by British authorities could serve as a powerful deterrent.
But it is fraught, forcing wealthy individuals to demonstrate that they bought property with lawfully earned funds - a departure from legal precedent that required the state to prove the use of illicit money. "It is quite a dramatic move to put a burden on somebody to explain the legitimacy of their income, versus the reverse burden, which would normally be on the state to show income or property had been unlawfully obtained. We have issues about that," said Jonathan Fisher, a lawyer specialising in white-collar-crime cases.
The case involving Ms Hajiyeva - whose husband is serving a prison sentence in Azerbaijan for embezzlement - is the first of what the government says will be several efforts to deploy the new "unexplained wealth orders" in the coming months. Under new legislation, law enforcement agencies can seek the orders from a court when they have "reasonable grounds to suspect" that a person lacks enough legal income to explain a large purchase - and has ties to a foreign public official or possible links to crime.
If recipients of the orders can't show that they used legitimate income, the court may allow the government to seize the property. Donald Toon, head of economic and cybercrime at the National Crime Agency, which requested the court orders against Ms Hajiyeva, said the government is enforcing the law that Parliament passed.
London's rich culture and nightlife and posh boarding schools have made it a magnet for overseas capital, bringing a flood of wealthy foreigners seeking a comfortable life away from their sometimes turbulent home countries. Foreign money particularly streamed to London after the fall of the Soviet Union in 1991, when privatisation of state-owned industries, often through corrupt auctions, created a new generation of millionaires and billionaires.
Buyers from former Soviet republics helped drive London housing prices to record highs, causing consternation among Britons who were priced out of the market. In 2015 the National Crime Agency said overseas criminals were laundering billions of pounds through property purchases.
Then-prime minister David Cameron said British properties were "being bought by people overseas through anonymous shell companies, some with plundered or laundered cash".
Concerns grew so acute that a pair of anti-corruption campaigners started a "kleptocracy tour" of London, escorting journalists and politicians around wealthy neighbourhoods dotted with foreign-owned mansions. The partners are former finance industry executives based in London - Arthur Doohan and Roman Borisovich - who say they fund the effort largely with their own money.
Strolling down a Knightsbridge street in the autumn sunshine last month, Mr Doohan pointed towards a large brick home. "This is Mr Firtash's iceberg," he said, referring to the Ukrainian oligarch Dmytro Firtash, who is living in Austria fighting a US extradition request on bribery charges that he denies.
Iceberg, Mr Doohan explained, means "a house that goes down as far as it goes up" - in this case with an underground swimming pool, he said. A few blocks away Mr Doohan arrived at Ms Hajiyeva's townhouse, where all the curtains were drawn.
Now that the property is subject to an unexplained wealth order, it "will become a highlight" of the tour, he said.
Money laundering "just damages people", he said. "It damages people in Russia and Nigeria, the places where the money was stolen from. They don't get roads, schools, hospitals ... and it damages people in the UK," he added. "The price of property has been driven against the interests of the law-abiding, taxpaying citizens." WP
Adapted from The Buisness Times December 17 2018