This article is more than 1 year old

This article is more than 1 year old

The daughters of Azerbaijan’s president agreed to buy a £60m London property using a secret offshore company, in a case potentially carrying “a significant risk of money laundering”, a tribunal has heard.

Leyla and Arzu Aliyeva sought to purchase two luxury Knightsbridge flats for £59.5m, including £3m to convert them into a single home. The deal in 2015 was intended to be the latest addition to a multi-million pound property portfolio in Britain acquired by president Ilham Aliyev’s family.

Leyla Aliyeva initiated the purchase at the same time as her divorce from Emin Agalarov, an Azerbaijani businessman and pop star. Aglarov’s father Aras, a Moscow-based property developer, hosted Donald Trump on his 2013 visit to Russia for the Miss Universe beauty pageant.

Details emerged in a disciplinary tribunal into the solicitor who carried out the transaction, Khalid Sharif. Sharif – a senior partner with the London firm Child & Child – admitted failing to carry out money-laundering checks and breaching his professional code.

The tribunal fined him £45,000 and £40,000 in costs. He is the first UK professional to be punished following the publication in April 2016 by the Guardian and other media of the Panama Papers – 11.5 million leaked documents from the Panamanian law firm Mossack Fonseca.

A close associate of the president, Javad Marandi, introduced the Aliyeva sisters to Child & Child, the tribunal was told. Sharif then set up a British Virgin Islands company, Exaltation Ltd, on their behalf, bought from Mossack Fonseca. Its purpose was “holding UK property”.

The women – who have cultivated high profiles inside and outside their home country – should have been classified as politically exposed persons or ‘PEPs’. This status triggers extensive banking checks.

However, Sharif “didn’t consider” any such steps or apply the necessary enhanced due diligence checks, the tribunal heard. Asked if his new clients were PEPs, he instructed a para-legal to tick a box marked “no”.

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The luxury flats due to be bought from a developer were “close” to Child & Child’s London office, which overlooks the garden of Buckingham Palace. After exchanging contracts, the Aliyev sisters started to pay the purchase price in instalments, transferring more than £10m. The deal “unravelled” in 2016 after their ownership was exposed.

The case illustrates the ease with which rich, politically-connected individuals from overseas can use anonymous company vehicles to buy prime London real estate – and highlights the dangers for high-end UK law firms and solicitors acting in these transactions.

President Aliyev has ruled Azerbaijan since 2003. During this time his daughters have reportedly amassed vast personal business empires. The Aliyevs own a £17m mansion overlooking Hampstead Heath in north London and a luxury flat in Hyde Park, plus various mansions in Moscow, Dubai and the Czech republic.

Sharif also arranged a second transaction which saw Marandi “gift” a £3.5m London apartment to a friend, Mirjalal Pashayev. Pashayev is a cousin of Azerbaijan’s first lady and vice-president Mehriban Aliyeva. The three-bedroom flat at 31 Hans Place, immediately south of Harrods, was transferred from one opaque corporate entity to another.

The tribunal was told that Pashayev had previously given Marandi an apartment in Baku, Azerbaijan’s capital. This was a “birthday present”. “It was culturally appropriate to reciprocate with a similar gift,” Andrew Tabachnik – a lawyer acting on behalf of the solicitors regulation authority, which brought the case – said.

He said that the nature of this sort of transaction meant “there was grounds to suspect that money laundering may have taken place”. He added: “Further inquiries should have been made.”

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Defending Sharif, Nicholas Bacon said that the solicitor had admitted his mistakes. “He should have identified the two clients as PEPs,” Bacon said. He said that Sharif was regularly involved in high-value purchases, and had a long-standing relationship with Marandi – identified at the tribunal as “Y”.

The Aliyev sisters have not responded to requests for comment. Leyla Aliyeva is said to prefer living in Britain to Russia. She is an artist and socialite, and is reportedly friends with Prince Andrew, Lord Mandelson and Elisabeth Murdoch.

Leaked US diplomatic cables suggest President Aliyev is Azerbaijan’s richest person. They add that after coming to power he transferred his pre-2003 assets into his wife’s name. The country’s political system was distinctly “feudal”, the US said, with “a handful of well-connected families” controlling practically all sectors of the economy.