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Dealing with Account Freezing and Account Forfeiture Orders

In January 2018, UK law enforcement agencies were granted new powers to pursue the forfeiture of assets.1 Unexplained wealth orders ("UWOs") initially grabbed the media's attention, but the relative ease with which UK law enforcement can seek and obtain an account freezing order ("AFrO") or an account forfeiture order ("AFO") means that they are used more often than UWOs in practice. This article explains what AFrOs and AFOs are, looks at the statistics behind their use and highlights the potential for such orders to be challenged.

 

Overview of AFrOs and AFOs

An AFrO gives law enforcement the power to freeze funds held in bank accounts2 if the court is satisfied, on the balance of probabilities, that there are reasonable grounds to suspect that the funds in the account are the proceeds of crime,3 or are intended for use in unlawful conduct.4 To use the example of bribery, this would include: (1) bribe monies received by a bank account holder in return for improper behaviour; or (2) funds that had been ring fenced with the intention of being used by the account holder to bribe another person.

The threshold for obtaining an AFrO is suspicion based and therefore low – there is no need for there to have been an associated criminal conviction or even an investigation. Law enforcement's suspicions could be based on suspicious account activity that was initially reported by the account holder's bank under anti money laundering legislation.5 However, banks and law enforcement may develop suspicions about account holder activity that is in reality entirely lawful, which could lead to an AFrO being sought (and obtained) in respect of legitimate funds that will then be frozen until their provenance can be explained.

This is a potentially significant issue for account holders, given that an AFrO may be made for a maximum duration of two years.The period of the AFrO is intended to provide time for law enforcement to investigate the provenance of the suspected funds, while preventing their disposal in the meantime. Once law enforcement start investigating, they may turn their attention to wider issues and other accounts or assets, leading to further AFrOs or similar measures (such as property freezing orders). Applications can be made by law enforcement without notice if there are reasons to believe that notifying the account holder about the application would prejudice law enforcement's efforts to seek forfeiture of funds.7

Where an AFrO has been made, an AFO may follow. An AFO allows all or part of the funds in the account frozen under the AFrO to be forfeited to law enforcement. While an AFrO can be obtained on the basis of suspicion, there is a higher bar for forfeiture. To grant an AFO, the court must be satisfied, on the balance of probabilities, that all or part of the money represents the proceeds of crime, or is intended by any person for use in unlawful conduct.8

An AFrO or AFO can be sought by various different law enforcement agencies, including H.M. Revenue & Customs ("HMRC"), the police, the National Crime Agency ("NCA") and the Serious Fraud Office.9 AFrOs and AFOs are sought and granted in the Magistrates' Court (the lower criminal court in England) and the procedure to be followed is relatively simple. The risk of publicity also tends to be lesser as compared to litigation in the High Court. Where the actions of law enforcement are reasonable and proper, they are also unlikely to be on the hook for any of the account holder's costs related to the application.10 Agencies can therefore see an AFrO as an easy option to pursue, with few downsides. AFrOs provide an opportunity for law enforcement to disrupt suspicious activity with little opportunity cost as compared to a costly and protracted criminal investigation (which has no guaranteed outcome).

 

The increasing popularity of Account Freezing Orders

AFrOs and AFOs were introduced in January 2018. The UK Government has issued information regarding the use of AFrOs:11

  • In 2018/19, AFrOs were used in relation to 740 bank and building society accounts and in respect of funds totalling £94.9 million.
  • In 2019/20, AFrOs were used in relation to 812 bank and building society accounts and in respect of funds totalling £208 million.

The statistics suggest that the amount of money frozen by AFrOs more than doubled in the space of a year and that the number of frozen accounts increased by almost ten percent, although these figures should be taken as approximate; the methodology used is unclear and the degree of overlap between AFrOs relevant to the 2018/19 period and the 2019/20 period is not specified. The NCA issued a press release in August 2019 indicating that the NCA was granted AFrOs covering £100 million held in eight bank accounts which was "suspected to have derived from bribery and corruption in an overseas nation".12 This group of AFrOs would account for much of the increase in the 2019/20 figures, indicating that the rise in the use of AFrOs may not be as rapid as these figures suggest.

Cross agency statistics regarding AFOs have not been released by the UK Government to date, but AFOs are expected to be used less than AFrOs, due to the higher bar in obtaining an AFO, the time it can take law enforcement to conduct an investigation and the possibility of the courts concluding that the funds frozen are in fact legitimate. This is borne out by information obtained from HMRC via a freedom of information request, indicating that:13

  • In 2018/19, HMRC used 60 AFrOs and 14 AFOs in relation to funds totalling £7.9 million and £1.16 million respectively.
  • In 2019/20, HMRC used 166 AFrOs and 67 AFOs in relation to funds totalling £19.5 million and £4.75 million respectively.

 

Challenging AFrOs and AFOs

An AFrO can be challenged by any affected person.14 In the right case, it is possible to either resist an application or to have an order set aside or varied. As stated earlier, the barrier for obtaining an AFO is higher and in some cases, where the account holder can withstand the disruption caused by the freezing of the funds, the optimal strategy may be to prepare for that stage of proceedings.

In a recent case, an account holder successfully challenged an AFO.15 The NCA sought forfeiture of up to £3.2 million of over £5 million held in two bank accounts. The account holder had pleaded guilty to a single count indictment in the United States in relation to the payment of bribes to win contracts. The NCA alleged that the funds in the bank accounts, which represented the account holder's compensation during part of his employment, were the proceeds of crime. The NCA's application for an AFO was dismissed, and the District Judge was invited to make an order for the account holder's costs incurred in challenging the AFO application.

The starting point, where a law enforcement agency has acted properly and reasonably, is that there should be no order for costs.16 However, in this case, the District Judge was persuaded to depart from the starting point based on his finding that features of the NCA's conduct were open to criticism. In contrast, the District Judge found that the account holder had sought a resolution using an evidence based approach. In these circumstances, the account holder was able to recover half of the costs claimed.

This case demonstrates what can happen when law enforcement's use of powers are not subject to appropriate checks and balances. Despite the low threshold and more simplified processes in relation to AFrOs and AFOs, minimum standards must still be met by law enforcement. If an account holder finds themselves subject to an AFrO or AFO, or put on notice of an impending application, they should seek expert advice.

 

1 Under the Criminal Finances Act 2017.
2 Accounts held with a building society are also covered.
3 Defined as property obtained through unlawful conduct for these purposes – see sections 303Z3 and 304 of the Proceeds of Crime Act 2002 ("POCA").  Unlawful conduct, in broad terms, means crime wherever it is committed – see section 241 POCA.  The money to which the suspicion relates must be £1,000 or more per sections 303Z1, 303Z2 and 303Z8 POCA.
4 Section 303Z3(2) POCA.
5 See Part 7 of POCA.
6 Section 303Z3(4) POCA.
7 Section 303Z1(4) POCA.
8 Section 303Z14(4) POCA.
9 Sections 303Z1(1) and (6) POCA.
10 R (on the application of Perinpanathan) v City of Westminster Magistrates' Court and another [2010] EWCA Civ 40.
11 Asset Recovery Statistical Bulletin
12 Account Freezing Orders are largest granted to NCA
13 UK taxman account freeze orders up 177% in a year
14 Section 303Z4(1) POCA 2002.
15 This unreported case was heard by Westminster Magistrates' Court, sitting at Hendon.  The earlier AFrO had not been challenged.
16 Perinpanathan (referenced above).

 

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