Account Freezing Orders (“AFRO”) and Unexplained Wealth Orders (“UWOs”) were introduced by the Criminal Finances Act 2017 (the “CFA”). The act was implemented to improve the UK’s ability to tackle corruption, money laundering, tax evasion and terrorist financing. AFROs provide investigators with time to investigate the origin and intended use of funds subject to the order. They are a powerful tool.
A new iteration of the rules dealing with External Requests and Orders (“EROs”) is designed to provide other countries’ financial crime-linked court orders with powers similar to an AFRO. David Savage examines these new rules.
The Financial Action Task Force (“FATF”) has for a long time recommended that all countries provide the widest range of mutual legal assistance in relation to anti-money laundering and counter-terrorist financing. Through the implementation of EROs, the UK has taken significant steps to harmonise its domestic and international regime for freezing and forfeiting assets suspected of representing the proceeds of crime.
While EROs have yet to be tested in court, what has become clear during the past 12 months is that law enforcement agencies are increasingly willing to use the new domestic powers in the CFA to investigate and recover the proceeds of crime. It appears likely that this trend will continue with the implementation of EROs. This will ensure that the UK provides the widest and most effective assistance to foreign jurisdictions. This assistance is likely to be a detriment to those who find themselves the subject of an order.
The law – AFROs
The CFA amended Part 5 of the Proceeds of Crime Act 2002 (“POCA”), which deals with civil recovery of the proceeds of crime by inserting sections 303Z1 to 303Z19. These sections create the power to freeze funds held in bank and building society accounts, with a view to subjecting them to an Account Forfeiture Order (“AFOO”) or an Account Forfeiture Notice (“AFN”). More information in respect of AFROs, AFOOs and AFNs may be found in our previous article here.
The law – EROs
On 12 November 2019, the Magistrates’ Courts (Proceeds of Crime Act 2002 (External Requests and Orders) Order 2005, Part 5B) Rules 2019 (the “Rules”) entered into force. The Rules update the requirements of the Proceeds of Crime Act 2002 (External Requests and Orders) Order 2005 (as amended) (the “2005 Rules”), which were designed to provide an identical level of international co-operation in freezing and forfeiting the proceeds of crime as is available in domestic cases under POCA. As POCA has been amended over the years, so too has the ambit of the 2005 Rules in order to create parity between those investigating and prosecuting financial crime overseas and domestically.
While the ERO framework broadly replicates the AFRO, AFN and AFOO framework, some notable differences exist. The first difference is that while the domestic framework allows AFROs, AFNs and AFOOs to be made in respect of accounts containing funds that are either “recoverable property” or intended to be used by any person for unlawful conduct, the international framework only relates to “recoverable property”. Therefore, EROs will not be permitted if there is merely a suspicion that the funds held in an account will subsequently be used by a person for unlawful conduct.
The second pertains to the administrative side of the forfeiture procedure. While the domestic procedure allows for the simple provision of an AFN to forfeit funds, in the international context, all cases must be considered by a court before forfeiture will be granted. It is highly likely this is required to prevent abuse of the framework, particularly when considering that, as indicated previously, the burden of proof is low.
The Rules fill a void between the Civil Procedure Rules and the Criminal Procedure Rules, providing a procedure for foreign governments to apply to the UK courts to freeze and subsequent forfeit criminal assets. While the efficacy of the Rules in a foreign context has yet to be fully tested, there is a clear upwards trend in the use of these powers domestically. In the past 24 months, more than 1,500 AFROs have been sought in respect of funds, totalling more than £300m. With London being a well-known centre for criminals to launder their ill-gotten gains, it is perhaps not surprising that the authorities have been relatively quick to flex their muscles.
It will be interesting to see whether further appeals are made regarding the use of both domestic AFROs and international EROs, particularly given the massive potential impact on the respondent vis-a-vis the low evidential threshold required. This will be of even more importance in the international context, where courts will need to scrutinise the background carefully to the application to ensure it has not been made as a result of questionable or political motives.
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